John McCloy's  Instablog

There comes a time in history where every nation must arrive at a crossroads and choose the path it would like to travel. How quickly can things change as we know it?
Well
Imagine 1900: Europe Rules the Eastern Hemisphere.Possesing the most dominant Navy in history, hardly a place does not exist where London does exert influence through seafaring mastery.Europe was at general peace and enjoying unprecented propserity.
Imagine 1920: Europe had been torn apart by a brutal war and the continent was in ruins.The Austrian,Russian,German and Ottoman Empire were gone.It ended when an American military intervened.The U.S. suddenly emerged as a great power.One thing was certain the peace treaty post WWI which recently created all but guaranteed a Germany would not reemerge anytime soon.
Imagine 1940: Germany re-emerges  and conquers France and dominates all of Europe.Communism survived and allied with Germany.Global war was once again at hand and freedom under threat.Russia turns on Germany and U.S. forces help bring the war to end a a cost of only 500,000 U.S. lives.
Imagine 1960: Germany has been crushed.Europe split and the U.S. and U.S.S.R are the only 2 superpowers in existence possessing the power to destroy each other and mankind.Europe is no longer the center of the economic and military world.
Imagine 1980: The U.S. is all but defeated in a war in Vietnam a country dwarfed in both size and military capabilities in comparison.
2000: The U.S.S.R has collapsed.China is communist in name only. The United States emerges as the only superpower in existance and the geopolitical control of both the Atlantic & Pacfic Oceans.

History will teach us that when looked upon within 20 year cycles common sense MUST BE THROWN OUT THE WINDOW & NOTHING IS PREDICTABLE.
(Friedman, Next 100 Years)

It is very important that mainstream media with folks such as Dylan Ratigan and his, "Goldman Black Magic" video begin to attract the attention of the public and the amount of deceit involved in this collapse and rally. How short the memory is that we have gone from Doom & Gloom daily on the CNBC network to the "Happy News Channel"

Let us examine quickly what has caused this massive deleveraging and collapse and how it is near impossible for this rally to have occured without manipulation:

#1) Much of it begins with the creation of what I like to call the "Jim Cramer Bubble".
On March 16th, 2005 Mad Money Launched it's first episode with Jim Cramer at the helm. Jim Cramer had become so increasingly popular that he induced a massive inflow of cash into the stock market from housewives, prospective day traders & the average Joe beginning a influx of retail money into Wall Street on a level that had not previously been seen.

The Dow was standing at levels between 10,400- 10,600 range. Jim Cramer went on to become a household name selling countless bestseller books and producing record ratings. As his watchers saw an ever increasing stock market they could not help but continue to particpate through their savings and pay checks into the stock market.

A little over 2 years in July of 2007 later the  Dow swelled to the 13,600-13,700 range.
During that time frame a record amount of Volume on Wall Street was occuring.
The Daily Volume was typicallyin 1.4 Billion shares in 2005 yet had increased by 2007 to between 3.5 Billion to 4 Billion in heavy volume.

#2) The collapse begins. A historic amount of wealth accumulated over years from producitivy, savings and services is destroyed in a flash. The Dow plummets d ue in large part due to television talking heads insisting that a recession was not going to occur and that stocks were at all time low valuations. 12k was the buy of a lifetime, 11K and so forth. Goldman emerges as the only unscathed investment bank and managed "TO PROFIT" during the majority of the downturn because of "hedging"
     In February of 2008 Ben Bernanke was quoted as saying, " The Fed forecast he summarized called for very slow growth in 2008, but no recession; and that was the good news."
That is correct, the same man who last week said we are out of a recession said there would be no recession originally less than 2 years ago.
http://www.npr.org/templates/story/story.php?storyId=74992288

#3) Increasing losses as a result of subprime foreclosures, falling stock prices, falling home prices destory asset values after years of overleveraging. Nearly every financial institution in the U.S. is brough to it's knees as Bear Stearns collapses, Wamu collapses, Wachovia collapses, AIG is determined to owe more money in derivatives than could ever be paid and Lehman Brothers collapses over night. Even iconic Merrill Lynch is saved from collapse at the midnight hour solely because of Bank of America risking their aquisition at an absurd $29.00 a share. In all likelihood a week later they could have been acquired for 50% less or in Lehman's case have their best assets cherry picked after BK.

