Michael J. Panzner - 'The Liars and Thieves Are Moving Ahead in This Country'

Nate here - Lately I’ve been talking again about the insolvency of the major banks and how their “assets” have been built largely upon fraud and Mark-to-Model (fantasy) accounting. It is absolutely Enron times a million. This is a Ponzi scheme because it requires ever increasing quantities of new cash to keep it going. It collapses when new cash can no longer service the fantasy that’s been created and passed off to investors. No cash flow, no fantasy.

But that doesn’t stop those who try to justify holding derivatives and mortgages at a model price that is based on default rates and prices of bubble years gone by. Obviously the bubble has burst, but these models are used to avoid taking losses. Losses are in fact so huge that should the banks be forced to mark their “assets” to their current value they would be quite literally unable to claim positive net worth. In fact cash flows have already completely collapsed, that is exactly what the crisis of 2008 was about. The interim “solution” has been to allow the banks to exchange those “assets” to the Fed in exchange for cash (cash backed by the people’s future earnings). Call it whatever you want, Quantitative Easing, Permanent Open Market Operation (POMO), whatever… it’s all the same, and its purpose is two fold: First is to create the illusion of cash flow so that the Ponzi doesn’t collapse, and the second is to artificially buy down interest rates.

But accounting fraud isn’t just a bank thing; it is rampant throughout corporate America. It’s Enron times a Billion.

Corporate “earnings” have become nothing short of a marketing event. “Expectations” are managed not by professional financiers, but instead by marketing professionals who are often promoted to the very top ranks of corporations – CEO’s, for example, now often have marketing expertise as it is more highly valued in this era of spin than is real operational expertise. Why shouldn’t it be? Corporations can set expectations as desired and always “beat” those expectations by using tricks such as reporting “operating earnings” that exclude “one time” events. Of course these one time events occur every single quarter. The financial media spins these expectations to investors who have bought off on the concept that it’s the “beat” that matters, not the actual performance. The industry further spins valuations basing them on some FORWARD looking model – in other words earnings models based upon the performance of financially engineered mark-to-fantasy models.

How much of an influence is this? The chart below is a chart from the “Federal” Reserve Bank of St. Louis illustrating total Corporate Profits After Tax. Note that profits went parabolic as derivatives and Mark-to-Model accounting exploded. Then in September, 2007 FASB (Financial Accounting Standards Board) instated rule 157 known as “fair value accounting,” or what is referred to as Mark-to-Market. Note what happened to corporate profits during this time! Then in 2009 under pressure from the banks, Congress, in turn, pressured the FASB to reinstate Mark-to Model accounting – and just look at corporate “profits” as a result!



Below you can see a chart of Corporate Profits After Tax compared to the S&P 500 price in red:



This same effect can be seen when looking at trailing price to earnings ratio, the only P/E ratio that matters and has been used consistently up until the modern era of spin. Note how Mark-to-Market accounting revealed the true valuation of the market! Then Mark-to-Fantasy is reinstated and the true value of the market is again hidden to obscure reality:



While I’m not an accountant, I have a lot of accounting experience and have had training in the field. What I also have is experience in the military, in my own businesses and investments, and also working in a large corporate environment. My military and corporate experiences opened my eyes to the way the world really works at this point in time. Let’s just say that I have moral and ethical problems with the way things are going. That’s why it’s nice to read a realistic personal report from someone who is an accounting professional and who also possesses a moral compass! Hopefully the next time you are reading a corporate annual report or are being bombarded with what a great value the market is, or how XYZ “beat” the street, you will understand that it is a professionally spun game that may not be entirely on the up and up…

'The Liars and Thieves Are Moving Ahead in This Country'

By Michael J. Panzner

I've lived though more than five decades thinking that people are basically decent but after all that has happened and the many facts that have come to light in recent years, I guess I'm pretty naive.

Indeed, a post by Charles Hugh Smith, author of Survival+: Structuring Prosperity for Yourself and the Nation and publisher of the Of Two Minds blog, entitled "The Rot Within: Our Culture of Financial Fraud and the Anger of the Honest," features commentary by an accountant with decades of experience in high-level global consulting firms and Fortune 50 U.S. corporations that suggests things have truly reached a low point.

