again market manipulation in the most pathetic way - the rothschild rockefeller gang looses all subtile measures as they bluntly do not even pretend its a regular market. they got full support by their banksters as they hold up to their end to keep the mergers running. this last minute ramp up of the market on the last trading day was not unexpected but have at least the courtesy to pretend its a real market one could say. desperation comes to mind as we had a heavy volume day. in any way we will have some sort of low soon as the manipulators will suceed short term to trigger another leg and they try to make the 1040 work with agressiv buying but we have a chance of 50 percent still it starts from 990-1000 spx. the job numbers on friday before the long weekend will make the difference but we all know how much those numbers are cooked as well.
Submitted by Tyler Durden on 08/31/2010 15:43 -0500
How do you prevent a 5% drop in a month (which as Credit Trader points out is precisely what the last minute ramp achieved)? A reader explains:
approx 175k ESU0 traded between 3:59 and 4:00 - $9.1B notional. in the 16 minutes between 3:59 and 4:15 just under 300k contracts traded total (12% of full day / overnight volume --- 200% of the previous 5 trading days) for total of $15B notional
And now you know. Beginning tomorrow, the stock market will open at 3:59 pm and close at 4:15 pm . Traders rejoice as this will open up whole new unexplored avenues to kill time during the day with trips to Scores and Baltusrol.
Submitted by Tyler Durden on 08/31/2010 15:08 -0500
In a day in which volume surged to one of the highest total days in all of August, if not the summer, the FRBNY's Brian Sack can claim victory: Dow closed above the ridiculous 10K level, which for some ungodly reason everyone in the administration sees as the Maginot line of the depression. And despite the spike in volume, the market closed virtually unchanged on the day, even as futures go nuts after hours where it has once again become a felony to sell or put on shorts. Confirming that the market is totally, irrevocably broken, the HY index closed at the day's wides, as futures closed at the highs. Calling this robotic farce a shitshow is an insult to shit and to show. And will the last guy out at Liberty 33 please turn off the "buy everything" program currently raging in the AUDJPY. We got the memo: the FRBNY is in charge.
1. The gap was defended once again and markets lost almost all the gains made on this manipulative Friday event which was done with great volume first time on the upside as the strong 1040 support was a good excuse to squeeze shorts. ı still think we are not finished yet as the target remains at 990-1000 SPX befor a bigger upside move can be expected - more on that in tomorrows tech updates.
2.One of the most amazing news is from STRATFOR because their job is to sell sensible intel and to circulate such a story without any foundation could be deadly for their business. I have no doubt that China has huge hidden losses by many sources as the Shanghai gang may have created losses for China to their own benefit. I have a hard time though figuring out how they may have lost this mind blowing amount in traesuries as china is nominally long and should have made a killing. They need to be short like 5 tril and someone who sells that amount will move the market into his direction but to do so as the FED had to generate free profits for banks by a free ride on the curve would be very foolish to say the least. lets see what else we hear the next days and weeks.
excerpt
Rumor PBoC Governor Zhou "John Meriwether" Xiaochuan Has Defected From China After Suffering Half A Trillion In UST-Related Losses
Submitted by Tyler Durden on 08/30/2010 10:57 -0500
Today's stunning if true news comes from Stratfor which has just issued a blast notifying of circulating rumors "in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country." If proven true, this will be the proverbial first rat bailing on the sinking ship. It gets scarier vis-a-vis prospects of US bonds: "The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou." Um, $430 Billion in losses? Hopefully this explains why next month's TIC report won't show any incremental increase in Chinese holdings of Treasuries (and most likely quite the opposite). Stratfor continues: "Although Ming Pao on Aug. 30 published a report on its website indicating that the prior report was fabricated by a mainland news site that had attributed the false information to Ming Pao, rumors of Zhou’s defection have spread around China intensively, and Zhou’s name has been blocked from Internet search engines in China." Even if Zhou is safe and sound in Beijing, the fact that China has experienced nearly half a trillion in losses on its UST holdings is shocking, and means that the US Treasury bubble may be approaching the popping phase.
STRATFOR has received no confirmation of the rumor, and reports by state-run Chinese media appeared to send strong indications that Zhou is in no trouble at the moment. However, the release of this rumor and its dispersion throughout the public is significant, particularly as the Communist Party of China (CPC) is preparing for a leadership transition in 2012.
