Fear Index VIX indicating Reversal Down, confirming Dow DIA Reversal Up. DIA, GDX

We have a very good picture confirming Bullish Reversal in Dow DIA: fear index VIX is forming a Bearish reversal with potential resolution Down. Dow retest of Low happen with less amount of Fear: market participants were ready to pay less premium for Put protection and Volatility expectation is going Down. For a definite move in the Dow from deflation to positive Inflation outcome next weak Rally must be fueled by this weekend action on key to all things now US Dollar. Fed is fighting Japan style Deflation and flooding the system with the money, in order that all these flood came into real economy you need to return normal velocity of money. Fear and panic is leading to Fire Sell, downward spiral in markets with Dow as indicator is leading to further margin calls, redemption and Risk not taking. Money are stashed at the Fed on banks accounts. Spiral became self reinforcing: panic - fire sell - prices down - more panic etc. Fed can not leave it to "effective market" any more. There is no such thing with Fed in existence and more practical importance is that all economy will be killed by derivatives, Lehman was a turning point which showed that collapse will take down all financial system. Everything is on the table now: turn markets into Inflation expectations and try to liquidate all "bad derivative positions". If velocity will not be returned now in the form of Weaker US Dollar, higher Long term Yield which will lead to steeper curve and Banks ability to make money by lending, Flood will eventually happen, but too late and with much more water when all economy will be submerged under hyperinflation. This money creation and record deficits for years to come already making all things are hardly manageable in US Corp. But there is a chance and it must be taken. Please follow to Us Dollar chart.

Story of those who get caught. How many are out there?

Read the indictment: very good education about investing in modern terms:

http://www.alleyinsider.com/2008/5/bear_stear

Citi C has joined the club of "Financial News Makers"

"Costs linked to worsening consumer credit quality could have a meaningful impact on Citi's results for the rest of the year, Crittenden said." This is the key - what rate hike? Watch out BAC, FRE and AXP.

"UPDATE 1-Citigroup CFO sees big potential Q2 write-downs

NEW YORK, June 19 (Reuters) - Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) could take substantial write-downs for subprime mortgages, leveraged buyout loans and other assets in the second quarter, the company's chief financial officer said on a call with investors.
In at least some of these areas, the write-downs are on track to be smaller than the first quarter, but could still be substantial, CFO Gary Crittenden said.
Costs linked to worsening consumer credit quality could have a meaningful impact on Citi's results for the rest of the year, Crittenden said.
The company is always willing to look at acquisitions, and will make them where it makes sense, but is focusing more on improving its performance, he said. (Reporting by Dan Wilchins; editing by John Wallace) "

RBS issues global stock and credit crash alert, US Dollar is doomed.

What rates raise are they talking about?

What will happen to the dollar if FED will not raise?

Who is going intentionally to crash market in election year? Dollar is doomed, something has to give...

"The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks."

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/18/cnrbs118.xml

Lehman Brothers LEH victim of global warming

Icebergs are melting, so investment banks and their valuations. You can not make banking business without Trust, it is gone and so will the firm...

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7b4C56AD35-A0AA-485B-87D3-81171D8D5207%7d&siteid=yhoof2

Goldman GS rumor

That is why it is called Bear market: any rumor is sending stocks in further wave of selling. Biggest problem with investment banks is that you can not assign any value to them, you can not trust them any more. So when Bernanke is rising rates?

Financial shares wilt on Goldman rumor: investors

Citi C, Merrill MER, UBS UBS Face Monoline losses, more Hot potatoes on SALE

Bernanke is trying hard to talk the market into bull on USD, so far he has succeeded only with killing investment banks. Pour guys: they were hoping to make it without too much attention to the junk they are holding. Now they are facing the music and forced to "deleverage" or fire sell of of their assets. We will be all surprised with the real prices they are getting for all those AAA scam.

