The Housing Tim...'s  Instablog

Wow...What a day. Let's take a look at the tape:


My Take:

Whoa! As you all know by now the DOW dropped about 1000 points in a matter of minutes before rallying back at the close.

The finger pointing started almost immediately after the drop. CNBC reported that it was a rogue trader that hit the wrong button on a sell order.

Hehe...Yeak ok...If you believe that one you then I have a beautiful shrimping boat in Alabama to sell you.

Folks, I am sure we will hear a million reasons why the market dropped off like it did today. They will blame it on everything from the the quants to the rogue traders to the supposed financial reform bill that plans on potentially breaking up the TBTF banks.

The bottom line is we now have another crisis of confidence in the markets. I believe that the drop we saw today was a result of a variety of things but the article below(if true) would explain a lot. Hat tip to Naked Capitalism for this find.

From Washington's blog:

"The tide is now turning towards real financial reform:

In a major development, Senator Harry Reid is now supporting breaking up the giant banks and auditing the Fed

Number two Senate majority leader, Sen. Dick Durbin (D-Ill.), came out Tuesday in favor of a far-reaching amendment that would break up big banks and cap their size (the Brown-Kaufman amendment)

Senator Feingold has announced that he will filibuster and financial regulation which does not include serious banking reform

I asked a friend on the hill – a top aide for a very important Congress member – whether people would be wasting their time by calling their Senator. I explained that many people called and demanded that the U.S. not invade Iraq, but that Congress just ignored us. I said that many people feel that traditional political activism, like phone calls, can’t work, as the level of political corruption is too high.

He responded that given the bipartisan support of many congress people and the American people for financial reform, this is very different from Iraq.

He urged everyone to call their Senators and demand the giant banks be broken up and the Fed be audited.

Senator Sanders’ bill to audit the Fed will probably be voted on today. Please call your Senator now.

UPDATE:

A deal was struck in the Senate today regarding an audit of the Federal Reserve.

Senator Dodd worked out a compromise with Senator Sanders, and Dodd will now become a co-sponsor of the bill.

The bill would:

Require the non-partisan General Accountability Office to conduct an independent audit of the Board of Governors of the Federal Reserve System that does not interfere with monetary policy, to let the American people know the names of the recipients of over $2,000,000,000,000 in taxpayer assistance from the Federal Reserve System, and for other purposes.

And the bill provides:

Notwithstanding any other provision of law, the Board of Governors shall publish on its website, not later than December 1, 2010, with respect to all loans and other financial assistance it has provided during the period beginning on December 1, 2007 and ending on the date of enactment of this Act under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, Maiden Lane, Maiden Lane II, Maiden Lane III, the agency Mortgage-Backed Securities program, foreign currency liquidity swap lines, and any other program created as a result of the third undesignated paragraph of section 13 of the Federal Reserve Act."

The Bottom Line

If the above information is accurate then the market had every reason to respond like it did. A burst of selling based on bad news can also trigger the HFT quants to sell because their algorithms are designed to dump stocks on high volumes of weakness.

I have said all along this rally was a sham and the fact that the DOW dropped 1000 points in a matter of minutes proves to you that the street is rigged and run by HFT's that game the markets on a regular basis.

There was a lot of damage done today. The market HATES uncertainty and we got a lot more of it at a time where things are already fragile as a result of Greece and the European debt crisis.

We also lost a lot of confidence in the stock market. The extreme volatility we are witnessing on Wall St recently is very unhealthy.

Remember: Confidence is everything when it comes to market making. The system is at risk when you are not confident that what you are buying is actually worth anything.

The only way we fix this is through radical financial reform. I hope the above article is correct.

The banksters have had their time in the sun. It's time to throw out the garbage on Wall St and create a financial system that people can believe in.

The aftershocks of today's price action will be felt for a long time. I am sure many trading accounts were completely liquidated based on today's debacle. A couple of hedge funds might have gone down as well.

Hopefully Washington took notice and will take the necessary measures to wring out the blatant fraud that is now so prevelant on Wall St.

Disclosure: No new positions at the time of publication.

Disclosure: No new positions taken at the time of publication

I wanted to share a great article from Business Week. The future for the current generation of young workers is looking increasingly grim as the first depression since the 1930's continues to wreak havoc on our economy.
The numbers are grim:
 

Let me share a few statistics from the piece:

"Affected are a range of young people, from high school dropouts, to college grads, to newly minted lawyers and MBAs across the developed world from Britain to Japan. One indication: In the U.S., the unemployment rate for 16- to 24-year-olds has climbed to more than 18%, from 13% a year ago."

"What's more, the baby boom generation is counting on a productive young workforce to help fund retirement and health care. Instead, young people risk getting tracked into jobs that don't pay as well, says Lisa B. Kahn of the Yale School of Management. That would mean lower tax payments for Social Security and Medicare.

Only 46% of people aged 16-24 had jobs in September, the lowest since the government began counting in 1948. The crisis is even hitting recent college graduates. "I've applied for a whole lot of restaurant jobs, but even those, nobody calls me back," says Dan Schmitz, 25, a University of Wisconsin graduate with a bachelor's degree in English who lives in Brooklyn, N.Y. "Every morning I wake up thinking today's going to be the day I get a job. I've not had a job for months, and it's getting really frustrating."ANXIETY AND FEAR"

"The sense of stasis in many Western countries is reminiscent of Japan, where talk of a lost generation has been around since as long ago as 1995. Some 3.1 million Japanese aged 25 to 34 work as temps or contract employees—up from 2 million 10 years ago, according to the Ministry of Internal Affairs."

