www.gs.com

Did you double check to make sure you landed on a bank’s website?

Do they really think this will help improve their image? Making their charity efforts the focus of their front page with a slick presentation might give some people the message that it is all for show.

It’s as if they don’t realize that the public considers them a tad disingenuous. Their website must have cost a fortune in design, development and consulting fees, but results completely missed the mark.

Scroll over the nav bar at the top. Under “Our Firm,” where in a typical website you might a find a rundown of products and services or a company history, you see instead “What we do for economy,” “Stimulating economic growth,” and “Strengthening the financial system.” Another tab is “Citzenship,” and another is “Ideas,” such as “Education and health” and “environment and energy.”  Ugh.

This whole effort reflects enormous contempt for the public — throw some money around, put ethnic looking women on your front page, and people will forget about the mortgage bubble, the theft via AIG, and the possibility that the sources of your $100M in daily trading profits might not be not entirely ethical.

Graphite here.

Although it’s easy for this kind of contrarianism to turn into unhelpful navel gazing, on Friday the level of despondency seemed to hit a new high (or is it low?) on the bear blogs. Posts and message boards are chock full of buzz about perpetual asset inflation powered by the Fed’s magical money machine and an ample supply of that tricky thing called “liquidity.” Visions of the 1990s and 2000s are offered as proof that the market can disconnect itself from any fundamental or technical backdrop and power to endless new highs. The January highs are trotted out as “points of no return” for the bears, as though the market is guaranteed to launch higher if it manages to cross that threshold. And with the market seeming to shrug off every negative news item from sovereign defaults to bank failures to continued hemorrhaging of jobs in the U.S., traders are unable to conceive of a “trigger” that could send stocks lower.

Meanwhile, take a step back and look at the technical picture the market is presenting at the moment. After a several-week buying frenzy in stocks, we have new highs in the high-beta Nasdaq and Russell indices, unconfirmed (so far) by the Dow and S&P. Friday’s 5:1 NYSE a/d ratio was cause for concern, but hardly a match for the 35:1 down day seen in the February selloff. The 17 handle on the VIX shows complacency in the option market. Bonds and the dollar remain very well bid, despite the imminent end to Fed purchases and the best efforts of politicians to dismiss the euro’s and pound’s woes as the unnecessary manipulation of nefarious speculators. After a period of sideways movement the currency DSI sentiment has backed off somewhat from its recent extremes. Sterling in particular seems to have taken over whipping boy duties from the euro for the moment, and may have just finished a failed breakout from a channel on the 1-month chart. I have entered a short position with a stop above the upper channel line:

Source: Interactive Brokers

If it tops here, crude oil will have put in a right shoulder on a ponderous 6-month H&S formation. A close today below 81.79 in the April contract would also create a bearish outside reversal bar (not shown):

Source: Interactive Brokers

Over the weekend Marketwatch ran a segment prominently touting “The Year of the Bull,” complete with an upward sloping line starting from March 1, 2009.

If immediate new highs are in store for the major indices I would expect them to be muted at best, following Friday’s buying frenzy and the outpouring of bullish sentiment and resignation from the bears. If all the indices turn and fail right here I would think we will put in a stronger, swifter leg to the downside than we saw in January. And with entries in various markets offering tight, well-defined stops at multi-week highs, risk/reward favors the battered bears for now.

Of course this man doesn’t care a whit for the truth, so he is either an economic ignoramous (quite probable for a French lawyer and politician) or just plain lying when he makes statements like the following:

“If we created the euro, we cannot let a country fall that is in the eurozone,” said Sarkozy yesterday before a meeting with Papandreou in Paris today. “Otherwise there was no point in creating the euro. We must support Greece because they are making an effort.”

EU leaders have so far refused to give financial aid to Greece and have ordered the government to cut its budget deficit, the EU’s highest, on its own. While Papandreou says steps taken this past week to slash the shortfall warrant more help from the EU, German Foreign Minister Guido Westerwelle said yesterday that his country is “not going to write a blank check.”

Of course, a Greek default would strengthen the euro, since billions in balances would go poof, thus increasing the worth of the remainder. A bailout here will lead to bailouts in every Mediteranean country, quite possibly including his own. Pray tell, how will creating hundreds of billions more euros firm up their value? On the other hand, if every nation in the eurozone but Germany defaulted and then quit the euro for their old pesos, lire, francs and drachmae, it would be very strong and the Germans would just rename it Deutschemark.

Papandreou is visiting Berlin, Paris and Washington after his government passed a 4.8 billion euro ($6.5 billion) austerity package on March 5. A poll published in To Vima newspaper today showed 51.9 percent of voters support him even after the cuts, compared with 47.5 percent who don’t.

Sarkozy, who didn’t say financial support would be forthcoming, will meet Papandreou in the Elysee Palace around 6 p.m. local time. They will brief reporters afterwards.

Watch out, Americans. You don’t suppose that this American-born, Harvard-groomed oligarch is trying to take your money to prop up his racket, do you?

