cancel2 2022
Canceled
Warren Buffett - Inside Trader
Dear Reader,
In yet another sign that markets are broken, yesterday's huge market advance came on the heels of two presumably separate (yeah, right) central bank moves.
Both were designed to add liquidity and support to shaky and dangerously deteriorating markets.
(That was good news?)
First, China lowered the reserve ratio its banks have to hold against loans they make. They didn't do that because things over there are rosy. They did it because the property market is teetering and financing has been drying up.
While it's true that many Chinese buy homes and apartments with cash, plenty also finance their purchases. But it's not the property market end-buyers that the central bank was worried about. It is the property developers and huge state-run corporations who are feeling the pinch of China's tightening credit markets.
Without financing - the jamba juice of growth - everything starts to slow down.
We're talking about China as if the impossible is always possible. But, I'll say it myself: What if slowing down turns to stopping, which turns into a sell-off, or, dare I say, a crash? Okay, I said it.
The next step for China is to start actually lowering rates. That's a lot more serious a move than fiddling with reserve ratios (which says, oh don't worry, we're not worrying, it's just a minor adjustment that's needed to stave off this big thing hanging over us). When they start cutting interest rates, we'll be watching how big and often the cuts are.
If you're watching GDP growth in China, Interest rate cuts are the canary in the coalmine.
Second, over in Europe, things are so bad that governments and the European Central Bank - which is itself strapped and sapped of any meaningful authority, but worse, lacks meaningful resources - needed Wall Street executives to do their bidding for them.
What happened yesterday morning had been discussed for some time and pushed by Wall Street executives worried about contagion crippling their banks (wait a minute, aren't they always telling us publicly how healthy they are, paying dividends and bonuses and all?).
Anyway, what happened was that the good old lender of first and last resort to the world (thank you, U.S. taxpayers), the U.S. Federal Reserve, coordinated with five other central banks (Canada, Japan, England, Switzerland, and the ECB) to provide U.S. dollars via swaps to needy borrowers in Europe.
What they did was to lower the cost to borrow dollars in a swap arrangement by one-half of one percent for central banks, who could then parcel out dollar loans to battered and broken banks.
It's not a coincidence that the swap facility was first set up in 2007, as the credit crisis in the U.S. and globally was putting pressure on banks and financing markets everywhere.
So, call me skeptical, but, when fears of a global meltdown prompt central banks to start opening liquidity spigots (let's call it what it was, a coordinated effort by the Chinese, the Fed, Europeans, and the Japanese)... it's either a timely plug, or too little too late.
Lastly, in case you missed it, this liquidity hose came out exactly after rating agencies lowered ratings on 37 banks in Europe and pretty much all the big banks in the U.S.
Sorry for the lecture, but when banks' credit ratings are knocked down, it creates higher financing costs for them, because investors become more apprehensive of lending to them, and that includes banks lending to other banks.
Kind of reminds me of heading into the depths of the 2008 crisis. But then again, this is nothing like that, right? (Yeah, right!)
Bottom line, this was like a high school dance where the ugly ducklings were all led by their trembling hands to the dance floor by the school studs... to let them know they were at least going to be offered a fling on the floor, if not eternal love.
So Why Did Stocks Rally So Much?
Because shorts ran for cover; because institutional managers looking at a possible year-end rally and had been fearfully sitting on the sidelines jumped on board to keep their jobs; and because markets always react to added liquidity by rallying.
Plop plop, fizz fizz, oh what a relief it is!
But by so much? Come on. Oh, you didn't get in? Don't worry, you're not alone...
By the time markets opened yesterday, the rally was over. The futures reflected the need for short-covering and institutional buying, and so it was as soon as the opening bell sounded. Benchmarks went up parabolicly and leveled off all day before making a last-minute push higher - as if to say, "Take that!"
There wasn't a lot of buying on the way up, folks. Sellers simply pulled their offers, and buyers grabbed the next available stock at whatever prices they had to pay. And that scenario played itself out in a matter of minutes.
Throughout the rest of the day, buyers were buying at the loftiest prices seen in months. Sellers were selling for sure at those high prices, but there were still an overwhelming number of Johnny-come-latelies buying at the highs so they could say, "Look, I own these stocks that rose in the last rally, aren't I smart?"
If we don't get more coordinated action on Europe, if there is no near-term resolution or silver bazooka (yesterday's actions were the "silver bullets" I talked about on FOX Business News on Monday), if the rates sovereigns have to borrow at keep rising, if another big bank (like Dexia) needs rescuing, do you think the late buyers of stock yesterday are going to hang on to their positions?
This is crazy. Markets are broken. Everything is broken, and the Federal Reserve keeps shoving our heads into the ground so we can't see that we're about to get mowed down.