June 9 (Bloomberg) -- Citigroup Inc., Merrill Lynch & Co. and UBS AG may post losses of $10 billion on bond insurance after MBIA Inc. and Ambac Financial Group Inc. lost their top credit ratings, Oppenheimer & Co. analyst Meredith Whitney said.
MBIA and Ambac, the world's largest bond insurers, had their AAA ratings cut two levels by Standard & Poor's June 5, which trimmed ratings on more than $1 trillion of securities they guaranteed. The downgrades may limit the so-called monoline insurers' ability to write new policies, putting further pressure on earnings, she wrote today in a note to investors.
``The limited earnings potential of monolines poses a risk to the value of the insurance and hedges on the subprime-related securities provided to the banks and brokers,'' Whitney wrote. ``The collateral damage could be in excess of an additional $10 billion.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWzDAfdNmgOw&refer=home

JP MORGAN CHASE JPM is on fire today like an iceberg and melting

JP Morgan got some fever today, virus must be very contagious and spreading fast. Who would like to hold next hot potato? I will throw some ideas here: Merrill Lynch MER, Freddie Mac FRE, Bank of America BAC, Citigroup C and even best of the breed: Goldman Sachs GS - its immunity is really suspicious.

Do you know how the price for Bear was determined? How much Paulson will agree to throw to shareholders after initial screw up at 2.0 dollars. They have agreed at 10.0, but do you think anybody really knows how much does it worth? It is pure liability for JP Morgan with its toxic trading book and liabilities from SIVs to lawsuits for its hedge funds.

The value of Investment Bank its people and Brand what do you have in Bear case - Brand? Or bunch of guys created that mess.

Lehman Brothers LEH "positive" developments continued.

A lot of spin will be put to work in order to make it positive:

Lehman Loses $2.8 Billion, Plans to Raise $6 Billion

You will make your own decision, here is as always the Trust issue: is it the last write down, is it the last capital rising?

Could company survive if they had announced hypothetical "real write down" of double the announced figures, would capital be still available to them?

We can find some hint in action of more strictly regulated guys like UBS (Used to Be Smart according to some) which are writing down without any end in sight.

Who will go down faster: more shorted Lehman Brothers LEH, more leveraged Merrill Lynch MER or USD?

All banks are build on trust, what kind of trust can you get when system is rotten to the core? Have you ever seen banker or trader bringing his bonuses back? The system itself is build on fraud.

You will tell that it is fraud committed by trader when he builds his positions, hide losses in "off balance sheet entities", mark his winners to his own taste, get his bonus and walk away with it.

Why in the case with investment banks it is considered to be different? They made risky positions, creamed the market by taking swaps without capital needed for proper underwriting, offload trades into SIVs off balance sheets and now are sitting on FED life support even before taken them back.

In case with a trader he will go to prison, sometimes - if he get caught, but what to do with whole system build around this?

You are right: no one can afford whole system collapse. So message will be send when one more player will be taken down, its shareholders punished, trading positions undertaken by FED effectively and majority of losses unwind into this "bottomless" pocket. Market can not be ruined, how can you trade if you can not trust your counter party? All that AAA rated trash need to be sank in one fallen angel, system will get monetary pumping in the amount of at least that of normal banking multiplicator which means 10% of total losses. With some estimations of 1 trillion losses, we are talking here about creation out of thin air 100 billion dollars by FED.

USD is a chosen victim, normal voting fox will hardly notice before they go to Paris for vacation, they are not eating gold for breakfast, so they will be fed with CPI stripped of everything you are paying for. One problem here is oil and imported inflation which is coming back through the same doors where you sending your worthless "money".

But we are not in a business of politics, we are just trying not to get caught in the middle and scratching our head: who will be fallen angel apart from what used to be "reserve currency of choice".