Final Resort?

Papandreou is indicating that Greece may still need financial support and is prepared to turn to the IMF if necessary, calling it a “final resort” on March 3.

That prompted a rebuff from European Central Bank President Jean-Claude Trichet a day later because finance officials fret such a move would signal the EU isn’t capable of solving its own problems. Italian Finance Minister Giulio Tremonti is nevertheless refusing to rule out a role for the IMF in any aid package.

“The IMF should act as a bank” in any rescue, he told reporters in Venice yesterday. “We finance the IMF so it can use the funds around the world. Why not use that capital with the IMF acting as a bank with its know-how?”

Tremonti also said that the EU could issue “eurobonds” or coordinate the sale of euro-denominated government bonds to better counter “financial speculation.”

Sounds like a bit of a turf war there between the IMF and the ECB, each vying with the other to administer the bailout and control the situation for their respective backers.  The IMF gets much of its funding from the US, so let’s root for the Frenchman here.

As Greece calls for more help, Merkel on March 5 turned her focus to restricting the use of derivatives to halt “speculators” from exploiting countries’ budget deficits. Greece has done its work and Europe and the U.S. must now ensure that financial-market speculators aren’t allowed to inflict further damage on Greece or on other countries, she said.

Merkel shows she’s not above the dishonest game of shifting blame to the markets for having the gall to recognise that Greece’s credit risk might a tad bit elevated.

I’m attending a convention from now through Wednesday, so expect a lot less activity here than has been the norm lately.

Regarding the markets, it is still my strong belief that we are in the process of making a top to last for many years, on a weekly as well as yearly and even decadal scale, since the prices of financial assets prices are still stretched far above levels that could be justified by expected returns. History is not kind to buyers of stock markets yielding 2% or real estate yielding a gross of 5%.

Society used to go through these episodes of financial mania briefly and locally. The South Seas bubble in England lasted a couple of years:

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Close-up of 1720:

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The earlier tulip affair in the Netherlands started in the fall and was over by spring:

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In modern times, perhaps due to the ease of access that technology has brought to the markets and the emergence of a large middle class (though actually those explanations sound like feeble professorial BS), or possibly because of longer human lifespans (this I find more probable, as people need to collectively forget past experience in order to repeat it), we have the phenomenon of giant, recurring financial bubbles to accompany the credit/Kondratieff cycle.

One also has to note that the first such modern super-bubble began just a decade after the founding of a highly inflationary central bank, and that there has been no hard money nor hard-nosed policy since soon thereafter. After all, inflation is the expansion of money and credit, which always begets bubbles that are necessarily followed by crashes. These all-encompassing bubbles in everything are not healthy — they misdirect assets, squander wealth and shorten the time preference, which is no small thing. The young and already rotting cities of 20th-century-built North America are tawdry in comparison to those of Europe constructed in an age when real wealth was being accumulated at a blazing pace (yet inflation was non-existent or negative). People looked and planned further ahead, and built for yield and posterity, not to flip.

Here is a 200 year view of stocks priced in gold (DJIA for the last 100 years — approximation prior):

Marketoracle.co.uk

Isn’t that an interesting pattern? Looks like we’ve been in a huge megaphone since about the time of the Great War. The target for this leg is a Dow:Gold ratio of about 0.75. Dow 600, gold $800? Dow 11,000, gold $260 would have seemed pretty crazy in 1980, wouldn’t it?

This is a big, rounded top. It’s taking its time, though it is still compressed relative to the ‘03 - ‘07 cycle wave top.

This week’s strength was very impressive and could mean new highs on the Dow and SPX in the next couple of weeks if that previous wave is any guide. Our January-February ‘10 drop was akin to May-June ‘06, Feb-March ‘07,  and July-Aug ‘07. Tops are processes, bottoms are events.

Prophet.net

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Maybe the VIX will even scoop out a big rounded bottom and fall several more points:

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Note the advance:decline ratio I threw on there as well. This was a big up day relative to everything since last summer, with 5 stocks up for every decliner. These spikes during a bull trend tend to foretell that prices will drift up some more, though not always, and they do occur in bear trends as well, when they simply serve to clear the way for a resumed decline, as in late Sept ‘08. There is still a larger declining trend in the A:D spikes, indicating declining oomph during the strongest rallies, as in the year leading up to the Fall of ‘08.

The A:D ratio is also a measure of jumpiness. You can see how it spiked up as fear crept into the game in summer ‘07.

Of course, this market is now extremely short-term overbought and treading on very thin ice, so it could just plunge at any time. This could have been our clearing rally.

You can see that the daily A:D was nothing like earlier last year, but you still have to respect this signal.

Prophet.net

SPX has now retraced through it’s breakaway area from January. This is a common stopping point for countertrend rallies — basically the area of fastest decline when the crowd had its moment of recognition.

Of course, hourly RSI is still strong, with higher troughs during successive bottoms.