"I belong to a large number of finance organizations and sometimes I even assist clients with hiring a finance person. Since I have a lot of experience with finance and accounting, when I am interviewing these people I know when I am getting a BS answer and unlike most BS recruiters I do not steer away from controversy since I am truly looking for the most qualified for my clients and not who is just most marketable to them. After I start drilling down you would be amazed (or maybe you wouldn’t) how many of these CFO’s and Controller types were basically dismissed because they would not cook the books in some manner.

Now maybe I have told you that I was asked to resign from one of the nations largest companies (a company that I worked hard for and saved from bankruptcy and due to my actions had created) in the US because I refused to book a revenue entry for over a million dollars which was unsupported and the CFO (I had been the CFO up until a merger) blew up with me when I asked him to send a memo telling me to record it. Funny, a few years and one acquisition later it melted down as one of the biggest accounting frauds in US history.

My next gig as the CFO for a NYSE company I basically walked in and found what I would consider a $60 million dollar accounting fraud in one day (once again a mark to market issue draining cash flow and sucking the company into a dark hole). Corrected that accounting problem and the company began to prosper but since I thought the board and upper management was so corrupt I left (Chairman of the Audit Committee was found guilty at another large company for back dating options).

The next public company where not only was I the CFO but prior to that a board member, I was basically asked to resign for BS reasons a couple of weeks later after I pointed out what the board was asking me to do was basically wire fraud and of course they backed off quickly and said they would get a legal opinion from our law firm (one of the top 10 in the US) to cover me. In the same meeting our outside legal counsel said he had a problem giving such an opinion and I pointed out that a legal opinion did not keep me from being both civil and criminally liable. It should be noted that this was another company that 2 years before I came in and took the reins as CFO/COO and pulled the company out of black hole of looming bankruptcy and made it profitable in the first time in its history since it went public and then refinanced the company. In summary a year after I left the company had burned through the money I raised and the Board sold the company for nothing.

There is lots of bitterness out there with the straight shooting finance people. Many of them find themselves unemployable. This stretches from banks, Private Equity, Investment Banking, through the large accounting firms (the average partner in the large accounting firms any more is a pathological liar) to senior finance people in organizations. Right before Enron and MCI blew-up, I actually had a BS HR person tell me I was not flexible enough. I wanted to tell this idiot that I knew where flexibility got me and it was an orange jumpsuit. Bankers and Companies only hire the weakest and most pliable senior finance executives they can find.

One other short story. A while back I was at a networking meeting with a large group of CFO and ex-CFO’s. I asked this group how many thought that most CEO’s wanted a weak CFO working for them. Approximately 70% of the attendees raised their hand! You have to remember that the only person who had steady access to the Board is the CFO.

The point, the middle class is becoming torn and frayed and there is real anger out there. The common belief is that only the liars and thieves are moving ahead in this country."

Michael J. Panzner is a 25-year veteran of the global stock, bond, and currency markets who has worked in New York and London for such leading companies as HSBC, Soros Funds, ABN Amro, Dresdner Bank, and J.P. Morgan Chase. He is the author of When Giants Fall: An Economic Roadmap for the End of the American Era, Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, and The New Laws of the Stock Market Jungle: An Insider’s Guide to Successful Investing in a Changing World. He has also been a columnist at TheStreet.com’s RealMoney paid-subscription service and a contributor to AOL’s BloggingStocks.com. Panzner has appeared on or been quoted by CNBC, Bloomberg, The Wall Street Journal, USA Today, Barron's, Reuters, CNN, MarketWatch, BusinessWeek Online, TheStreet.com, Slate, CFO.com, and other print, radio and television outlets. His articles have appeared in Buyside, Stocks, Futures & Options, Management Review, and Business Credit. He is a New York Institute of Finance faculty member specializing in Equities, Trading, Global Capital Markets and Technical Analysis and is a graduate of Columbia University. He regularly speaks to a diverse range of audiences, from small groups of individuals with little specialized knowledge about money matters to gatherings of the world’s top financial professionals, on a variety of economic, business, and investment-related themes.

Must Watch Video on Bank Fraud...