Chinese state-run media and official government websites have run several high-profile reports about Zhou, which should be seen as a move to refute the rumors. The PBC website published two articles on its homepage reporting on Zhou’s meeting with visiting Japanese Financial Services Minister Shozaburo Jimi during the third China-Japan high-level economic dialogue as well as a meeting with an Italian delegation. Xinhua news agency reported that Zhou told the PBC Party Committee Enlargement Meeting on Aug. 30 it should “continue to implement justice, and strengthen legislative work in the financial system.” Prior to this news, Zhou appeared at the 2nd annual conference of the heads of the Chinese, Japanese and Korean central banks held on Aug. 3, and his most recent public appearance was Aug. 10 for China’s Financial System Anti-corruption Construction Exhibition.
Zhou is known to have lofty political ambitions and is believed to be a close ally to former Chinese President Jiang Zemin, as well as a core figure for Jiang’s “Shanghai Gang.” There has been no shortage of rumors about Zhou’s possible dismissal in the past five years, as he is believed to be associated with several high-level financial scandals. For example, Zhou was rumored to be under “shuanggui,” a form of house arrest administered by the CPC, during the massive crackdown of Shanghai Party Secretary Chen Liangyu in 2006, which was perceived in the country as a crackdown of the Shanghai Gang and part of Hu’s effort to consolidate power ahead of the 2007 power transition. There was also a rumor that he might have been detained following the investigation and arrest of Wang Yi, the vice governor of the China Development Bank, along with several other officials in the financial circle. Currently, several financial scandals are still under investigation, and it is likely that Zhou, as PBC governor and one of the most powerful economic players in the country, could be associated with some cases. Therefore, whether or not the rumor is true at this time, the leaking of this news is very likely to be associated with a power struggle within the Communist Party’s economic hierarchy.
We will bring you more as we get it on this potentially groundbreaking development.
Some math:
Assuming average 6 Year duration on holdings (completely arbitrary), and a 2% drop in rates, means $430 billion is 12% of total notional, so somehow China must be short $3.5 trillion in notional or synthetically. Not good.
So far the price action goes with the script we tested the gap area yesterday to fall back in a 24 h spike. The trendline serves as a perfect resistance and we are heading for the final decline for now towards 990-1000 which should happen fairly quickly now. Today is crucial with strong revised GDP and Bernanke speech expected to give clues for the scale of QE. The charts say we are rather heading for a disappointment and a mini-capitulation. As plenty sentiment readings are oversold another drop of around 5 % will trigger a short covering rally as even Barrons has now eyed the head and shoulder pattern - though its the bigger scale one we rather see a fake out for now. Obama and his puppet masters no that a dropping stock market will be not good for them in many ways as it would also stop the mergers machine starting to run again and they want to sell plenty of GM so they will through PPT into the game early Sep to screw with the shorts once again. For traders I recommend covering shorts around 1000 and below short term.
zerohedge is really excellent in finding those correlations - as expected per yesterday we briefly turned around to test yesterdays gap - tomorrow we should drop again.
excerpt
A Butterfly Flaps Its Wings And The Market Goes Up...
Submitted by Tyler Durden on 08/25/2010 13:47 -0500
No, this is not some new age chaos theory mantra - it is a direct observation of what has recently been, and continues to be the primary source of funding for the market: the ES is now following the 2s10s30s butterfly tick for tick, as stocks no longer have faith that Central banks will do everything in their power to preserve the Ponzi regime. So any move in the butterfly's wings result in an immediate HFT mediated ramp in stocks, which in turn pushes all other risky pairs into the stratosphere. And yes, today will be one of those days where Mr. Brian Sack of the FRBNY's open market manipulation committee, who unfortunately will not be able to make the Jackson Hole meeting this year due to "market conditions" on Wednesday through Friday, will do all in his power to get stocks, bonds, gold and oil all up, now that the economy is confirmed to be in a depression. Incidentally, all those who hope the Fed will announce QE w this Friday, will be disappointed. (reference: Jim Hatzius comments from last night).
Let other people speak today - the following excerpts have to be digested with care as plenty bullshit propaganda is part of it. Fact is we do not have a real market anymore as HFTs and PPT dominate at least 80 percent of much lower volume on average. Still serious money is in the game with all the pension funds who are in a zero interest world now and have anyway not made any money the last 10 years in stocks a lot is at stake. Any serious selling would drop the markets by half and ı am not talking about a crash. we do not trade at any fair equilibrum right now - just to give you one idea
Stocks opened lower for a fifth straight day Wednesday, following a disappointing durable-goods report. Joseph Keating, executive vice president and chief investment officer at CenterState Bank, and David Hefty, chief executive of Hefty Wealth Partners, discussed their market outlooks.
