Janet Tavakoli, president of Tavakoli Structured Finance - July 2008

‘This is the biggest fraud in the history of the capital markets”

Janet Tavakoli

Realize almost none of you recognize her, so click on her name above to find out just how impressive her background is.

Lead story in NYT today presents a picture of our “crony capitalist” system’s shadow banks operating in almost totally unregulated foreclosure market. – “Bankers Ignored Signs of Trouble on Foreclosures” and now AG’s from all 50 states are are launching investigations into foreclosures.

Yet another crisis, that will certainly impact both the banks,the buyers, those who securitized the mortgages (those that bought/placed credit default swaps on these mortgages) and most likely impact the value of your home and mean financing another this time massive resolution trust authority to clean up the mess.

Tavakoli interview with Ezra Klein in the Wa Po - wake up and smell the coffee quotes-

  • “Banks were lying and committing fraud, and our regulators were covering them and so a bad problem has become a hellacious one
  • Many investors now are waking up to the fact that they were defrauded…
  • The banks are paying huge bonuses to some people who should be made accountable for fraud. The financial crisis was a product of our irrational reaction, which protected crony capitalism rather than capitalism”

Tavakoli thinks we can fix the problem like the last S&L crisis with a Resolution Authority. Problem here is everything is opaque and no one knows how large a hole we are in. Tavakoli doesn’t use the word crisis, but many others are far more worried – Felix Salmon“The Enormous Mortgage-Bond Crisis.”

Bottom Line

  • This problem could at any time reach a critical mass and stocks could plummet.
  • Yes, it could hurt the value of your home
  • Yes, you could end up fronting money for a Resolution a Authority.
  • Yes, you’ve been robbed by shadow financials, then paid them off again and probably again
  • Yes, those 33 Democrat Senators who voted to break up the huge shadow finacials are real heroes (not Obama)
  • Yes, the Tea Party wants to cut government so that these shadow institutions never get regulated and crony capitalism runs wild.
  • YOU are going to pay, and pay, and pay, and pay,and pay till you wake up and smell the coffee.

KISS & Stocks (Keep It Simple Stupid)

If you don’t understand a term look in up at Investopedia.com dictionary



Index Percentage Volume
Dow +0.69% up
NASDQ +o.96% up
S&P +0.71% up
Russell 2000 +1.50% -

Technicals, Fundamentals & Analysis

Investors411 record – 5 years of beating benchmark S&P 500

US Stock Markets -

  • Tech giant INTC fell -2.86% on its earnings report.
  • A major transportation company CSX rose +4.19%. Translation we are shipping a lot more, probably imported goods, in USA.
  • A major addition to the 2008 meltdown is underway in foreclosure markets.
  • Fed pumps and dumps $ (QE 2- see yesterday’s Investors411) into economy. Dollar falls in value.

Rally in above average, increased volume. Relative to last year the volume was light, but relative to the current market technically volume confirmed the rally.  The problem here is volume for many many months has NOT confirmed the rally, yet this manipulated market (BB/HFT’s, Our Fed etc – see past updates)  moves higher.

Therefore, hard to tell if volume is a conformation factor or not. This does not change the bullish momentum that is pushing stocks higher.

Significant Indexes

  • The Dollar (USD) [Anything daily price move over +/- 0.50 is significant. Dollar usually moves inversely to stocks] The dollar fell -o.38% yesterday.  Overall trend of falling dollar trend for US stocks is = Bullish
  • The Baltic Dry Index (BDI) [measures cost of world trade. Also proxy for China, emerging markets, exporting countries] Rose slightly +1.07% yesterday An 8 week bull run, then a two week fall. A very slight stutter and now moving up. Trend  = Bullish
  • McClellan Index – (MO) [The rough guideline is over +60 = overbought market = sell positions or short stocks, & -60 = oversold market = buy stocks.] Rallied to +35.81. Still wiggle room to move higher before reaching +60. Time to be start paying attention to how high MO is going.  Location= NEUTRAL

Reading Tea Leaves.

Just starting to technically get close to oversold levels. But there is still what I call “wiggle room” on the MO. Mantra remains the same -

The dollar is king. As long as it falls, stocks/commodities will rally. Still lots of room for dollar to fall before it reaches major support levels (see past Investors 411) In this case the dollar trumps the MO in value as a forecasting tool, but that does not mean the MO should be ignored.

Simply put - Our stock market is moving higher on the propaganda of Fed (Our central bank led by Bernanke) Speak

Overall – the same bullish pattern dominates.


The  Positions Section link to latest & former buys and sells  - These are positions I actually own

(I do manage 6 accounts that have other positions)

  • EWS (Singapore)
  • USO (price of oil/commodity).
  • SSO (2x what S&P does)
  • TYH (3x tech stocks) From Yesterday - Bought on the dip at 34.22. (A trade not a long term investment and therefore will sell 1/2 at 5% profit.) Sold 1/2 of TYH for 36.50 – +6% Profit. Placed stop at the price it was bought for.

Investors - From yesterday Both USO & EWS are in consolidation patterns after a big move higher. Like ETF’s listed above, for those that can tolerate risk, possibly a change to nibble on a dip. The MO is too high now for investors to go long on any new issue.  In fact, the MO could easily go into overbought territory or the new mortgage crisis could reach critical mass and it would be time to take profits.

Traders – The MO is at +35.81. Sixty (+60) is our rough estimate of overbought territory. So be careful of long positions and start thinking about shorts if market rockets higher.  This would mean the Dow going up @ 200 points today – an unlikely senerio.

Beware if a runaway stampede occurs.

Check out Paul R’s always enlightening updates on individual stocks and sectors in the comments sections.

Longer Term Outlook - CAUTIOUSLY BULLISH


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