#4) Banks were required to take TARP payments in order to stay afloat as credit market seized up. AIG became a slush fund for the Federal Government to funnel funds to institutions in an effort to prevent their silmutaneous collapse. It became a literal slush fund and overnight "Too Big Too Fail" was no longer the theme.

#5) The Stock market begins its death spiral down to S&P 666 crashing through lows as the markets simply no longer possesed neither the capital or risk appetitte to purchase stocks. Retailer buyers have been wiped out, long Term investors were underwater from investments from 10 years ago. Future Retirees expecially Baby Boomers (The largest retiring generation in U.S. history) is about to retire or is retiring but now wake up to monumental losses in their funds.Unemployment was climbing to record levels.Home prices remained depressed. Men Like Bob Pisani were on CNBC in March saying S&P next test should be 600.
Talking heads told you "If you like Alcoa at 6 you will love it at 5" ($14.00 today)
Jim Cramer, the same man who said "Sell All Stocks at 10,000", was discussing how he could not see the Dow going past 5,300.
In February he had chastised Warren Buffett for buying stocks. Here is a quote " "But I have to tell you, when I listen to what he sold, and what he bought, he's continuing to make a gigantic bet.  And the bet is that everything is alive and well and good"
http://www.cnbc.com/id/29246565
Television was frightening people out of the market and rightly so. Banks were Diluted and be faced with future Prime Losses.

*Everybody was short the market. The daily erosion was so severe that regulators had to step in and Ban Short selling in financials, Reinstate the Uptick Rule, Eliminate Mark to Market Accounting, Provide 0% interest rates.

* On a dime the stock market begins a complete reversal. A literal dime. The market begins to lead in daily with "Better than expected results", Promising news, exhuberant analysts. When the markets were in dire straits every morning was a game of "How low can we go" and David Faber "Leaks on Lehman, Bear Stearns, AIG". All Purposely leaked negative information. Then it stopped.
*If data was bad...Better than expected
* If news was horrible...Well then we are that much closer to a bottom
On the basis that markets look ahead and everything will be better in the future.The Orchestartion by the government and the coming market rally was designed with one purpose in mind. To Restore the illusion that the stock market rally was real. So what has transpired since March?
*Shorts have been blown out on a daily basis due to unimaginable future reversals
*Fear is removed over night as the market continues to rally as if somebody is well aware that the markets will continue to rebound
*Banks are recapitalized on the backs of short sellers
*Every sign of weakness in the market is met with an upgrade in the banking sector as if this is methodically planned. Washing each others backs on a daily basis.

If Subprime causes devestating losses how can rising prime foreclosures not lead to further loss?
Answer they cannot: Look at rising losses in Bank of America. Losses are overtaking trading gains and will continue to get worse as housing prices begin to crater once again with shadow inventory lingering. This is not a hypothesis. Housing has not botttomed.This is what I do it is going to fall at least another 25
If most gains in banks are the result of pumped up trades after a 60% rally in the markets what is your encore?.

What will happen when mortgages payments cannot be met because claims are expiring and jobs are continuing to be lost?
Answer they cannot: Foreclosures are rising when banks are already dealing with horrific inventory. As inventory rises and new foreclosures hit the market we will and are beginning to see falling prices and a lack of buyers do to a lack of jobs.

If the unemployed have no income from either a job or unemployment benefits then how will they make purchases?
Answer they cannot: They are extending themselves on credit cards which are shown to be reaching record levels of default as evidenced by Equifax showing rising bankruptcies. All credit cards will be maxed out and consumers will take their own personal bailout by telling banks to stuff it. Why?
Do you  expect small business to pay their taxes while facing a rising deficit?
Not a chance. If you can give the people who lost me thousands Billions then I can owe you when I recover just like you owe China.
Because we set a bad example. Unemployment is now at 10%+ officially. As they begin to spend even less companies anticipating a recovery on false information will have no option but to cut jobs. Small business which was surviving on savings and credit in hopes of a recovery are still NOT SEEING IT. They will be forced to cut jobs as well. The majority of their debt will not be repaid.
http://online.wsj.com/article/SB125451530375860305.html

If the dollar continues to fall wont the Fed be forced to raise rates as the double dip begins?
 