“We’re continuing to see the market trade with the theme of decelerated growth,” Hefty told CNBC.
“We have to have the economy grow and we're not seeing that happen—it’s going to lead us into a double-dip recession.”
In the worst case, Hefty expects markets to pull back 20 to 25 percent with more losses in 2011.
“What points us to that direction is that wages and disposable income across the country is coming down. Housing prices had a rally over the last 12 months or so; however, we’re seeing that tip the other way,” he said.
'Not the Way to Grow'
In the meantime, Keating said there needs to be changes in Washington’s policy in order for the economy to turn around.
“We need to send a message that big government spending, big taxes, big deficits, rule-making is not the way to grow the economy,” he said. “We have to elect people that will bring us back to a smaller-government, more incentive-driven policy.”
Even if the economy performs as poorly as expected for the rest of the year, that may not mean bad times on Wall Street.
Key Points
Stocks often rise even in bad economic times. Some analysts maintain that cheap valuation will provide a boost to the markets in the current downtrend.
In fact, during times of slow economic growth since 1990, stocks have risen twice as often as they have fallen. The trend is important to remember amid a series of GDP downgrades from major analysts and worries that the economy even could fall into a double-dip or worse.
Many major analysts—Goldman Sachs and JPMorgan among them—have cut their GDP projections to below 2 percent for the third quarter and about 2 percent for the fourth. What that means for the stock market, though, may not be so obvious.
"Basically when you look at GDP numbers coming out they usually are not a very good predictor of the stock market," says Sam Stovall, chief investment strategist at Standard & Poor's. "It's sort of the other way around. The stock market tends to predict movements in the economy by six months."
The recent history of economic slowdowns is one of opportunity for stock-buying investors, sometimes in the extreme.
Take 1995, for instance. With GDP trudging along at a respective 1 and 0.9 percent pace in the first and second quarters, stocks were booming. The Standard & Poor's 500
[.SPX1047.67-4.20(-0.4%)]gained 9 percent in the first quarter, then kept the momentum going with an 8.8 percent rise in the following three months.
AP
The 2001-2003 recession also saw good times for the market. GDP grew 1.4 percent in the fourth quarter of 2001, while the S&P rose 10.3 percent; growth was 0.1 percent in the fourth quarter of 2002, vs. an S&P gain of 7.9 percent.
The average stock marketresult on the 18 quarters between 1990 to 2010 when GDP was between zero and 2 percent was a gain of just under 3 percent.
One of the keys to the reverse coordination between the two measuring sticks is that stocks tend to do well when nobody expects it.
"When you have lowered expectations you can have a potentially good rally," says Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati. "It makes sense that at times when you have lukewarm growth but overall expectations are probably lowered, you can have those upward surprises in the stock market."
Stocks even have held their own during times of economic contraction.
Of the seven negative GDP readings during the same time period, the S&P rose three times, including the 15.8 percent gain in the second quarter of 2009 when GDP fell 4.9 percent, and a 13.6 percent rise in the first quarter of 1991 when GDP fell 1.9 percent. The average was a gain of 1.23 percent.
Jeff Cox Staff Writer CNBC.com
"You've got this economic growth piece, but then you've got this other piece which is, 'What do I do with all this money in a money market paying me 0.25 percent?'" says Nadav Baum, executive vice president at BPU Investment Management in Pittsburgh. "That's the dilemma that investors are looking at, and they're starting to realize that 'I'm probably OK to go out and buy big dividend-paying stocks.'"
With the possibility of the US economy slipping back into negative growth posing an increasingly high danger, the notion that stocks can still rise might provide some comfort to equities investors.
Economist David Rosenberg of Gluskin Sheff on Tuesday reiterated his assertion that the US economy is not in a recession but rather a depression. But even he pointed out that stocks rallied sharply for several years during the Great Depression before falling again.
"Even though the GDP number is getting weak, that doesn't mean stocks can't go higher," Baum says. "It's not just a factor of GDP. There are other forces that can help stock prices go up right now. The bigger factor is, 'Where can I do to make the money on my money?'"
S&P's Stovall argues that valuations continue to be attractive based on current consensus earnings estimates.
The current S&P price-to-earnings ratioon a non-Generally Accepted Accounting Principles basis is 14, which Stovall says is a 26 percent discount to the average P/E on trailing earnings on records dating back 22 years. On a GAAP basis, that number goes to 17, which is actually a 36 percent discount to average over the same 22-year period, and is level with the average GAAP basis since 1936.
