Market To Paulson & FED: What Else You Got?

by Larry Levin


The market was supposed to cheer the move of the Dynamic Socialist Duo (Paulson and Bernanke) - but it jeered instead. After another great day of volatility in both directions, the S&P500 futures closed down 16.80-points and the Dow closed below 11,000 for the first time since 2006. The emperor has no clothes and the market knows it. The United States of America has turned into the United Bailout Nation of America, and the market is tiring of it.

Instead of rallying shares of FNM and FRE, the GSEs continue to fall - yesterday falling 31% and 32% respectively in just 2-days. The Financial Times sees the situation differently than the Fed: US banks suffer as bail-out fails to calm nerves, begins the cover story. Despite the so-called rescue, banks such as Washington Mutual and Cleveland 's National City are in full retreat following the collapse of IndyMac. WaMu is down 31% in 2-days, while National City plunged 27%.

The Fed stepped in and tried to bail out Fannie Mae and Freddie Mac, but talk continued to circulate that there would be nothing left. Add the FDIC takeover of IndyMac and the focus of the market shifted to who would be the next to fold, said Marc Pado, U.S. market strategist at Cantor Fitzgerald. This isn't likely to change soon.

Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke were in front of Congress today, trying to defend their recent actions. From time to time their assertions were excoriated by the few Senators who finally get it. Senator Bunning was the most aggressive. The following are part of his remarks today ----

"First, on monetary policy, I am deeply concerned about what the Fed has done in the last year and in the last decade. Chairman Greenspan's easy money the late nineties and then following the tech bust inflated the housing bubble and created the mess we are in today. Chairman Bernanke's easy money in the last year has undermined the dollar and sent oil to new record highs every few days, and almost doubling since the rate cuts started. Inflation is here and it is hurting average Americans.

Second, the Fed is asking for more power. But the Fed has proven they can not be trusted with the power they have. They get it wrong, do not use it, or stretch it further than it was ever supposed to go. As I said a moment ago, their monetary policy is a leading cause of the mess we are in. As regulators, it took them until yesterday to use power we gave them in 1994 to regulate all mortgage lenders. And they stretched their authority to buy 29 billion dollars of Bear Stearns assets so J.P. Morgan could buy Bear at a steep discount.

Now the Fed wants to be the systemic risk regulator. But the Fed is the systemic risk. Giving the Fed more power is like giving the neighborhood kid who broke your window playing baseball in the street a bigger bat and thinking that will fix the problem. I am not going to go along with that and will use all my powers as a Senator to stop any new powers going to the Fed. Instead, we should give them less to do so they can do it right, either by taking away their monetary policy responsibility or by requiring them to focus only on inflation.

Third and finally, since I expect we will try to get right to questions in the next hearing, let me say a few words about the G.S.E. bailout plan. When I picked up my newspaper yesterday, I thought I woke up in France . But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed's purchase of Bear Stearns' assets was amateur socialism compared to this.

And for this unprecedented intervention in the markets what assurances do we get that it will not happen again? None. We are in the process of passing a stronger regulator for the G.S.E.s, and that is important, but it allows them to continue in the current form. If they really do fail, should we let them go back to what they were doing before?

I will close with this question Mr. Chairman. Given what the Fed and Treasury did with Bear Stearns, and given what we are talking about here today, I have to wonder what the next government intervention in private enterprise will be. More importantly, where does it stop?"

I was happy to hear someone in Washington (other than Ron Paul) FINALLY stand up to the Socialists masquerading as do-gooders and world-improvers today. What a refreshing change of pace from the usual a$$ kissing that usually takes place at that Dog & Pony show known as the Senate Banking Committee testimony.

Bernanke wasn't today's only whipping boy; the other half of the Dynamic Socialist Duo, Hank Paulson, was treated harshly as well. I believe it was again Senator Bunning that pressed the later half of the Dynamic Duo with regard to Paulson's request for UNLIMITED funds for FNM and FRE. Ah-hem, any guesses where these UNLIMITED funds are coming from? That's right folks - from you! Paulson refused to provide details because he said it's rather difficult to explain how an unlimited lending line can have terms and conditions necessary to protect the taxpayer. Well, duuuuh! In other words, it's a lie, in a series of lies by Paulson.

Another part of Helicopter-Ben's testimony today was, as usual, regarding inflation. To be more specific, it is to mention that there is a possibility that inflation may exist, but it is still a myth - as far as the Fed and the BLS are concerned.

I am not going to quote what Helicopter-Ben said today because it was just another regurgitation of the usual claptrap he spouts off at this event. I would rather paraphrase it they way I heard it---

Hey you, yeah you - are you bitching about higher food and energy costs? Well I don't care. I will ignore your little inflation problem, as well as my mandate as Federal Reserve Chairman to keep the currency stable, as long as my friends on Wall Street have a problem. I know they did it to themselves, but they need help. And that's where you dupes, excuse me, fellow Americans come in. We need to stand together by ignoring everything that goes up in price, just like my buddies at the Bureau of Labor & Statistics (BLS), and focus on bailing out all Wall Street entities without a vote - nay, nary a question. Look, I know one thing that is going up and that's caviar. And how can the Wall Street CEOs and CFOs and the like get by without champagne and caviar? They need your help - NOW - so stop complaining, pay your taxes, and BEND OVER.

So what if Producer Price Inflation came in today at +1.8% for ONE month. And who cares if the last quarter was annualized to show piping hot inflation at 14.3%! As long as you chumps, excuse me, fellow Americans, refuse to ask for a raise I will ignore it. After all, most of you suckers, there I go again - fellow Americans - still believe in the CORE rate of inflation which is still at 0.2%. You haven't realized that my egghead friends at the BLS laugh their asses off every time they publish that CORE rate of inflation, which simply goes like this: only count prices that are stagnant or going lower.

And finally, don't worry that we at the Federal Reserve are not elected and therefore not accountable for anything we do. We are the do-gooders and world-improvers that everyone has always wanted. Stop laughing, I'm serious. Don't worry if we are demanding and receiving more power than we were ever intended to have - we have Wall Street's back. Oops, I meant we got yer back my fellow American.

So please do your part by ignoring inflation, ignore the home down the street that is foreclosing that you are responsible for, pay your taxes --- and ignore the man behind the curtain.

Now I'd like you all to repeat the new pledge of allegiance I was working on a few weeks ago. It goes like this: I pledge allegiance to the flag, of the Banana-Republic of America , and to the Regulators for which it stands, one nation under an all powerful regulator like the Fed, with directives and price controls for all.

Yep, that's what I heard today.

There is so much more to write about that happened today, but I just don't have the time.

Real Time Trading Signals*for

Trade Date: 7/15/08

E-Mini S&P Trades*
(before fees and commissions):

1) B/away sell @ 8:35am at 1217.25 = +.25 (1 lot)

2) OTF buy @ 10:40am at 1212.00 = +5.50 (1 lot)

3) VA buy @ 11:40am at 1226.00 = -1.75*2

4) VA sell @ 12:30pm at 1226.00 = +3.50 (1 lot)

5) VA sell @ 1:10pm at 1226.50 = -2.00*2

6) Engf (jump) sell @ 1:50pm at 1228.00 = -1.75 (1 lot)

7) OTF buy @ 2:25pm at 1225.50 = -1.00 (1 lot)

8) FOUR profitable trades were not filled by 1-TICK each!

9) Algorithm trades (4)...combined total...+5.75


E-Mini Russell Trades*
(before fees and commissions):

1) No ER trades today.

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