Wonder why the banks are plummeting? They were never healthy in the first place, they were built upon multiple levels of fraud (ht Mr. Guest):

Morning Update/ Market Thread 10/15

Good Morning,

Equity futures ramped higher this morning on more gum flapping from the Grand Puba High Priest Puppet Pumper Bernanke (no animals were sacrificed in the writing of this report).

Oct. 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said additional monetary stimulus may be warranted because inflation is too low and unemployment is too high.

“There would appear -- all else being equal -- to be a case for further action,” Bernanke said today in the text of remarks given at a Boston Fed conference. He said the central bank could expand asset purchases or change the language in its statement, while saying “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.”

He didn’t offer new details on how the Fed would undertake those strategies or give assurances the central bank will act at its Nov. 2-3 meeting.

Of course that sent the dollar straight down then bouncing off support I’ve been showing just above 76, bonds are down, while oil, and gold both rose on his chanting. Today is options expiration, and it was certainly generous of Bernanke to give this money pumping speech 15 minutes in front of the time that’s used to calculate the price of many options. Gee, you would almost think it was planned to help out the largest options holders who just happen to be the Primary Dealers who just happen to be Bernanke’s true boss as they in fact OWN the “Fed.” And surely they must like the current administration for their willingness to go along, why else would they POMO Billions upon Billions in front of the election? Today is also a POMO day by the way. When will the people of America learn that WHO controls the money is FAR and AWAY more important than what backs it. If you want a money system that works for the people and retains its value over time, you cannot have private narcissists in control of creating it.

It was just yesterday that we learned the PPI has risen 4.0% year over year… that’s not enough? Even though we all know their inflation measures are far from accurate, four percent is enough to kill a currency in a very short number of years. This morning the CPI (consumer prices lag input prices) did come in less than consensus at .1% for the month of September when they were looking for .2%. Year over year the CPI is up 1.1%. Here’s Econoday:

Highlights
Headline inflation at the consumer level eased and the core rate remains extremely soft. Although this morning's positive retail sales report should have the Fed happy, the CPI numbers will have the Fed still worried about inflation being too low. The overall CPI in September slowed to a 0.1 percent gain from 0.3 percent in August. Analysts had projected a 0.2 percent increase for September. Excluding food and energy, CPI inflation was unchanged for the second month in a row and came in below the median market forecast was for a 0.1 percent uptick.

The strongest component was for energy, up 0.7 percent in September, following a 2.3 percent jump the prior month. Food also was on the warm side, gaining 0.3 percent after a 0.2 percent rise in August.

By major expenditure components, upward pressure in September was seen in medical care, up 0.6 percent, and in transportation (up 0.5 percent and including a 1.6 percent hike in gasoline). Weakness was in a number of categories: housing, down 0.1 percent; apparel, down 0.6 percent; recreation, down 0.3 percent; education & communication, down 0.1 percent; and "other," down 0.1 percent.

The bottom line is that core inflation is anemic. The Fed will likely want to take out some sort of insurance policy at the next FOMC meeting to ensure that no inflation does not turn into deflation.

Less food and energy the CPI was flat which is perfect in my book. But that’s not enough for the money pumpers, they don’t profit unless everything’s price is going up. Note that price growth does NOT equal REAL growth. They do not care about real growth, they don’t care about employment, and they could care less how many people are on food stamps or are tossed out of their homes. All they care about is JPMorgan’s $4.4 Billion quarterly fraud profit and that the money supply keeps growing. That’s it. And they’ll hook and crook the supply of money higher as long as they are getting their way politically. When they don’t, or when they need something fixed real bad (fraudulent mortgage paper trail), then they will bring the markets down and threaten Armageddon until they get their way.

Is what I’m describing not completely accurate? You know it is, and yet we act as if we’re powerless to take back what belongs to us. We’re not, all we have to do is demand it, but collectively we must at least be aware enough to know what’s happening and to understand what it is that needs to be done. The people must take back the power to create money, it’s that simple. You will not have any form of true Democracy until that occurs.