S&P actually is projecting that stocks could fall on a short-term basis back to a bear market—20 percent drop from the April 23 highs—before shoring up and turning positive. The firm has a 1,190 price target for the "500" in the next 12 months, a jump of about 13.5 percent from the current level. The index has fallen 14 percent from the April high.
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"Unless we expect earnings to actually decline moving forward, rather than advance at a slower pace, I would tend to say that valuations would stop us from seeing anything more than a light to average bear market," Stovall says. "The market is readjusting itself. Maybe we could end up seeing a sharper move downward in the next month because investors want to get it over with.
The DJIA will lose about half of its value over the next couple of years as it follows a Nikkei-like pattern, according to Charles Nenner of Charles Nenner Research.
The NDX broke as expected below the neckline of the head and shoulder with a gap which is a classic to the book pattern and is now running into the short term support in the 1760-80 zone which was our conservative target. The odds are favoring the more extreme target now by the way we reached the current one. The target derived from the head and shoulder pattern is 1675 and our overall target for this leg is 1650 and it should be reached quickly but we might see some tricky moves in between remember its mercury retrogade time. Expect a test of the gap once we reach the 1760 area likely tomorrow before the trend is picked up again 24h later approx. a confirmation for such an mini move will be a day below daily Bollingers today at 1763 that are random details though. Just do not get nervous once you see the countermove when it appears as that will generate a chance to sell if you are not fully positioned.
usdtry is about to break the 1.5310 resistance after we hold a strong support around 1.49. the tl has stayed quite strong although the situation is far from being rosy in real terms. ınflationary pressures are very high despite the official reports and turkey has deep negative interest rates. he relation with the USA is at the edge and a war with with Iran would not be added value.A referendum in 3 weeks about massive changes in the constitution will trigger tension going forward. nothing of all these facts is priced in so far thanks to massive manipulations and smartasses who think emerging markets are the smart play with their potential to decouple. well nobody can decouple from a bankrupt world but the corrupt central bankers keep the illusion alive. target for the usdtry is 1.55-6 short term as the eurusd is heading for 1.25 short term. we might even see 1.60 once again but ı suspect that eur will regain strength again as dollar strength is not an option heading for the midterm elections and for the economic stability of usa as it delivers perfect exits for china to get out of treasuries.
The Comp is trading within its downside trading channel and has build a price pattern one could claim as a head and shoulder pattern with the neckline around 2160. Indeed we have some support in the 2150-60 area and need to break below to gain downside momentum. So far neither a war scenario nor a so called double dip has been priced in or good forbid that we are heading for depression. Ironically we will likely see the adverse effect as the FED and DC will rush to dumb more worthless Dollars on the market to create the deception that things are turning although obviously they do not. Coming back to the technical picture it looks like we will break to the down side and make a quick and dirty sell off down to 2000 before manipulators will trigger another rally fake out. The sell off has to happen within the next 2 weeks actually we can say we need the break to the downside this week otherwise a more complicated price pattern may show.
1. The war noise is rising at both ends and both seem to prepare for it as well. The timing is still very likely right after the mid term elections but a incident needs to be created in order for USA-Israel to strike since they never get a UN resolution with China and Russia veto any such attempt. That incident might occur before the elections to gain public support for such an attack.
excerpt 1
Outside threats from Iran, Syria prompt snap choice of new Israeli army chief DEBKAfileSpecial ReportAugust 22, 2010, 6:20 PM (GMT+02:00)
Defense minister Ehud Barak's snap nomination of OC Southern Command Maj. Gen, Yoav Galant as Israel's 20th chief of staff was necessary - not just to dispel the climate of intrigue among competing generals, but to pull the high command together in view of the preparations to attack Israel gathering momentum in Tehran, Damascus, Beirut and Ramallah - and even in al Qaeda in Yemen. (debkafile gave early warning of these preparations on Aug. 20. Click here for article.)
