Business – Economics – News

I see why having a coordinated response from a economic zone is key when so many nations sharing a single currency (Euro). It does water down any effectiveness on decisive action during any financial crisis when a single and important nation takes a abrupt stance on its own accord on such short notice.  With that said, read below:

What troubles me is this unified stance against Germany’s decision to ban naked shorting of various financial instruments.  Shorting in general, even though it is frowned upon in the mainstream press and as counter-productive, serves a very important purpose in our financial markets.   If you are allow people to “go long” (bet on price appreciation) then you have to also allow someone to take the  other side of the bet as well for a price decline.

The process of shorting is simple, you borrow a financial instrument at a certain price and getting the proceeds (money) from that trade right then with the promise to replace the same instrument at a future date.  You make your profit if it declines in price so you can purchase the same amount for less.   Conversely, if it rises in price then you would take a loss.

The problem with allowing naked shorting, is that instead of actually borrowing the asset, you just create it from thin air and then go short.  This gives a negative bias when looking at different options on how to invest or speculate in a asset class.   This serves no good purpose in our markets, period.   Normal shorting has a nice benefit that when you cover your short (closing the transaction by repurchasing the asset), you actually increase the price because of the buying produced by the short selling.   When you are naked selling, these are more likely than not, just entries on some market makers books and they just close out the transaction and dispose of the artificially financial asset or if they are then they just committing fraud by introducing a asset that didn’t actually exist normally.

A European Commission document said EU states have created problems by reacting very differently to market fluctuations in eurozone government bonds — such as Germany’s move to ban while other nations did nothing. It says different attitudes limit the effectiveness of any move.

Instead, it suggests that any ban should be coordinated with a new European markets authority, due to be set up by the end of this year, which could hold talks with all national supervisors in the EU.

It also proposes that the ban could exempt market makers and shares whose main markets are outside Europe — which could allow European investors to continue trading on U.S. markets.

It also wants traders to give regulators more information on the short positions they hold — which would allow supervisors to decide if a large build-up of financial bets could cause a risk to the entire market. Large positions could be made public, it says.

The EU is asking whether regulators should seek information on significant net short positions in EU government bonds to monitor whether they are “creating disorderly markets or systemic risks or are being used for abusive purposes.”

Analysis: These types of actions call into question what the real goal of our markets are.  Naked short selling obviously serves no purpose in a fair and transparent market.   Very questionable that so many experts came out against this action by Germany when it was a very sound course of action.   Using the reduction of liquidity argument against fake financial instruments is a straw-man defense and does not have a sound foundation in the large scheme of things.  If you want to short and take the risk in that bet, just do it the old fashion and honest way.

This interesting article was brought to my attention and I wanted to give Dr. Kelly’s (R.I.P) situation some light because it looks like it will not until atleast 2080.  The Daily Mail has reported that David Kelly’s autopsy findings will be kept secret.  If you don’t know who David Kelly is or why this is important, let me give you a little background.

David Kelly was an employee of the Ministry of Defense in the United Kingdom.  It was reported that Dr. Kelly was about to testify in front of their Supreme Court as part of the Chilcot Inquiry into the Iraq War.  He was widely reported to have evidence that their was disinformation produced that supported  weapons of mass destruction in Iraq as a pretext for war against that country.

It has come to light that there was not WMD’s in Iraq.  What makes this important is that Dr. Kelly was found dead right before his date to testify.  The official cause of death was suicide by cutting his wrist with a blunt gardening knife.  Many people have called foul-play and a cover-up.  It would be easy to dismiss this as a conspiracy theory except for the simple fact that the UK government has used the Official Secrets Act to put all details out of the public view for a massive 70 year (yes, seven decades).

So if this was a real suicide then why keep all details to the autopsy secret?  Clearly this is a cover-up and it strongly leads to the fact that Dr. Kelly was most likely  murdered and if that was the case and they are not doing a normal investigation into it, there may be strong connections to someone in the government.  If not then they need to come clean and put this issue to rest.   Tragic.