My Take:

This article was quite eye opening to me. I hadn't really taken time to think about the impact that our depression will have on young workers over the long term.

The fact that 46% of workers aged 16-24 are jobless is flat out frightening. How will these kids ever get ahead? How will they ever be able to earn enough money for a stable retirement if they lose a decade before the economy recovers? Even then, who is to say that the economy sharply recovers within 10 years?

Japan still hasn't recovered from its post bubble malaise and it happened over 20 years ago! America wasn't able to recover from the depression in the '30's despite the government trying everything under the sun to stimulate it. WWII finally got the economy kick started again towards the end of the decade.

You need to ask yourself: After a euphoric 25 year bull run, could we not see a 20 year bear now after such prolonged prosperity?

Another thought here is how in the hell are we ever going to pay off our trillions in debts without young prosperous workers from which to tax from? Also, who is going to fund the massive medicare and social security programs that will be dramatically drained as our baby boomers retire?

The Bottom Line:

I'll tell ya folks. The more I think about the future the more frightened I become. I see no way out of this fiasco without years and years of pain. NONE!

As I watch the dollar fall on an almost daily basis I can't help but think: Is it time to buy guns and gold and move up into the mountains? It's starting to look like this might be the best alternative.

The economy and our currency are both in a free fall and the elites in the ivory towers simply don't seem to care.

When is America going to rise up and say Enough?

I'm waiting.

Disclosure:  No new positions at the time of publication.  Long GLD and SLV in longer term accounts.

As I sit here and watch the dollar tank once again tonight overseas, I wonder if the market is slowly coming to the conclusion that the USA will never be able to pay back the trillions of dollars that they have borrowed.

I really thought about yesterday's Jim Rickards interview on bubblevision today. Folks, I don't see how we escape this crisis without a dollar devaluation of 50% or so. This is the only way we will ever be able to pay off the ugly debts that we have accumulated.

So what are the unintended consequences of such actions? I'll be damned if I know. Inflation is an obvious answer but the social consequences would not be known until such an event occurred.

We are in uncharted waters. I can't make any sense of the stock market or the bond market at this stage. The fraud and manipulation at this point is unprecedented.

What's amazing is the banks continue to take advantage of the destabilization of our economy. I am beginning to believe that Wall St doesn't want to see a recovery because the chaos is creating so many profitable opportunities.

If we see an economic recovery, interest rates must rise, and this would be catastrophic to housing(higher lending rates) and thus the banks balance sheets.

Here is a nice example of why chaos is good for Wall St:

There is another "old school" bond game that's going on right now. The banks are borrowing short from the Fed at next to nothing(2% or so) and then buying the long end of the yield curve(4% or so) and pocketing the spread. This is why you have seen the long end of the bond market collapse over the past several weeks.

This is a beautiful game for the street for now but things can change in a hurry according to the pros:

An old bond trader friend of mine explained to me that he watched the same thing in the late '70's. It was a beautiful game while it lasted. The problem is they all got caught with their pants down when Volcker took rates to 12%.

Those long end bonds with a 6 or 7% yield from the '70's don't look so hot when it costs 12% to borrow a few years later!

You see folks, these games can only go on for so long before drastic actions must be taken in order to prevent ourselves from blowing up. When the party is over and rates soar(which I believe is right around the corner), the primary dealers and others holding these bonds are going to get killed.

One potential Black Swan in the bond market is the "audit the Fed" bill that's flying through Congress right now. The Fed is already screaming fire as they try and prevent this bill from going through.

If this passes, the Fed will be exposed for what they are: A fraudulent bunch of broke gangsters that are holding a bunch of worthless paper in an attempt to bailout their banking buddies. The Fed is a sham and everyone knows it.

I expect the rhetoric out of the Fed to soar as this bill gets closer to passage. It's already started. You can almost guarantee that they will warn us that such a move would threaten the whole financial system if this bill passes. I say bull****. We have been through much tougher times before. No one is too big to fail!!!! We will survive this crisis and move on.

The Fed however wants you to think the world will end if their balance sheet gets exposed. My questionn here is if they were legit then why would they be so resistant to an audit? Companies are audited all of the time! Their resistance to this bill proves their guilt IMO.

The Bottom Line:

The games never seem to end. Many of my contacts on the street are extremely skeptical of what's going on in the markets. A few see no way out for the Fed and the economy. In fact, I have never seen people from Wall St so bearish. They are usually a jolly group.

Many of them are now beginning to focus on how to profit from the collapse that seems almost impossible to avoid at this point.

The bulls own the market for now. Fundamentals don't matter when you are betting on a recovery. If the analyst's revise earnings down from .20 a share down to .05 on a company before earnings season and they come in at .10 it's a huge beat! Yeah ok, go ahead and tug the other one.

The mirage of Wall St continues but you need to wonder if their run is about over. A collapsing dollar and the Fed's response are what I am focusing on right now. If I had to guess, the Fed will do nothing with interest rates unless inflation really runs wild.

As a result, the metals are still the place to be long term. The street is beginning to realize that the only way we pay back our trillions in debt is by devaluing the currency.

The IMF will pick up our slack with a new currency in order to stabilize world trade as we clean up our mess by taking down the dollar in order to pay off our debt.

This is going to be a very painful experience for America.

Disclosure: Long gold and silver via GLD and SLV. Short treasuries long term via TBT