The general expectation of a US-Israeli strike on Iran's nuclear sites has therefore faded into the background of the threatening stance currently adopted by Tehran's allies, Syria, Hizballah and the Palestinian Hamas and Islamic Jihad. According to debkafile's military sources, Israel intelligence does not have evidence of concrete plans to make good on these threats, but Jerusalem is extremely concerned by the placing of four hostile military forces on the highest level of war preparedness in the last few days and are asking why. For example, Syrian prime minister Naji al-Otari and Abbas Zaki, one of Palestinian Authority chairman Mahmoud Abbas' closest aides, have spoken of a "very imminent" Middle East war; Al Qaeda's No. 2. commander in Yemen, Saeed al-Shehri, released a videotape last week stating that a war between Iran and Israel is about to erupt. He called on all Arab aviators to contribute to the holy cause by crashing their planes on Israeli city centers as did the Al Qaeda martyrs who attacked New York and Washington on Sept. 11 2001. The situation being too incendiary to ignore, Israel's Prime Minister Binyamin Netanyahu and Defense Minister decided the malicious documents traded among the top brass in the last ten days were an indulgence Israel could not afford. They therefore ended the uncertainty over the choice of next chief of staff after Lt. Gen. Gaby Ashkenazi steps down in February 2011. Ehud Barak delivered a surprise notice to the regular cabinet meeting Sunday, Aug. 22 that he had cut short the selection process and named Maj. Gen. Yoav Galant as his candidate for the next chief of staff. debkafile's military sources see five elements with the potential for exploding into a major Middle East flare-up:
1. Iran has taken US and Israeli passivity over the start-up of its Russian built nuclear reactor at Bushehr on Aug. 21 to mean that it can get away with more muscle-flexing and has already factored the reactor which Washington characterized as not immediately dangerous into its military build-up. Sunday, Iranian president Mahmoud Ahmadinejad unveiled an armed unmanned aerial vehicle called Karrar, claiming its range to be 1,000 kilometers - as far as Israel - and able to deliver four cruise missiles. These claims have yet to be independently verified. More locally-made advanced weaponry is promised for this week to demonstrate Iran's independence of outside sources. Its leaders are bragging that Iran will soon take its place among the world's top 50 exporters of advanced arms. 2. The forthcoming Israel-Palestinian peace talks beginning in Washington on Sept. 2 - while generally rated as going nowhere - are nonetheless anathema for Tehran and its radical allies. They are perfectly capable of starting trouble on Israel's borders with Lebanon, Gaza or even Syria to sabotage even the dimmest prospect of a diplomatic breakthrough. There is no telling in the Middle East when an isolated incident may not deteriorate rapidly into a major conflict when the climate is as tense as it is at present. It came dangerously close on Aug. 3, when a Lebanese army sniper shot dead an Israeli colonel precipitating a heavy exchange of fire. 3. Lebanon is on tenterhooks over the nine Hizballah leaders the international court inquiring into the 2005 Hariri assassination plans to summon as suspected perpetrators of the crime. Hizballah's leader Hassan Nasrallah has given the Beirut government due notice that if his top people are surrendered to the tribunal, he will plunge the country in a civil conflict. Hizballah, backed by Damascus, recently began accusing Israel of engineering the murder, so providing themselves with a neat pretext for going to war and avoiding facing the music. Thursday, Aug. 19, all Syrian homeland defenses and emergency services were placed on the highest war readiness for an outbreak of hostilities without further notice.
4. The situation on the Israel's southern borders is as tense as its Lebanese and Syrian frontiers. 5. Iran is expected to take advantage of the withdrawal of US combat troops from Iraq to make a grab for the oil-rich south and send its allies to carry out operations against Israel as a diversionary tactic.
All these reasons have led military sources to indicate to debkafile that the outgoing Lt. Gen. Gaby Ashkenazy may not stay on until February but hand over to Maj. Gen. Galant as soon as the beginning of the Jewish New Year in the second week of September, 2010.
excerpt 2
Israel Knesset Member Declares "We Are Preparing For War"
Submitted by Tyler Durden on 08/22/2010 20:55 -0500
In an interview by Likud Knesset Member Danny Danon, speaking with WND senior reporter Aaron Klein, who hosts an investigative program on New York's WABC 770 AM Radio, the Israeli said that "Israel is preparing for a time of war...We are ready for all scenarios, and we are able to defend our civilian population. I cannot tell you how long we can wait more. But we prefer to wait and see if the international bodies are acting, or [whether] it will be only the burden of Israel, like it was in the early '80s, when the great leader, Menachem Begin, [made] the great decision to bomb the nuclear reactor in Iraq." He concluded: "We don't want this to be a war of Jews against Muslims. It should be a war of Western civilization [against] Iran." Good luck explaining that to 1.5 billion Muslims around the world.
While Israel is hoping for a peaceful resolution to Iran's nuclear ambitions, the Jewish state is also preparing for "a time of war," declared a Knesset member of Prime Minister Benjamin Netanyahu's ruling Likud party.
"We are prepared for all risks," said Likud Knesset Member Danny Danon. "And I think our enemies should know that even though we are speaking of peace, we are getting ready for a time of war, as well."