Yes. They Will the be forced to save the dollar out of fear of international conspiracy to no longer purchase debt. This will further amplify the stifling of this rally.

So it true that Goldman, Merrill and JPM Morgan have been making nearly 80% of their income in trading?

Yes absolutely. How is it that they knew and were courageous to purchase stocks after frightening everyone out of the game without any fear of a further collapse?
Simple we handed the Billions of dollars which they in turn used to purchase stocks on a daily basis and COMPLETELY OBLITERATE SHORT HEDGE FUNDS FURTHER CONSOLIDATING THEIR POWER. They did not create new money. They simply took it all back from Short Hedge funds because they coordinated their purchases and rallies together. Short covering has led to inflated PPS in nearly every equity. This gave banks the oppurtunity unload coordinated seconday offerings onto the markets at inflated prices in order to stablize their balance sheets as best they could.
Every day there was a new piece of data and spin on television fiinding light in the darkness.

Havent these estimates been lowered to absurd levels that anyone could beat them?
Yes of course they have. Expectation and downward revisions.

Is Commercial Real Estate really the next shoe to drop?

Are you kidding. I was telling people months ago that leveraged purchased of so called investments at the peak of the market have backfired. As best evidence by Tishman Speyers purchase of Stuyvesant Town in Manhattan.
Purchased at 5.1 Billion it is now worth 1/2 the amount and burning cash at a record rate. They are giving free months and cannot keep their buildings occupied. I work in real estate in Manhattan and I will tell you our rents are just now approaching lows not seen in 6 years. Winter is coming and from now to march we will be forced to lower them even further.
http://www.reuters.com/article/domesticNews/idUSTRE59E07X20091015

Companies such as Vornado have had commerical space vacant in prime Manhattan going on 2 years now. They just lost all of the Virgin Megastore tenants in Times Square & Union Square this fall and I see no end in sight for falling prices.

Why did the stimulus not involve largely infrastructure?
Why the government did not decide to spend Hundreds of Billions of dollars improving infrastructure is a mystery. Infrastructure stimulus has a large number of beneficial results on an economy.
#1) It provides jobs reliant upon production
#2) It increase future productivity. Manhattan for example is a landmine of increasing population and traffic jams. Perhaps constructing a number of tunnels say from Staten Island to Downtown Manhattan, Bullet Speed commuter trains from Long Island and Westchester, Jersey. Subway expenditure,
Anticipatory transportation spending to meet the demands of a growing population. This increase productivity of business and increases the speed at which it is done.
#3) Creates..yes creates actual jobs that serve a purpose


This entire market was reinflated with U.S. tax payer money and they have been left out of the party. All of their wealth and investments were destroyed because of banks. Their reward?
We rewarded the same people who are making us bankrupt with MORE OF OUR MONEY?
This is the equivalent of running down the block after the thief who just robbed you to tell him you forgot to steal my George Foreman grill.

I am appalled at the mainstream media keeping Americans occupied with Boy in Balloon stories, Jon & Kate plus 8 and Dancing with the stars.

So subprime caused this.
How can we possibly think the market will turn around with Prime foreclosures escalating, credit card defaults, Commercial Real estate defaults and increasing job losses and expiring benefits?
How will U.S. citizens get by without health care? More will be forced into bankrupcty because they are without medical coverage BECAUSE THEY ARE WITHOUT JOBS.

What caused this Economic Collapse in the First place?

Simple. Read your Peter Schiff. He predicted american consumerism would destory us when nearly everyone else was doing tumblesaults counting money.
They laughed at him when he quite clearly said.
"You produce a good through work.Someone purchases it..You Purchase something else. You do not get to produce a good, sell that good,Buy a good and then take out a loan on that one good so you can purchase 10 other goods"

The cause of this was Greenspan's free money policy after the tech bubble crash.
Free money createst inflation and out of control leveraging. So we reinflated a burst bubble with a new bubble only larger..But it was ok because this time we were going to not allow the same mistakes to occur. Guess what they did.