Retail Sales for September came in better than expected at .6% when the consensus was looking for .4%. This is absolutely one of the poorest measurements in terms of reading the economy. This report should be called “Same Store Retail Sales” as it suffers from substitution bias because it fails to adjust for stores that have gone out of business. Let’s say there’s a strip mall with five stores in it. Four of the five completely fail and go bye-bye… that leaves one store whose business actually picks up because there’s no competition. Since that store’s sales picked up, it would be reported as an increase in sales even though the total amount of sales may have fallen of a cliff and 4 out of 5 workers lost their jobs. This is exactly what is happening and it is why this is such a misleading report. You won’t hear that from Econospin, but here they are:

Highlights
The consumer is opening his wallet wider as the pace of retail sales has picked up. Although auto sales led a September gain, strength is broad based. Overall retail sales in September advanced 0.6 percent, following a 0.7 percent gain in August (revised up from 0.4 percent) and a 0.5 percent increase in July (previously 0.3 percent). The September figure came in above the market expectation for a 0.5 percent increase. Excluding autos, sales rose 0.4 percent, following a 1.0 percent boost in August (previously 0.4 percent) and matching analysts' median forecast. Sales excluding autos and gasoline rose 0.4 percent, following a 0.9 percent surge in August.

Today's report shows the consumer sector apparently in better shape than almost anyone believed-especially after taking into account upward revisions for July and August. The impact on the markets could be tricky today. Although the economy is in better shape than believed prior to this morning's release, there could be negative impact if the report is seen as significantly reducing the odds of further quantitative easing by the Fed.

See how they draw FALSE CONCLUSIONS because they don’t understand what this report is telling them.

The New York Fed’s Survey of Manufacturers did jump this month from 4.14 to 15.73. That is above consensus, here’s the spin:

Highlights
Manufacturing activity is picking up steam in the New York region. The Empire State index jumped to 15.73 in October vs. 4.14 in September. The larger the reading over zero, the greater the rate of month-to-month growth.

And growth is strong in the two key areas of new orders and employment. New orders rose to 12.90 vs. 4.33 while employment rose to a very strong 21.67 vs. 14.93 and 14.29 in the two prior months which were already strong. Shipments jumped to 19.39 vs. September's minus 0.27. A negative is backlog which, at minus 1.67, continues to contract though at a slowing rate.

Strength is confirmed by the six-month outlook where the index jumped nearly nine points to 40.0. This report, which points to a new rise in the manufacturing recovery, has been much stronger than the sister report from the Philadelphia Fed. Yet the indications from this report suggest that wide negatives in the Philadelphia report will at least move to neutral. The Philadelphia manufacturing report will be posted next Thursday.

Last month the New York numbers were better than all the other regions, not just the Philadelphia region. Why do you suppose the NY region would be doing relatively better? Could it be related to that minor little detail of WHO controls the money? Hmmm… where does Jamie Dimon and the rest of the debt pushers live?

Consumer Sentiment and Business Inventory data is released at 10 Eastern.

Below is a chart of the dollar, you can see that with Bernanke’s jaw flapping it pushed the dollar right to the bottom of the channel and it perfectly then bounced of the rising pennant uptrend line I’ve been showing:



I think that the move down in the dollar and up in the Euro and Yen may be just about over for now. If the dollar does break the 76 area, then it will spell trouble for the world, and if it were to drop below 71 it would be a disaster for America. The sentiment is too negative on the dollar right now, so I think we at least get a short term bounce.

Bonds are troubling here. Yesterday there was an undersubscribed long term auction and the Primary Dealers were forced to step in and buy. It is a law that they MUST buy when there is not enough demand for our debt (they created the law). When they do this, they do not use depositor’s money or any such thing, no, they create the money for those purchases from thin air and you and I are thus indebted to pay it back, plus interest. Again, what’s important is WHO. Why would rational people pay private individuals interest for the use of a money system that is supposed to belong to them? Economic mass psychosis I guess.

Here’s a chart of the long bond futures, you can see that it has created a topping pattern and is breaking the uptrend line. Lower on this chart means higher interest rates:



Yesterday we saw what appeared to be capital flight. Stocks were down, the dollar was down, and bonds were down with an undersubscribed auction. Where is the money going when that occurs? Well, much of it can simply vaporize in the same manner in which it came into being, but those who actually sold were likely sending their money overseas. That’s not good as it means all the indebtedness that’s being created for Americans isn’t going to help America, it will be used to create jobs overseas. Hey, as the late George Carlin said, “They call it the American dream because you have to be asleep to believe it.” For those who are awake, WHO controls the production of our money is what is most important.