Danon, the deputy speaker of Israel's parliament, was speaking in a radio interview with WND senior reporter Aaron Klein, who hosts an investigative program on New York's WABC 770 AM Radio.
Danon hinted that Israel may take action if the world does not stop the Iranian nuclear threat, recalling Israel's lone strike on Iraq's nuclear reactor in 1981.
Stated Danon: "We are ready for all scenarios, and we are able to defend our civilian population. I cannot tell you how long we can wait more. But we prefer to wait and see if the international bodies are acting, or [whether] it will be only the burden of Israel, like it was in the early '80s, when the great leader, Menachem Begin, [made] the great decision to bomb the nuclear reactor in Iraq."
Despite his assertion that Jerusalem is preparing to act alone, Danon stressed that Iran is an international concern. He called on the Western world to "take action" against Iran's suspected illicit nuclear program.
"I think we have to take action," he said. "It's about time to take action. It should be the international world and not only Israel. And I expect the administration in the White House to wake up as soon as possible."
Danon said he is concerned the international community has not been forceful enough in its policies toward Iran.
"What we see today is that the Russians, the Americans, the Europeans all say they are worried about Iran becoming nuclear, but in fact Iran is working full ahead, and it's only a matter of months or a year before they will be reaching the point of no return," he said.
Danon stated that any future military confrontation against Iran "should be an international effort."
"We don't want this to be a war of Jews against Muslims. It should be a war of Western civilization [against] Iran," he said.
"The threat of Iran becoming nuclear is a threat for the people who live in the U.S., Europe and Israel." he said. "No one can guarantee that Iran will use its power only against Israel."
And with that, we look forward to another stock meltup tomorrow.
Some more of the cheating techniques as the MSM as they keep reporting the big chunk of cash the corps are sitting on at record levels around 1.5 tril. roughly - well that matches their off the balance sheet debts in the best case.
Another one I have repeatedly mentioned is the corp retirement fund lie as they are allowed to assume that the retirement funds make a fake profit of lets say 10 % per year on money never paid in. Hence 2 fake parameters determine part of the profit reporting every year which is a fairy tale to put it diplomatically - which accounts for 10-15 % of the profits the corporations claim to have made. With interest rates at zero and stocks having lost ground in the last 10 years you can imagine what the real state might be.
This whole PE game is another deception tolerated by DC to put it mildly plus the totally fake bankster earnings. This market is overvalued by many angles but it gets worse by the hour.
Also read the comment segment as the add excellent information especially the graph at the end
About 25 years ago I worked for a few months with a team of deep thinkers who were trying to convert Capital Leases into Operating Leases for tax and accounting purposes. The objective was to get the most optimal treatment; (1) tax deductible amortization of the asset and (2) keep it off the balance sheet so as to hide the true debt level and therefore improve balance sheet ratios. There were strict rules that were supposed to avoid this. But is was a goldmine idea if it could be done. This was early derivative days. Make something look different than what it actually was. I thought it was a dumb idea, so I quit and went to sell junk bonds at Drexel. Turns out the folks involved figured it out and made a bundle selling it. I am still glad I was not involved.
Now, a quarter century later, the regulators are catching up to this. It is possible that changes will be made. If they do, it will have very significant implications. The Economist has an article that sums things up pretty well. Here is the link, some sections of the report:
This new rule, proposed on August 17th by the two regulators (IASB and FASB), has shocked companies everywhere.
The change will make a lot of firms look wobblier: a survey by PricewaterhouseCoopers, an accounting firm, found that it would add about 58% to the average company’s interest-bearing debt.
Many companies are close to their maximum debt limits, and the new rules could push them over the edge. Small wonder they are howling.
Other companies will see their apparent return on capital plunge. Many firms will see their debt-to-equity ratio rise and their ability to borrow fall.
You can look at each company's BS and estimate what the impact of the new rules will be. The article suggests that airlines and retailers will be hard hit. The list of companies with Operating Leases is endless. I would imagine that most of the S&P 500 will be impacted one way or the other. I did look for macro information on total outstanding operating leases and did not find a source. I think we are talking a trillion or so. Does anyone have a source for the big picture?
Watch for a big fight over this issue. Look for GE to be the biggest opponent to any changes. I think they have the most to lose in this.
It makes me laugh/cry to see that it took them 25 years to come to the conclusion that lease accounting was being abused.
Bruce, as someone who spent a great part of his career in the leasing business, I can tell you that about $1.3 trillion in leases is the going industry estimate for the amount of off-balance sheet obligations on listed companies. In my judgment, that number is low by a factor of 2.
by Bruce Krasting on Fri, 08/20/2010 - 09:42 #532800
Thanks for this. 2.6 Trillion. Well that should sink the s&p by 20%. What a joke. The fact is this is already the case. It is just not being reported the right way.
