Counterfeit Capitalism

by Larry Levin

Without Uncle Sam's handout today, the markets dropped like a rock. Without Uncle Sam's assistance, Washington Mutual was taken out late last week and Wachovia Bank bid us adieu today. Both banks no longer exist in their recent forms. Without government largesse, which is 100% financed, our so-called capitalist system should be called what it is: counterfeit.

Without the steady and constant infusion of easy money and credit into the economy by the Fed, for years on end, a housing bubble of the magnitude that has just popped could never have been created. Without the politicians of both parties coercing and pressuring banks, S&Ls, Fannie Mae and Freddie Mac to make all those sub-prime mortgages, the massive scale of the current bamboozle would never have been reached. And without the golden boys of Wall Street attempting to fashion gold from lead by tying the rotten paper to the good paper, converting it into securities and selling it to banks all over the world, there would not have been a global financial crisis.

We imported plastic gee-gaws and junk from China and other countries, while we exported toxic investments. I'm guessing they're not very happy with our idea of free markets, which turned out to be like imitation-lobster over the last 15-years: not very pleasant.

Although we exported Counterfeit Capitalism, foreigners didn't necessarily have to buy. But they did in ever increasing amounts as the intoxicating high of getting something for nothing was too much to resist. And now we learn that they are in it knee deep too.

Fortis, a huge Belgian/Dutch financial company, is going bust, according to today's news. Public officials of at least three countries are trying to rescue it. According to the Financial Times, the firm is likely to be nationalized by Luxembourg , Belgium and the Netherlands all at once. That should be interesting.

In England , the government is preparing to nationalize another major bank, Bradford and Bingley. According to the Financial Times, nervous savers are taking their money out of B&B, which is leaving the firm dangerously short of cash. Bradford & Bingley's stock market listing was cancelled shortly before markets opened today. The stock had already slumped well over 90% since the start of the year.

Copying the genius's on Wall Street, Bradford & Bingley specialized in loans to landlords and so-called self-certified mortgages, which required less proof that a customer can repay a loan. Like Northern Rock it has struggled to continue funding these loans as wholesale lending markets dried up. Both are now owned by UK taxpayers.

Sooner or later the US needs to reduce its level of spending and save. Borrowing money is OK, as long as one can be reasonably assumed to be able to pay it back. Unfortunately, the world may no longer look favorably on the US as a credit risk because of what has happened. The first step in ending a crack addiction is to put down the crack pipe. Will the clowns in Congress put down the pipe? I have my doubts.

Surely Mikhail Paulson, the White House and certain Representatives will be making furious calls tonight demanding that Congress gets that crack shipment over to the Treasury or, by God, the asteroid Apophis will hit the Earth and all the polar bears will be water-boarded.

Said another way, after all the arm twisting that is surely happening now is done - the bill will be approved. Furthermore, when it does there will also be massive RALLIES in the Dow and other indices. In fact, the rally that starts will probably last quite a while because nobody will be expecting that. Will that bottom be The Bottom that everyone is waiting on? I doubt it. The economic data that will be coming out soon will finally confirm the recession that many on Wall Street still deny.

Even though it is likely that after the Wall Street Handout Bill is passed a rally will ensue, it doesn't take the sting out of today's boot stomping. The Dow was down -777.68, the S&P500 -106.85 and the NASDAQ -199.61. These are gut wrenching one-day declines, but the only ones who can be surprised are the Pollyanna's and one way street signs known as long-only fund managers. The trend is down and has been for months. This type of drop was a certainty.

One trillion dollars of market capitalization was vaporized today - Counterfeit Capitalism indeed.

Real Time Trading Signals*for

Trade Date: 9/29/08

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

1) VA buy @ 8:35am at 1194.00 = -2.00 (1 lot)

2) OTF sell @ 11:10am at 1174.75 = +4.00 (1 lot)

3) Engf sell @ 1:45pm at 1141.25 = +5.00 (1 lot)

4) Algorithm positions (1)...combined total...+10.75

ZB (30 Year Bond) Trades*
(before fees and commissions):

1) No ZB trades today.


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