The VIX sell signal is now confirmed. POMOs aside, the signals in the market say that we are topping. The XLF and the banks were down hard. The overall market cannot rise for long without them, and they are truly zombie institutions, forclosuregate is exposing the rot. It's going to shock a lot of people when the market finally rolls...

Damon Vrabel - Debunking Money (#2): The US Monetary System and Orwell's Animal Farm:

The contents of this video will surprise a lot of people. In fact, this will be news to the vast majority of Americans – sadly including those with Harvard, Yale, and Stanford economic degrees.

Once again Damon is good at clearly laying out the truth about money – a must see and a must share video… one step of understanding at a time.

Debunking Money (#2): The US Monetary System and Orwell's Animal Farm:

Morning Update/ Market Thread 10/14

Good Morning,

Equity futures are roughly flat this morning with the dollar sharply lower, bonds higher, oil higher, and gold reaching another all-time record at $1,388 an ounce.

Our International Trade deficit continued to widen in the month of August, up to $46.3 Billion from July’s $42.8 Billion. Trade gaps must be financed, they are not sustainable over time and we’ve run a historic gap for a historic time. Here’s Econoday:

Highlights
The U.S. trade gap widened sharply in August, largely on nonoil imports but with oil imports also contributing. Exports continued to grow but only modestly. The overall U.S. trade deficit increased to $46.3 billion from $42.3 billion in July. The latest trade gap came in wider than the median market forecast for a $44.3 billion deficit. Exports edged up 0.2 percent, following a 2.0 percent gain in July. Imports rebounded 2.1 percent, following a 2.1 percent decline in July. Nonoil goods imports in August rebounded 2.2 percent, following a 3.0 percent decrease the month before.

The worsening in the trade gap was primarily in the nonpetroleum deficit which grew to $35.9 billion in August from $33.2 billion the previous month. The petroleum goods gap expanded to $21.9 billion from $20.8 billion in July.

You know, it’s funny because the latest Export and Import figures for September incorrectly pinned the movement on falling oil prices – yet they were up sharply in September. And here we have rising oil costs pinned for a deficit in a month in which oil prices actually fell. And this goes to show you that the people creating the data and assembling the reports are either incompetent or they are flat out making it up. I don’t know which, but what I do know is that I don’t trust the data coming from our own government. Yes, I believe the “Fed’s” influence is causing massive distortions in the reporting of our data.

Speaking of distortions, the PPI reportedly rose in the month of September by .4%, the same as in August but much greater than the consensus which was looking for .1%. Year over year PPI rose from 3.0% to 4.0%:

Highlights
Producer price inflation was mixed for September as food prices kept upward pressure on the headline number with energy also contributing. The overall PPI growth rate remained elevated at 0.4 percent in September, matching the August rise and well topping the median forecast for a 0.1 percent increase. At the core level, the PPI remained sluggish with a 0.1 percent gain-the same as in August and equaling expectations.

For the latest month, food jumped 1.2 percent after dipping 0.3 percent in August. The energy component rose 0.5 percent, following a 2.2 percent jump in August.

Weekly Jobless Claims rose to 462,000 last week with the prior week revised higher yet again to 449,000. This number is yet another one in the same horrific range. Remember that we rallied last week on this report despite it being really no improvement at all and once again it’s proven to be no change in trend. Here’s Econoday justifying it for the masses:

Highlights
After improving five of the last six weeks, initial jobless claims rose 13,000 in the October 9 week to a higher-than-expected 462,000 (prior week revised 4,000 higher to 449,000). The Labor Department had to use estimates for five states due to administrative delays tied to this week's Columbus Day. The four-week average, up 2,250 to 459,000, ended six straight weeks of improvement.

Continuing claims fell substantially in the October 2 week, down 112,000 to a recovery low 4.399 million. Yet improvement here reflects, to an uncertain but probably significant degree, the loss of benefits. Those on emergency and extended benefits both fell. The unemployment rate for insured workers is down one tenth to 3.5 percent.

Columbus Day clouds the initial claims results which will likely be expected to fall back in next week's report. The outlook for the jobs market remains uncertain.