I'm sorry. Their accounting is so opaque that it is literally impossible to estimate. Nine digits is a certainty and the only issue is the size of the first digit. I would be shocked if that first digit is less than 2.
Actually Bruce, let me recant. GECC is one of the largest lessors of rail cars in the world and GECAS one of the largest lessors of commercial aircraft in the world. So if the first number is a 3 or even a 4 I would not be shocked. For a good insight on GE's accounting practices, particularly as it realtes to their accounting for acquisitions in order to maintain their growth and margins, see the work of Charles Ortel who used to be a frequent guest (!) on CNBC. GE's AAaa rating is about as solid as the US's.
Correct. As a point in what I believe is fact, the alternative minimum tax came about in a year when GE reported $6 billion in earnings but paid no Federal income taxes. That was due to their leasing activities. When a company buys an asset and leases it back like GECC does, they get to take accelerated tax depreciation on the asset and shelter their income tax liability with the depreciation. Under the AMT system, accelerated tax depreciation is a "preference item" which is normalized for computing what a corporation "should" have paid under the AMT system. That reduces the value of the tax shelter.
The source on that is a 2005 SEC study. It estimated, by extrapolating from a sample, that "active U.S. issuers" had $1.25 trillion of off-balance-sheet obligations stemming from operating leases.
Thank you for that. The key to the new rules from a GE Capital perspective is that a great many of the transactions on which they act as lessors (not as lessees like the airlines) are "leveraged leases" where they only contributed about 20% of the cost of the asset and financed the rest of the asset cost with non-recourse debt. (The same is true for all of the bank-affiliated leasing companies). The new rules would force them to put this non-recourse debt on their balance sheets with a matching asset that reflects the fact that they have granted a lessee the right to "Use An Asset." You can see that there will be some gigantic balance sheet inflation throughout the S&P 500 and beyond if these proposals are adopted in their current form.
by Bruce Krasting on Fri, 08/20/2010 - 10:56 #532978
You have to love the blogs. I pose a question and less than an hour later comes the answer with a source to prove it. Thanks Tom.
Note that the source is the SEC. I would double that number to $2T.
I found this graph. If you believe it then corporate debt = 50% of GDP or about $7t. Add in another 2T for this and you have a 30% increase. That is a very big change. A bit scarry.
3. Obama has lost almost credit he had when he was elected as his deceptions and lies are very obvious. His game of blaming wallstreet and BP in front of cameras but rather let them get away and even supply support to them in real terms is very obvious to the broad public. the mid term will turn out to be a disaster for America but that is rather a systematic problem as all DC is corrupt if we reduce it to USA as the global political system is corrupt and or run by eletists who only care for their voters to the degree they want them to vote but in a systematic approach is usually does not really matter who you vote for. The system is rotten thats why its produces such a breed of people who work for the shadow puppet masters.
Submitted by Tyler Durden on 08/19/2010 16:43 -0500
The fears of all those who had long believed that the administration, either in collboration with BP or otherwise, had been flagrantly lying about the true situation in the GOM, have been confirmed by The Guardian (via BNO). "A senior U.S. government scientist on Thursday admitted that three-quarters of the oil that was released into the Gulf of Mexico after BP’s Deepwater Horizon spill was still there, contradicting his earlier claim that the worst of the spill had passed, the Guardian reported. Bill Lehr, senior scientist at the National Oceanographic and Atmospheric Administration (NOAA), presented a radically different picture than the one the White House had presented to the public earlier this month. He contradicted his own reports from two weeks ago that suggested that the majority of the oil had been captured or broken down. “I would say most of that is still in the environment,” Lehr told the House energy and commerce committee." So just how many other thing are the President and his crony corrupt "scientist experts" lying about?
4. Sure obama did not create the problems one could say but actually the trouble started with the team he rehired who worked under Clinton. It is not a Bush thing as they try to twist it the biggest part was the deregulation of the the banks which was signed by Clinton but actually summers, rubin and some more of the same democratic rat pack in power now started this mess.
excerpt
It’s Obama Versus Bush as Growth Slows Before November Election
Aug. 20 (Bloomberg) -- President Barack Obama and fellow Democrats have run out of time and tools to generate growth as a historic government intervention to rescue the economy runs up against the limits of the November election calendar.