Was I surprised by yesterday's market moves? YES! I figured a 2% move, at best. I was half-right, but more importantly, I was half-wrong.
Now you have to ask yourself, as I ask myself, can we keep going higher?
Yes we can. And me personally, I'm going to add to my shorts all the way up, that is, as far as "up" ends up being.
Been here, done that.
On the "Indictment" Side of Things...
I said I was going to give a shout-out to one of your heroes. He used to be someone I admired, but not for a while now. He is revered. He is an oracle. He is the Oracle of Omaha.
Good old Warren Buffett has been really making me sick for more than a few years now.
The guy is the confidant of presidents, central bankers, some of the too-big-to-fail banks - which he owns big chunks of (or worse, lends to like a loan shark) - governments, and millions of awe-struck groupies who hang on the homilies he utters in his quaint, "aw, shucks," down-home, you can trust me manner.
He should just shut the heck up and say, I'm nothing but a greedy, egotistical banker in my own right who professes to hate bankers (though I own a bunch of their asses) and am clever and connected enough to make money on inside information that really isn't inside information if all my confidents come to me asking me what they should do.
In public, Buffet calls derivatives "weapons of mass financial destruction." Really? Then why does Berkshire have an approximately $63 billion position in derivatives?
Shut up.
Why did Buffet have his lapdog, Senator Ben Nelson from Nebraska, pressure the Senate Agriculture Committee (in April 2010) to exempt existing derivatives holders from new collateral requirements meant to safeguard the whole financial system? Oh, that would be because if applied to Berkshire's derivatives positions, Buffett would have to post some $8 billion in cash as collateral. Now, if that happened, how would the Oracle be clear to see his next pick-off target and have the cash handy to swoop in when destructive derivatives elsewhere cause the opportunities he gorges on?
How about that for powerful - and clever?
How about Buffett's insurance company General Re committing fraud in 2000 through 2001 by aiding and abetting AIG to "manipulate and falsify their reported financial results," according to SEC charges? They didn't admit any wrongdoing (who ever does?), but they still had to pay millions in fines.
How about Buffett coming in to save Goldman Sachs, right after it became a bank holding company to get Federal Reserve rescue money, and right before the New York Fed gave Goldman Sachs $14 billion in cash, exactly when they were teetering on oblivion (but, not according to them, of course)? Now, that's good timing, folks.
I'm not saying that Buffett had any inkling that the Fed was going to throw Goldman a few undeserved billions from the bailout money taxpayers provided AIG (some $180 billion) for, guess what, derivatives contracts that Goldman wanted AIG to pay up on. The funniest thing (NOT!) is that the contracts were paid to Goldman in full when they weren't worth anything near 100 cents on the dollar.
Anyway, Buffett may have been talking to Tim Geithner, then-head of the NY Fed, but I wasn't there. However, I think they know each other because Geithner, when he subsequently became Treasury Secretary, went to see the Oracle almost immediately upon taking his oath. I wonder what kind of oath to the Oracle he was taking under his breath...?
There's so much more...
Like how the Oracle defended Goldman in its fraud case regarding the $550 million fine it had to pay to - you guessed it - not admit it did what it did.
Or, my personal favorite, how the Oracle saw the future by owning some 20% of Moody's while it made billions falsely rating, guess what, derivatives (which are "weapons of mass financial destruction," you know). And how Moody's was protected as Buffett, in the heat of the battle over what helped cause the crash, divested himself of Moody's shares at pretty darn good prices.
And, when asked by Phil Angelides, chairman of the Financial Crisis Inquiry Committee, about a McClatchy newspaper report that Buffett got confidential information from Moody's executives about the true state of the mortgage-backed securities markets, whose products Moody's had stamped AAA for their usual fees, he denied it. Even though there are emails that were submitted to the Committee by one of the Moody's executives to prove it...
How come none of us got that memo from Moody's? And how come no-one has seen the email?
That's power, folks. That's the power of the folksy Oracle.
As I said, there's more, there's a lot more, dirt on Buffett.
Some of the latest and greatest is in Peter Schweizer's new book, which was the subject of a blockbuster 60 Minutes two weeks ago. Funny thing though, there was nothing in the segment about Warren Buffett, even though the whole show was based on Schweizer's book.
But there's plenty in the book, "Throw Them All Out," about Mr. Buffett's inside dealings. Please, get the book and read it, so you don't think I'm making this stuff up.
Is Buffett an Oracle, a deep-value investor who does tremendous analysis of his targets, or a trader who makes multi-billion dollar decision while "lathering himself up in his bathtub," which is where he said he was when it came to him to buy into Bank of America. Some due diligence. Loan sharked them the next day...
Mr. Buffett, my hat's off to you. You are one of the greatest crony capitalists in America.