Tonight, Dr Michael Powers QC, a doctor campaigning to overturn the Hutton findings, said: ‘What is it about David Kelly’s death which is so secret as to justify these reports being kept out of the public domain for 70 years?’

Campaigning Liberal Democrat MP Norman Baker, who has also questioned the verdict that Dr Kelly committed suicide, said: ‘It is astonishing this is the first we’ve known about this decision by Lord Hutton and even more astonishing he should have seen fit to hide this material away.’

The body of former United Nations weapons inspector Dr Kelly was found in July 2003 in woods close to his Oxfordshire home, shortly after he was exposed as the source of a BBC news report questioning the Government’s claims that

Saddam Hussein had an arsenal of weapons of mass destruction, which could be deployed within 45 minutes.

Lord Hutton’s 2004 report, commissioned by Mr Blair, concluded that Dr Kelly killed himself by cutting his wrist with a blunt gardening knife.

Analysis:  This type of action can not stand in a democratic and free society.   The more we are held back the truth when the official story is told to be straight forward, the more governments discredit themselves and they should not be surprise why people are skeptical and call conspiracy around all corners.  The truth is easy to tell and stand behind.  Lies are more difficult and usually breed more lies to cover your old lies.  In the end, everything comes to light either in fact or public opinion.

We should not be surprised that Goldman Sachs is using the sheer complexity of their deals and data to obscure any fraud and wrong-doing.  It is quite arrogant that they would send them 2.6 billion pages of electronic documents as kind of way of flipping the bird and saying, “okay, you wanted the truth, here you go”.  We can not expect them to come forward and tell us how they held back or provided any misinformation.

This looks to be a multi-trillion dollar fraud and there is a paper trail but it will be large and complex.  The federal commission also stated in the LA Times article that complied a list of all instances where information requested from Goldman Sachs has not been provided or was simply ignored.

The panel, formally called the Financial Crisis Inquiry Commission, said it resorted to the subpoena after Goldman responded to an initial request by sending a massive amount of electronic documents — the equivalent of 2.5 billion pages — without saying where in those documents the answers to the commission’s specific questions might lie.

“We did not ask them to pull up a dump truck to our offices to dump a bunch of rubbish,” commission Chairman Phil Angelides told reporters during a telephone conference call.

A Goldman spokesman said, “We have been and continue to be committed to providing the FCIC with the information they have requested.”

The commission provided a list Monday of the numerous instances since January of this year when Goldman did not respond to requests from the commission, or responded late or with incomplete submissions. It also said it had been stymied in efforts to get interviews with key Goldman executives

Analysis: If we expect to get to the bottom of this huge financial crime, we are going to need to commit a vast amount of resources to have independent researchers actually sift through this mountain of evidence to find facts that support a fraud and possible cover-up.  People need to be held to account and if we are serious then we need to step-up so the correct precedent is set, penalties assessed and criminals put behind bars or we might as well start counting the days til the next massive financial crime to be committed and believe me, it will be much larger next time and we might not walk away in tact from it.

This is serious language coming from Centre for Economics and Business Research (CEBR).  They basically have told Greece that if they don’t leave the European Monetary Union, drop the Euro as their currency and devalue the new Greek currency, they would not escape this “debt trap” as they referred to it.  First off, telling a country that default is their best option is very strong language for any experts to use when they are talking about a countries bonds.  Once this new currency is put into effect, they are calling for a immediate 15% devaluation to get Greece back on track.

They just underlines the dire situation in the Euro zone right now.  It looks like the contagion has spread to Spain as well.  Spain lost their “AAA” credit rating last week as well.  Now that this investment-grade status is gone, we will see investors start to hammer their debt as well by slowly driving up their interest rates they will need to pay to finance their debt.  Not too mention Portugal and Ireland are also in the cross-hairs of the bond vigilantes.

This does not bode well for the Euro, it is still near its lows and with news like this, it will most likely make more lows before it gains in value.  I am looking for the Euro Zone to prune its currency of the weakest countries if they intend to keep a Euro viable as a currency.