So the contest with Republicans for control of the U.S. Congress has reverted to arguments that have traditionally defined the parties: the role of spending and taxes.
Democrats are reminding voters that their economic problems started under President George W. Bush, while Republicans are taking aim at the Obama administration’s handling of record deficits and high unemployment. The Bush administration’s tax cuts, due to expire Dec. 31, will be among the points of contention.
“The Republican Party is going to go to the mat to defend the centerpiece of President Bush’s economic agenda, and we know where it got us,” White House communication director Dan Pfeiffer said in an interview, placing the blame for the financial crisis on the Bush administration. The Obama administration wants tax cuts to remain for households earning less than $250,000. The Republicans want the cuts extended for every income level.
The showdown over taxes and policy comes as the economy shows fresh signs of slowing. The Standard & Poor’s 500 Index slumped 1.7 percent yesterday to 1,075.63 after reports showed manufacturing in the Philadelphia area unexpectedly contracted in August and claims for unemployment benefits last week jumped to the highest level since November.
‘Too Late’
“It is just too late to influence how things stand on Election Day,” said Nigel Gault, chief U.S. economist for IHS Global Insight, a macroeconomic research firm in Lexington, Massachusetts. Gault said it can take months for new government spending or tax cuts to affect the economy.
5. Contradicting deception strategies in the MSM as Israel claims to be in peace talks with Palestine. At the same time Iran shows muscle - demonstrating what happens if they are attacked.
Submitted by Tyler Durden on 08/20/2010 07:09 -0500
Nothing like a little geopolitical ruckus to spoil the fun...the fun. Xinhua reports that hours ago, and just a day before the Bushehr nuclear reactor is supposed to go online, Iranian Defense Minister Ahmad Vahidi said that Iran had test fired a surface-to-surface missile, Qiam, footage of which was shown on state television. Surely this fits well as a time slot segue from the recent clip showing mass graves prepared for Iran's "aggressors."
Against all the propaganda out there that the recession is over ı still think we are in the early stage of a depression and the full implication will be clearer after the midterm elections as the Obama boys keep massaging the truth but the mere fact that 2 of his top advisors have left recently at a critical juncture speaks volume about the situation in the oval office.
Here's a dandy trend chart which outlines the problem in case you don't feel like wading through the whole report to develop a Big Picture sense of things:
Ignore the 'extended baseline' model since that is based on lousy-t0-delusional assumptions. The CBO alternative Fiscal Scenario is more meaningful by far: See where it points to bad ---> getting to worse?
In more honest times, we'd be admitting the arrive of Depression 2. Nowadays, it's just a great recession.
If you have Excel open, build your own chart with the Fed's latest Charge-Off and Delinquency rates... freshest data here.
2. I had the same thought myself a few weeks ago especially as the release of the movie was delayed for a few months - talking about the 2nd part of Wallstreet the movie. the timing of such a movie is very interesting as the first one started my career but that is true for an entire generation probably. ı had just missed by a few cents the purchase of IBM puts 2 days before the crash my first investment which never was one as ı called the top at the point standing in front of a Reuters terminal - which was purely intuitive rather than based on any know-how. Well in any case the launch date of the next movie will be in correlation to a market move to be remembered tells me a hunch.
excerpt
"The predictive linguistics out of www.halfpasthuman.com's "Shape of Things To Come" report have this big cloud over the global markets starting around August 24-25th...."
* Wall Street (1929 film), directed by Roy William Neill (released Dec. 1, 1929) Black Tuesday was October 29, 1929. About 33 days between crash and movie release.
* Wall Street (1987 film), directed by Oliver Stone (released Dec. 11, 1987) Black Monday was October 19, 1987. About 53 days between crash and movie release.
* Wall Street: Money Never Sleeps, a 2010 film sequel to the above, directed by Oliver Stone (to be released Sept. 24, 2010). If we go 33 days, something could happen around August 22 (a Sunday) or Monday, August, 23. The average is 43 days of the 1929 and 1987 movie, the minimum is 33 days and maximum is 53 days on a spread sheet.
43 days from September 24 would have been August 12, 53 days would have been August 2, and 33 days would land on August 22.
Again, just some fun with numbers. Odd how it seems to fall on what you wrote, though.
Hmmm...Hindenburg Omen, movie schedules, yep, sure all seems to fit.
on Fri, 08/20/2010 - 09:13
#532685
Bruce, as someone who spent a great part of his career in the leasing business, I can tell you that about $1.3 trillion in leases is the going industry estimate for the amount of off-balance sheet obligations on listed companies. In my judgment, that number is low by a factor of 2.