Shah
Dear Reader,
In yet another sign that markets are broken, yesterday's huge market advance came on the heels of two presumably separate (yeah, right) central bank moves.
Both were designed to add liquidity and support to shaky and dangerously deteriorating markets.
(That was good news?)
First, China lowered the reserve ratio its banks have to hold against loans they make. They didn't do that because things over there are rosy. They did it because the property market is teetering and financing has been drying up.
While it's true that many Chinese buy homes and apartments with cash, plenty also finance their purchases. But it's not the property market end-buyers that the central bank was worried about. It is the property developers and huge state-run corporations who are feeling the pinch of China's tightening credit markets.
Without financing - the jamba juice of growth - everything starts to slow down.
We're talking about China as if the impossible is always possible. But, I'll say it myself: What if slowing down turns to stopping, which turns into a sell-off, or, dare I say, a crash? Okay, I said it.
The next step for China is to start actually lowering rates. That's a lot more serious a move than fiddling with reserve ratios (which says, oh don't worry, we're not worrying, it's just a minor adjustment that's needed to stave off this big thing hanging over us). When they start cutting interest rates, we'll be watching how big and often the cuts are.
If you're watching GDP growth in China, Interest rate cuts are the canary in the coalmine.
Second, over in Europe, things are so bad that governments and the European Central Bank - which is itself strapped and sapped of any meaningful authority, but worse, lacks meaningful resources - needed Wall Street executives to do their bidding for them.
What happened yesterday morning had been discussed for some time and pushed by Wall Street executives worried about contagion crippling their banks (wait a minute, aren't they always telling us publicly how healthy they are, paying dividends and bonuses and all?).
Anyway, what happened was that the good old lender of first and last resort to the world (thank you, U.S. taxpayers), the U.S. Federal Reserve, coordinated with five other central banks (Canada, Japan, England, Switzerland, and the ECB) to provide U.S. dollars via swaps to needy borrowers in Europe.
What they did was to lower the cost to borrow dollars in a swap arrangement by one-half of one percent for central banks, who could then parcel out dollar loans to battered and broken banks.
It's not a coincidence that the swap facility was first set up in 2007, as the credit crisis in the U.S. and globally was putting pressure on banks and financing markets everywhere.
So, call me skeptical, but, when fears of a global meltdown prompt central banks to start opening liquidity spigots (let's call it what it was, a coordinated effort by the Chinese, the Fed, Europeans, and the Japanese)... it's either a timely plug, or too little too late.
Lastly, in case you missed it, this liquidity hose came out exactly after rating agencies lowered ratings on 37 banks in Europe and pretty much all the big banks in the U.S.
Sorry for the lecture, but when banks' credit ratings are knocked down, it creates higher financing costs for them, because investors become more apprehensive of lending to them, and that includes banks lending to other banks.
Kind of reminds me of heading into the depths of the 2008 crisis. But then again, this is nothing like that, right? (Yeah, right!)
Bottom line, this was like a high school dance where the ugly ducklings were all led by their trembling hands to the dance floor by the school studs... to let them know they were at least going to be offered a fling on the floor, if not eternal love.
So Why Did Stocks Rally So Much?
Because shorts ran for cover; because institutional managers looking at a possible year-end rally and had been fearfully sitting on the sidelines jumped on board to keep their jobs; and because markets always react to added liquidity by rallying.
Plop plop, fizz fizz, oh what a relief it is!
But by so much? Come on. Oh, you didn't get in? Don't worry, you're not alone...
By the time markets opened yesterday, the rally was over. The futures reflected the need for short-covering and institutional buying, and so it was as soon as the opening bell sounded. Benchmarks went up parabolicly and leveled off all day before making a last-minute push higher - as if to say, "Take that!"
There wasn't a lot of buying on the way up, folks. Sellers simply pulled their offers, and buyers grabbed the next available stock at whatever prices they had to pay. And that scenario played itself out in a matter of minutes.
Throughout the rest of the day, buyers were buying at the loftiest prices seen in months. Sellers were selling for sure at those high prices, but there were still an overwhelming number of Johnny-come-latelies buying at the highs so they could say, "Look, I own these stocks that rose in the last rally, aren't I smart?"
If we don't get more coordinated action on Europe, if there is no near-term resolution or silver bazooka (yesterday's actions were the "silver bullets" I talked about on FOX Business News on Monday), if the rates sovereigns have to borrow at keep rising, if another big bank (like Dexia) needs rescuing, do you think the late buyers of stock yesterday are going to hang on to their positions?
This is crazy. Markets are broken. Everything is broken, and the Federal Reserve keeps shoving our heads into the ground so we can't see that we're about to get mowed down.