From Bloomberg:

Striking Greek workers shut down transport and tried to storm parliament as lawmakers passed 4.8 billion euros ($6.5 billion) in budget cuts, including wage reductions, needed to trim the region’s biggest budget deficit.

Police with riot shields fired tear gas at demonstrators outside parliament in Athens today as lawmakers approved the measures, which Finance Minister George Papaconstantinou said will show European Union allies and investors that Greece is making good on its deficit pledges. Socialist Prime Minister George Papandreou has a 10-seat majority in the legislature.

“We didn’t create this crisis but now we have to pay for it,” said Manthos Adamakis, who was protesting with other catering workers outside the five-star Grande Bretagne Hotel on Syntagma Square in downtown Athens.

Tram, rail, subway and bus services shut in Athens and other cities as employees rallied against cuts to bonuses and holiday payments. A walk out by air-traffic controllers forced the cancellation of all 58 flights to and from Athens International Airport between midday and 4 p.m. and the rescheduling of another 135, according to a spokeswoman.

“We didn’t create this crisis but now we have to pay for it,” the union member says! Of course they created it, by striking and threatening strikes to demand raise after raise with ever greater benefits. Unions are paying for none of it — their fellow citizens are. And how screwy is the Greek economy that the government sets the wages of hotel caterers, if that is indeed the case?

Most Greeks oppose plans to cut wages and increase value- added tax, according to the first opinion poll published since the austerity moves were announced on March 3.

Seventy-two percent of 530 people surveyed by Public Issue for Skai Television said they disagreed with a drop in bonus- vacation payments, while 68 percent opposed a value-added tax increase. Sixty-two percent said Greece will see social unrest in the next year, according to the poll broadcast yesterday.

The additional budget cuts aim to save 1.7 billion euros through a 30 percent reduction to three bonus-salary payments to civil servants, a 7 percent overall decrease in wages at wider public-sector companies and a pension freeze. The reductions are accompanied by an increase to 21 percent from 19 percent in the main VAT tax as well as in alcohol and tobacco duties.

Further Strikes

Teachers are also striking, closing some schools, and workers at the Public Power Corp SA, the country’s biggest electricity company and controlled by the state, have also called a 24-hour strike today.

ADEDY, which has already held two 24-hour strikes this year after the government backtracked on pledges to grant civil servants a wage increase, is considering holding another 24-hour strike next week.

It seems like everyone in Greece is on the dole, but I believe only 20% of employment is government work.

Where are the taxpayer protests telling these extortionists to go to hell and demanding that parliament repudiate the debt? Majority or minority, the victims in this racket sure are silent. It’s as if they think the money grows on trees (or as if Greece still can print Drachmas!).

The “austerity measures” and tax hikes are sure to fail. The debt is simply unpayable, so default is the only option if Germany is not willing to bail out Greece, Italy, Spain, Portugal, Ireland and maybe even France. What are the odds of that? What happens in those volitile, socialist, economically ignorant countries if the government gravy train dries up? We haven’t seen anything yet.

Prophet.net

As in financials, my preference is to short the ultralong, which will very likely fall by 90% IMO:

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This from CNBC.

Greece should consider selling some of its islands as one option to reduce debt, two members of the German parliament in Chancellor Angela Merkel’s centre-right coalition said.

Josef Schlarmann, a senior member of Merkel’s Christian Democrats, and Frank Schaeffler, a finance policy expert in the Free Democrats, were quoted on Thursday as saying that selling islands and other assets could help Greece out of its crisis.

“Those in insolvency have to sell everything they have to pay their creditors,” Schlarmann told Bild newspaper. “Greece owns buildings, companies and uninhabited islands, which could all be used for debt redemption.” …

… “The chancellor cannot promise Greece any help,” Schaeffler told Bild in a story under the headline: “Sell your islands, you bankrupt Greeks! And sell the Acropolis too!”

I suggest the Greeks reply by saying, “yeah, we’re sorry we owe you money, but that’s your problem now.” In a word, default.

It’s the ethical thing to do, and entirely precidented in history. Just get it over with and clean the slate. Why stay debt slaves to the Germans (who invaded Greece during the war, as I’m sure most Greeks do not forget), so that some overpaid union workers can stay fat and happy?

There is a huge wall of resistance overhead here, and the upward momentum from the first half of 2009 is simply gone.

Prophet.net

Perhaps it’s time for another look at this chart:

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UPDATE: Pej sent me this updated reset chart, which gives a closer view:

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FAZ (triple bear financials) has toasted so many traders in the last 12 months, but perhaps it’s worth another look for the yahoos out there. It’s not fallen much at all since October, actually, and you have a clear stop at January’s lows.

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My own preference is actually to short FAS, the triple bull counterpart. That way you collect the decay even in a choppy sideways market, and you don’t have to worry about counterparty defaults since the cash is already in your account. Look at how weak the latest rally is relative to previous ones. The high was in October. If you’d sold this short back then, you’d have enjoyed a 20% price decay though the underlying stocks are only down 4%!