As the economy was collapsing again this year under the weight from the previous 2 bubbles bursting in conjunction with this one. What was the one thing Peter Schiff "The man who predicted this collapse" say?
WHATEVER WE DO IT CANNOT BE SIMILAR FREE MONEY POLICY SINCE THAT WAS THE CAUSE OF THE PREVIOUS BUBBLES. WE MUST BITE THE BULLET TEMPORARILY AND ALLOW ASSETS TO FIND FAIR VALUE.
http://www.youtube.com/watch?v=c8nrZthYbNM

Guess what we did not.
Wall Street held a gun to the governments head with a wallet and convinced them the only way for the economy to recover was for wall street to recover. Instead of forgoing their old ways and accepting regulation these genius men frightened the pants out of government and as it appears coordinated positive newsstream on a daily basis at any sign of weakness.

Is anyone doing anything about this in Congress or The Senate?
Sure.Men like Alan Grayson are attempting to force the Federal Government to open up their books via an audit and prove preciscely who was given tax payer money. He essentially outright accused the Fed of purchasing Futures along with Invesment banks at an hint of fear in the markets.There is not a doubt in the reasonable world that this market rally is nothing short of an orchestration in order to induce fake stability.
Bernankes response to auditing the Fed is a warning or a threat more precisely.
Fed Chairman Ben Bernanke:
“My concern about the legislation is that if the GAO is auditing not only the operational aspects of the programs and the details of the programs but making judgments about our policy decisions would effectively be a takeover of policy by the Congress and a repudiation of the Federal Reserve would be highly destructive to the stability of the financial system, the Dollar and our national economic situation.”
http://www.youtube.com/watch?v=mXmNpdYpfnk


If it is true that markets look ahead then they shoud very well see that a double dip is indeed instore. This market has entirely too many parrallels with the 1929 crash and the 1930 Bear Market Rally. How can the American retail investor have faith in such a manipulated market where their is no transparency?
Like I said before this is the financial equivalent of a Global Superpower with every weapon in their arsenal waging war against a 3rd world country.
These banks are the only ones left in the casino with any chips and anyone who steps in now is the Walking Dead.

The Oldest Firms on Wall Street:

JPM Chase Est.1799 (Essentially JPMorgan now included is Bear Stearns formally 5th largest investment firm. Second largest hedge fund in the world
Goldman Sachs. Est.1869 Largest hedge fund in the world.
Merrill Lynch 1914 Currently trading like is 1999 now at Bank of America.
Bank of New York Est.1784 Founded by Alexander Hamiltion. Trading Arm is Pershing Capital. Located Smack dab in the heart of Wall Street.
Now place these men and their trillions against every other surviving hedge fund out their and Goldmans trading computers and you will understand how the Dow is kept at a steady level without panic and slowly increased in small increments on low volume until shorts hedge funds and retail can no longer take the pain.
This is why Stocks like Bank of America climb for 5-7 straight days are and dropped in a few hours on bad news. The climb then resumes once again taking 5+ trading days to attain the previous level and this surpassed on the backs of shorts once again on low volume.


We have been taught for generations the power and money will always lead to corruption. These events are precisely the kind of fears the founders of the country had in mind. Small government and free markets does not occur when"
The #2 financial contributors to Obama's Campaign was Goldman Sachs.
http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638

They are playing deceitful games with our money at our expense. And it physically hurts..hurts that nobody in the media seems to want to bring to the attention of the public exactly what is occuring here. That is why I commend you Dylan Ratigan on your piece. It is the first legitimate main stream attempt to bring these matters so blatantly obvious to light.

Let me ask you one simple question. If the Dow was 10,000 today and we knew that Prime foreclosures were coming, Commercial,Credit card defaults, Bankruptcies, falling home prices, Dying unemployment claims, American losing medical and the largest destruction of wealth in the history of America can the market be rallying?

Simple. Goldman Sachs made 3 Billion Trading. JPM Morgan made Billions trading.Evidently they were well aware that the market was going to continue to rise without trepidation since March.How?


I remind you all that the same man in 2008 who said there would be no recession Ben Bernanke last month said were are out of a recession.
http://online.wsj.com/article/SB125301730771311713.html
 
Now everyone bearish has been forced to become bullish in the wake of this rally. Well I suppose it is not a suckers rally if everyone does not believe it. So what does Wall Street do for an encore? Well since banks such as JPM & Bank of America are in heavy need of capital and trading gains my guess is they make make double taking the markets back down to new lows and quadruple coming back up after a new low is broken.

Where will we be in 20 years?