Remarks by Jeffrey M. Lacker. President, Federal Reserve Bank of Richmond
Financial Stability and Central Banks
Distinguished Speakers Seminar European Economics and Financial Centre London, England June 05, 2008

"Maturity transformation raises the possibility that a surge in demands by liability holders to "get their money back" could overwhelm an institution's ability to liquefy the assets in its portfolio.2 This is the traditional story of bank runs, and it motivates, in part, the view I cited earlier that financial markets are inherently unstable. Since banks' assets are less liquid than their liabilities (their deposits), they could have trouble meeting the demands of a large number of depositors to "cash-in" all at once. Knowing this makes depositors likely to run if they think such a large cash-in event is looming. So a run, in this view, can become a self-fulfilling prophecy. This means that a run can occur even if the bank's assets are fundamentally sound, in the sense that if held over a longer horizon the return would be sufficient to repay liability holders in full. The reduction in realized value associated with early and perhaps disorderly liquidation of an intermediary's assets in response to such a run is a deadweight cost that presumably could be avoided if the run could be prevented."

http://www.richmondfed.org/news_and_speeches/presidents_speeches/index.cfm/id=107

We have a party today on the street: one guy Merrill Lynch MER sad to buy another one - Lehman Brothers LEH

What is the reason for the new found happiness, is it housing?

Home foreclosures set record in first quarter

Or credit quality is improving?

MBIA, Ambac May Quit Aaa Battle on Moody's Likely Cut (Update3)

No, it is just one trustworthy guy sad to buy another pal.

Do they need to unwind trading positions, short the hell out of LEH by themselves or just caring about your blue sky and palms retirement - you decide.

Take a break and read another good book:

Full of Bull: Do What Wall Street Does, Not What It Says, To Make Money in the Market (Hardcover)by Stephen T. McClellan (Author)

I hope you get it: nobody knows the value of any investment bank now: one real downgrade in this mirror house and run on another "TOO BIG To FAIL" bank will establish proper valuation in 24 hours.

The real story today was made in Europe when ECB and BOE Hold rates. ECB even sad that they could think about raising next time: for sure they will not cut and now Ben is on the hard place again: another cut and USD will collapse, hold and you have to invite Greenpeace to preserve couple of investment banks for future amusement in Disney Land.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aed5eIhbliJk&refer=worldwide

Global margin call LEH, MER, GS, MWD

Prepare yourselves: global margin call is coming. I hope that all Juniors are already sold from big banks own books. Cash will be the king this summer. Those who can preserve it will get fire sell valuation where it is matters with real hard assets.

If the March low will not hold wave of brutal selling will bring us into Second Bear Leg.


"Three of Wall Street's biggest banks face handing billion of dollars in collateral to their trading partners after their credit ratings were downgraded a notch on Monday, an unwelcome capital squeeze as they scramble to raise more funds.
Credit rating agency Standard & Poor's downgraded Merrill Lynch, Lehman Brothers (NYSE:LEH) and Morgan Stanley (AMEX:MWD) - three of the credit crunch's most prominent casualties - to A, A and A+ respectively, saying their profit outlooks were weakening and more writedowns were possible.
Because the downgrades make the banks less creditworthy, their trading partners in over-the-counter deals (such as credit default swaps or interest rate swaps) can ask them to post extra collateral as security."

http://us.ft.com/ftgateway/superpage.ft?news_id=fto060320081838383098

Banks fear new $5,000bn balance burden

"Accounting changes could force US banks to take thousands of billions of dollars back on to their balance sheets in the coming months in a move that is likely to curb further their lending and could push them into new capital raisings, analysts have warned."


"The off-balance sheet vehicles have been used by financial institutions to keep some assets off their balance sheets, thereby avoiding the need to hold regulatory capital against them."

Very cleaver idea, do I smell some ENRON cooking oil here? Banks have barely "sufficient" capital without this exercise. It means that they will have to raise further capital to accommodate this new risky assets, diluted earnings will go further down, guess what will happen to valuation?


http://us.ft.com/ftgateway/superpage.ft?news_id=fto060320081838383099