The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.

Greek politicians have played down the prospect of abandoning the euro, which could lead to the break-up of the single currency.

Speaking from Athens yesterday, Doug McWilliams, chief executive of the CEBR, said: “Leaving the euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in euros, this would raise the debt from its current level of 120% of GDP to 140% overnight.

Analysis: Euro is on its last legs and if they don’t do something dramatic, we will be reading about maybe a country like Germany or France dropping out and they would be the last nail in the Euro’s coffin.

I am still in awe to the huge drop and rise in the U.S. equity markets.  It looks like it might of started with Procter & Gamble along with other Dow component stocks.  They went into absolute free-fall, wiping out over $1 trillion dollars in market capitalization and a fall of almost 1,000 points on the DOW Jones Industrial Index.  Nightly Business News said a rumor was that a trader did a $16 billion dollar trade instead of a $16 million dollars.  This seem implausible that this was the cause, I would hope there would stops in place to prevent someone that didn’t have that size of a position without actually having those equities available.

My thoughts after hearing all of the damage control and in my opinion jaw-boning propaganda is that their was some seriously sensitive automated computer trading programs and after the large fall earlier in the day, some serious technical levels were broken and they triggered these high frequency trading computers to start selling and this triggered a cascading effect in the markets.  How is this “innovation” in financial markets healthy?  What happened at 9,977 on the DOW that made them turn around and shoot straight up?  Something fishy is going on and some light needs to be shed on this subject.  With Greece in peril and the markets up so dramatically when governments are running huge deficits and unemployment is still in the double digits, maybe this was not a mistake.  I just watched the COO of NYSE say that was obvious because of the rise in stocks so quick that it was a glitch but then the Nasdaq said it was a lack of liquidity according to Bloomberg TV.  Something is not matching up here, we need answers.

Computerized trades sent to electronic networks turned an orderly stock market decline into a rout, according to Larry Leibowitz, the chief operating officer of NYSE Euronext. Nasdaq OMX Group Inc. canceled trades in 286 securities that rose or fell 60 percent or more.

While the first half of the Dow Jones Industrial Average’s 998.5-point intraday plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television.

“If you look at the charts you can see fairly clearly where the trades came in,” he said from New York. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split-instant because there really was no liquidity in electronic markets.”

The selloff briefly erased more than $1 trillion in market value as the Dow average tumbled 9.2 percent, its biggest intraday percentage loss since 1987, before paring the drop. The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission are reviewing “unusual trading” that contributed to the plunge.

Analysis: Even if this was a mistake, technically we are due for a major pullback and it has begun.  Trade at your own risk.

Investors are smelling blood on the water for the weaker European Union countries.   With Greece, Portugal, Ireland and Spain in the cross-hairs, it doesn’t look good.  Standard & Poors has been reviewing their debt situation and they have been downgrading accordingly.   In my, Greece has a large bond payment coming up and investors are skeptical they will be able to pay it back.   They are essentially paying credit card rates (10-15%+) for borrowing funds.  Germany’s Chancellor is correct that if the EU and IMF do not step in and support Greece, their failure will be the catalyst to bring the world economy down again.

European Central Bank and IMF officials are negotiating a three-year fiscal authority plan with Athens as a condition to release emergency loans to debt-stricken Greece.

“I think the handling of the Greece case shows that everyone knows we cannot allow the same situation with countries as with Lehman Brothers,” she told a news conference.

Earlier, IMF Managing Director Dominique Strauss-Kahn said it was impossible to give any details on what would be finally agreed with Greece until the talks with Athens were concluded. He declined to say how much aid could be released.

Analysis: This is the contagion and it is spreading.  We will see world markets sell-off and then U.S. government and corporate bonds will rise as investors will seek a safe haven…again.  This means that the U.S. dollar will rally hard and gold will spike and then stabilize.  Oil will most likely decline if these fears continue and that affects demand.