The jobs market remains uncertain only for those who fail to recognize the structural debt saturation condition of our economy. I do note that the number of people drawing Emergency Unemployment claims fell below the 4 million mark, this is due to a large number of people running out of even those extended benefits. It is a tragedy, not a sign of improvement and it means less money coming into the economy.

This morning it was also reported that repossessions and foreclosures hit yet further record territory:

NEW YORK (CNNMoney.com) -- Bank repossessions and foreclosure auctions hit record levels in the third quarter, RealtyTrac said on Thursday.

372,445 foreclosure auctions were scheduled in July, August and September, while 288,345 properties were repossessed by lenders over the same time period.

Overall foreclosure filings edged up to 930,437 in the third quarter, a 4% increase from the previous quarter. One in every 139 homeowners received a foreclosure filing during those three months.

Bank repossessions, or REOs, also are on the rise. In September, a record 102,134 homes were taken back by banks. It's the first time repos have topped 100,000 in a single month.

Of course since foreclosures have now been widely halted, this figure will begin to come down but since they represent such a large segment of the market now sales will also have to come down. There was a ton of activity on the “foreclosuregate” front yesterday. The state of New York halted all foreclosures and subpoenas have been sent by the State of Florida. This is not just a foreclosure problem, the root ill lies in MERS and the way in which recording and title laws were subverted in order to expedite securitization. Fraud was a part of this process and it has HUGE ramifications for the real estate and banking industries going forward. If you are considering a real estate purchase, you have to ask yourself if the system has been fixed? Has it? The answer is NO.

Yesterday the word was fantasy as I discussed mark-to-model accounting and fraud perpetrated by the banks on the entire mortgage and investment industry. Corporate earnings are up solely due to fraud, none of the fundamentals have changed. Despite that fact, the psychology in favor of stocks is reaching unbelievably bullish extremes. People like me, who remain consistently bearish, are called out for not buying into the fraud. To me that’s simply another sign of the psychology extreme, it happens every time we rally and is yet another marker that we are very near a significant top as that sentiment has reached a crescendo.

It’s true that we are debasing the hell out of our currency. Yesterday the “Fed” released their current month’s POMO schedule and it is simply frightening. $32 Billion in just the next 3 weeks beginning tomorrow just in time for Options Expiration and the Friday afternoon front-running of the Monday morning HFT ramp job. You can see the schedule here: NY Fed POMO Schedule.

Simple question… if the economy is improving why do we need to POMO more than $10 Billion per week and why all the talk of QE2.0? The answer of course is that the economy is not improving, it’s getting worse. In fact the major banks are INSOLVENT, they are sitting on top of “assets” that are not worth anything near what they are being carried on the books, and they are guilty (in my opinion) of creating fraudulent mortgage paper and defrauding investors. Thus the “Fed,” who IS THOSE SAME BANKS, is creating money in an attempt to hide their fraud from you and the entire world. Fraud to cover fraud.

It’s not working and it will never work. The only thing they possibly can accomplish, if we’re stupid enough to leave them in power, is to further debase our money. The end result will be the same. Just look at what occurred in Zimbabwe. For a time – about a year – they had the world’s best performing stock market all the while the people literally were starving. So, how did the owners of Zimbabwe stock fare in the end? Uh, huh, that’s what I thought – their paper was worthless.

And what are the parallels between us and them? You say we are the world’s “reserve currency” and that it can’t happen here? Do you see gold priced in dollars zooming to $1,400 an ounce? Have you noticed the price of oats in dollars double in the past 5 months or the price of wheat or corn? Are you aware that there are over 40 million Americans on food stamps? Sure, the stock market is going higher, are you going to time your exit perfectly in a market built upon fraud and money printing?

Warren Buffet thinks stocks are a way better buy than bonds. Warren tells you that you must “know your business.” Of course he owns Wells Fargo and I’m wondering if he was aware that his bank was in the business of laundering drug money or falsifying foreclosure documents and very likely defrauding investors? And even bears like Marc Faber think that owning stocks might be better than owning other “assets.” That’s fair, but he bases that opinion on the fact he sees either continued monetary weakness or rising interest rates. And I would simply ask him how did that work out for stock holders in Zimbabwe, and if rates go up how will that affect a debt saturated economy and corporate earnings? So there is no easy answer and the “Fed” still unwisely is in control for now and thus gold continues to soar. Personally, I would rather own physical gold and silver than to own fraudulent based paper, but I do not believe higher stock prices are in the cards regardless. In fact I think stocks crumble, all the technical markers are there.

