The ongoing war over the “Shadow Banking” System –  the major battles – whose winning - the sides -. Is London Burning? – The G 20 meeting – winners and losers – The Critic. Economic tends for the future – more regulations, delevering, & degloblization.

LONDONBURNINGJeffJMitchell:Getty

Photo of riots in London over G 20 meeting from the Atlantic

Shadow Banks

Definition – Over a decade ago Shadow Banks were formed when the US congress began to strip regulations from the financial system. Huge “to big to fail” institutions (from AIG to GE) were created and allowed to hide their over leveraged assets. This created false wealth and 100′s of billions for those crooks who ran the scam. It brought the entire world to the precipice of economic meltdown.

The Battle – Shadow Institutions are winning (so far)

  • Trillions of taxpayer dollars and printed money are being given prop up shadow banks
  • Programs designed to have taxpayers bailout banks (See nobel prize winner Joe Stiglet’s in NYT editorial
  • Accounting rules (Mark to Market) are being changed to allow less transparency
  • almost nothing outside of political jaw boning has been done to break up  ”to big to fail” shadow institution

 

The Sides - These sometimes fluctuate  and politicians know how to hide their true colors, but basically a partial list looks like

  • Defenders of shadow banks – The Bush administration, the Obama administration, Wall Street and the shadow institutions. 
  • Opponents – unlikely and less powerful group- Most notable Paul Krugman, France Pres. Sarkozy, Alan Greenspan, Joe Stiglets, Lindsey Graham (R senator), some other major Republicans and Democrats & American taxpayer who is going to pay.

Is London Burning?

One photo says a thousand words (see above). No matter how right you think your position is – is it right to break into institutions, hold CEO’s hostage, cause the death of an innocent bystander, destroy property, attack your employer when the business folds, write letters to the families of workers for banks threatening their kids?

Both the media far left and far right are pouring oil on this fire. The lefties in London are hurting their own cause. See comments made by “The Critic” on right hand side of blog.

One big positive coming out of G 20 is greatly increased funding for IMF (International Money Fund). MIT’s  Simon Johnson has an editorial on this and credits Obama.

 

Long Term Trends

Future trends depend on if or how much major Shadow Institutions are able hide their toxic assets and keep their to big to fail  size.  The following trends (good or bad) seem to be gaining at least a foothold.

  • The desire for more regulations to prevent bubbles.
  • “Delevering” – Over leverage risk will get reduced as everyone saves more
  • “Deglobalization” – Nationalization, protectionism, will grow as countries turn from greed to survival

Very interesting editorial on this by PIMCO (bond giant) Bill Gross and its negative long term future for stocks

 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

 

Stocks

 

Index Percentage % Volume
Dow +2.01% flat
NASDQ +1.51% up
S&P500 +1.66% flat
Russell2000 +1.52% -

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Technicals & Fundamentals

Stocks rallied on hopes that FASB will allow the  shadow banks more to hide their liabilities. This AM FASB announces changes.  Big stock rally may continue depending on how generous FSBY is to shadow banks.

Key major index to watch is leading NASDQ - closed at 1551. Resistance levels at 1587 & 1598. If especially the later resistance level falls in heavy volume, rally should have more steam in the engine.  Anything that threatens shadow banking will hurt stocks.

Baltic Dry (Sea) Index - (see chart link on side of blog)  

Since 3/10 the BDI has fallen and yesterday was again  no exception. Another @-2.5%  Total loss from high more than 27%

Bottom Line here – If the flow of goods between countries continues to fall, so too will stock markets across the world. Unless we start to see some sort of rebound in the BDI a long term rally in stocks is dead.

Reading the Tea Leaves - (still sticking wit Monday’s call since it seems [has] to be coming true)  “In the shorter term - Thursday the gov’t committee (FASB) meets to supposedly change Mark to Market accounting.  This should give financials a boost.  But longer term watch the BDI, if it keeps falling so will worldwide stocks.”

 FASB - the group that will change accounting standards is Federal Accounting Standards Board meets today. The more transparency they strip away from shadow banks the better it will be for short term for stock markets.

Remember Wall Street in the short term has a tendency to buy the rumor and sell the news. How much of  mark to market accounting gets eliminated and for how long is important to any rally.

Long Term Outlook CAUTIOUSLY BEARISH

See Changes in STRATEGY, POSITIONS, & OVERVIEW sections of blog 

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

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