Was I surprised by yesterday's market moves? YES! I figured a 2% move, at best. I was half-right, but more importantly, I was half-wrong.
Now you have to ask yourself, as I ask myself, can we keep going higher?
Yes we can. And me personally, I'm going to add to my shorts all the way up, that is, as far as "up" ends up being.
Been here, done that.
On the "Indictment" Side of Things...
I said I was going to give a shout-out to one of your heroes. He used to be someone I admired, but not for a while now. He is revered. He is an oracle. He is the Oracle of Omaha.
Good old Warren Buffett has been really making me sick for more than a few years now.
The guy is the confidant of presidents, central bankers, some of the too-big-to-fail banks - which he owns big chunks of (or worse, lends to like a loan shark) - governments, and millions of awe-struck groupies who hang on the homilies he utters in his quaint, "aw, shucks," down-home, you can trust me manner.
He should just shut the heck up and say, I'm nothing but a greedy, egotistical banker in my own right who professes to hate bankers (though I own a bunch of their asses) and am clever and connected enough to make money on inside information that really isn't inside information if all my confidents come to me asking me what they should do.
In public, Buffet calls derivatives "weapons of mass financial destruction." Really? Then why does Berkshire have an approximately $63 billion position in derivatives?
Shut up.
Why did Buffet have his lapdog, Senator Ben Nelson from Nebraska, pressure the Senate Agriculture Committee (in April 2010) to exempt existing derivatives holders from new collateral requirements meant to safeguard the whole financial system? Oh, that would be because if applied to Berkshire's derivatives positions, Buffett would have to post some $8 billion in cash as collateral. Now, if that happened, how would the Oracle be clear to see his next pick-off target and have the cash handy to swoop in when destructive derivatives elsewhere cause the opportunities he gorges on?
How about that for powerful - and clever?
How about Buffett's insurance company General Re committing fraud in 2000 through 2001 by aiding and abetting AIG to "manipulate and falsify their reported financial results," according to SEC charges? They didn't admit any wrongdoing (who ever does?), but they still had to pay millions in fines.
How about Buffett coming in to save Goldman Sachs, right after it became a bank holding company to get Federal Reserve rescue money, and right before the New York Fed gave Goldman Sachs $14 billion in cash, exactly when they were teetering on oblivion (but, not according to them, of course)? Now, that's good timing, folks.
I'm not saying that Buffett had any inkling that the Fed was going to throw Goldman a few undeserved billions from the bailout money taxpayers provided AIG (some $180 billion) for, guess what, derivatives contracts that Goldman wanted AIG to pay up on. The funniest thing (NOT!) is that the contracts were paid to Goldman in full when they weren't worth anything near 100 cents on the dollar.
Anyway, Buffett may have been talking to Tim Geithner, then-head of the NY Fed, but I wasn't there. However, I think they know each other because Geithner, when he subsequently became Treasury Secretary, went to see the Oracle almost immediately upon taking his oath. I wonder what kind of oath to the Oracle he was taking under his breath...?
There's so much more...
Like how the Oracle defended Goldman in its fraud case regarding the $550 million fine it had to pay to - you guessed it - not admit it did what it did.
Or, my personal favorite, how the Oracle saw the future by owning some 20% of Moody's while it made billions falsely rating, guess what, derivatives (which are "weapons of mass financial destruction," you know). And how Moody's was protected as Buffett, in the heat of the battle over what helped cause the crash, divested himself of Moody's shares at pretty darn good prices.
And, when asked by Phil Angelides, chairman of the Financial Crisis Inquiry Committee, about a McClatchy newspaper report that Buffett got confidential information from Moody's executives about the true state of the mortgage-backed securities markets, whose products Moody's had stamped AAA for their usual fees, he denied it. Even though there are emails that were submitted to the Committee by one of the Moody's executives to prove it...
How come none of us got that memo from Moody's? And how come no-one has seen the email?
That's power, folks. That's the power of the folksy Oracle.
As I said, there's more, there's a lot more, dirt on Buffett.
Some of the latest and greatest is in Peter Schweizer's new book, which was the subject of a blockbuster 60 Minutes two weeks ago. Funny thing though, there was nothing in the segment about Warren Buffett, even though the whole show was based on Schweizer's book.
But there's plenty in the book, "Throw Them All Out," about Mr. Buffett's inside dealings. Please, get the book and read it, so you don't think I'm making this stuff up.
Is Buffett an Oracle, a deep-value investor who does tremendous analysis of his targets, or a trader who makes multi-billion dollar decision while "lathering himself up in his bathtub," which is where he said he was when it came to him to buy into Bank of America. Some due diligence. Loan sharked them the next day...
Mr. Buffett, my hat's off to you. You are one of the greatest crony capitalists in America.
Shah
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