Those who believe the “Fed” can continue to hold it up will be mistaken, I believe, as the “Fed” is being pressured by forces not within their control. In fact there are signs that more capital flight is occurring – that is money is simply leaving the country. Printing more money will only make that problem worse. They can stop printing money, but then something somewhere has to give… and there in lies the rub. The currency markets are far more important than stock markets, and the bond market is also far more important than the stock market. So, if you’re a decision maker, which one are you going to sacrifice in the end? I know that everyone thinks it will be the dollar that is sacrificed, but I think we are already nearing the maximum amount that it can be without severe other side-effects. We’re already seeing oil in the economic danger zone, food is spiking, precious metals are zooming, and money is fleeing the country. No, the current trend is not sustainable.

Just last night the dollar continued its collapse and nearly reached the 76 level that represents the bottom of the up rising pennant trendline as well as the bottom of the current down channel. This is a highly likely place for the dollar to find support. Should it not hold, the target is 71/72ish:



Should that pennant line break, it will indicate that a storm is in progress:



The Yen continues to strengthen while it rolls out of a descending wedge. This is quite unfavorable to the Japanese and will be very unfavorable to the U.S. dollar if it continues:



Yesterday the market was touted all day long as being higher based upon the earnings of INTC, JPM, and CSX. Let’s look at the charts…

Intel opened higher and then collapsed producing a waterfall event and a very bearish engulfing candlestick – note the breakdown volume confirming the move lower (yet the supposed “breakout” in the indices was not on breakout volume):



JPMorgan also closed the day lower on very heavy volume, and is gapping lower this morning:



CSX was the only one to gain on the day, zooming higher on extreme volume that often marks turning points, while creating a potential shooting star way above the upper Bollinger band.

The price reaction to these earnings “beats” tell us a ton about what has been priced into the markets. We have more reports coming, it will be interesting to watch the price reaction as these reports come out. Remember, my opinion is that the financial earnings are nothing but fraud, and the non-financials are rife with game playing as well, to include reports based on operating earnings that exclude more and more “one time” write downs, and forward estimates designed to produce “beats” so that positive psychology is created even if earnings are lower.

Remember, there are three aspects to the markets that must be analyzed. They are the fundamentals (bad and based upon fraud), the technicals (over extended and divergent like mad), and then there is the psychological. Let’s talk about some of the extreme sentiment indicators…

For starters yesterday produced an extreme number of new 52 week highs that was above 400. Those numbers do not occur at bottoms or even in the middle of bull market runs – they occur at tops. Apple at $300 a share? Google at $550 a share? Come on… does that even pass the basic sanity test?

And at those levels insiders are selling like CRAZY – some of the highest insider selling in history is occurring at this time, as in right now.

Money continues to flow OUT of mutual funds, yet mutual fund managers are more bullish on stocks than ever!

Here’s a chart showing that sentiment in Europe, as measured by Sentix (a European composite), is at all-time bullish levels!



The Put/Call reached a very low level yesterday showing severe complacency:



The VIX:VXV ratio is coming off an all-time low, I showed you just yesterday how well low points in this indicator correlate to market peaks:



Yesterday the VIX did close back above the lower Bollinger band thus producing yet another market sell indication. This morning prices are back inside of the large pennant:



This VIX signal represents extreme complacency on the part of investors. The sell signal works because it reads the complacency and then sees a return to a more normal range. Two in one month is extremely rare, I personally do not ignore these signals, they are highly reliable indicators. Just because the last one did not produce instant results doesn’t mean that the second one isn’t going to work.

Sentiment extremes mark turning points because trades cannot mathematically continue once all the players are invested in the same direction. While I realize that I sound like a broken record and that prices have continued to rise, I can tell you that I have enough experience in the market place to know what’s real and what’s not. The markets are broken, our economy is broken, and yet sentiment is at an extreme. Don’t shoot the messenger, I would gladly fix it if given the chance. Beware the low spark of high heeled boys...