Crimes in the Citi

Citi group is going down and like a drowning swimmer they don’t care who they take into the deep with them.

The losses by the two hedge funds at issue, called Falcon and ASTA/MAT, are the latest examples of the credit crunch hammering retail, or individual, investors who believed they were holding low-risk securities.

Earlier this year, Citigroup had to inject capital into another hedge fund, hobbled by its purchase of a big book of corporate loans. The company’s flagship Old Lane fund, co-founded by Mr. Pandit, has been struggling with weak returns and investor redemptions, prompting Citigroup this month to write down the fund’s value by $202 million.

Citigroup with its huge client base had no difficulty finding investors for a pair of hedge funds it launched last year. According to the Wall Street Journal brokers pitched the funds as a safe place to stash money.

Brokers at the firm’s Smith Barney unit drummed up hundreds of millions of dollars from retail clients, including some who were told the fixed-income funds were a safe place to stash money.

Citigroup brokers and fund managers assured prospective investors that the new hedge funds were low-risk, with Falcon likely to post losses of no more than 5% a year in the worst-case scenario, according to people familiar with the situation.

“That’s why they bought it,” says a Smith Barney broker whose clients, many of them wealthy retirees, invested in the Falcon fund. “These kinds of clients weren’t looking for a home run.”

Robert Zeff, a retired lawyer in Boca Raton, Fla., invested $500,000 in Falcon at the advice of his Smith Barney broker. “He was a very conservative investor whose main issue was capital preservation,” says Joe Osborne, who is representing Mr. Zeff in a lawsuit accusing Citigroup of fraud in its marketing of Falcon.

But as the hedge funds bleed out more than 75% of their value and an investor with $500,000 invested into one of the hedge funds filed a federal lawsuit against against the bank, Citigroup is offering to cover some of the losses.
How then did “a likely to post losses of no more than 5% a year in the worst-case scenario”, trun into an undeniable 75%? In out view not by accident. In the fund world it’s an old game. Sell the fund, collect the fees. So long as you don’t get greedy and load the dice or tilt the table you can make a lucrative life long living by screwing investors not too badly. But withCitigroup insolvent as we all know (Mish) We wonder aloud: did the Citi put this game into warp speed to grab all the fees and profits in the short life span foreseeable to bank insiders. Or did they just go fast and lose with the cash in a shot gun go for broke trade, win and Citi takes the loins take, lose and youv’e got the tax write off? Or maybe we over think it and the 5% bleed to 75% just by natural market forces alone. We might actually be willing to go for the least likely explanation once in a while, but not in this case and here is one reason why.

At Citigroup’s annual shareholder meeting in New York last week, Paul R. Koch, a Smith Barney broker from Wayzata, Minn., complained to Chief Executive Vikram Pandit that the bank seems to be compensating clients “just enough so they don’t sue us.”

Oh, coincidental the lawyers will say, but we say make that first line above read,

Citi group is going down and like a wilde animal determined to take everything else with them.

Trade Alert: UNG

Finally seeing a crack in natural gas. I just tried to short UNG and E-trade said there were no shares available for shorting. Give the recent run up I am betting all those outstanding shares are held long. Riddle me this batman, when all the shares that can be sold have been sold which way is it going next? Keep trying.

Alert: SLV

Let's bring our SLV short up to a half position. The FED announcement will be tomorrow. With people starving in streets and food shortages in California they will pretend to care and drop rates at most a 1/4 point. That's the gamble sports fans the dollar break and a FED pause.

Sell short 25 shares SLV @ 164.19 Stop @ 167.50

Alert: SLV

SLV is rolling over in the daily chart is it approaches its 100 day moving average (dma), but the stochastic is dead bottom turning up. This is more a FED play than any thing else so if you think the FED is about done (cutting rates) short SLV.

Short 1/4 position SLV @ 169.61 stop @188.53

Kimball Hill Lays Down in Rolling Meadows

Quietly like an old man dies in his sleep venerable home builder Kimball Hill has finally filed for Chapte 11, bankruptcy. Just another victim of the burst of the housing bubble and yet a victim like no other.

Developer Kimball Hill Inc. has survived housing recessions during its nearly seven decades of home building since World War II, but today the developer of Rolling Meadows and several Northwest and West suburban communities finds itself in a battle for its life.

The company was not incorporated until 1969, but actually begun in 1953 when a lawyer named Kimball Hill bought up land ear marked to be a golf course. On the would be greens and fairways he built what they don't build today, community. Conducting business in stark contrast to the CountryWide shark sellers of today, Hill built homes that

'..., were affordable and if the family couldn't pay the 10 percent down, $10 or $25 would do'.

Returning WWII vets and generations there after came to thrive in the booming suburb built by Kimball Hill - Rolling Meadows. It would be fair to say Hill poured his self into the town he built and that it is reflected in ways not measured on the balance sheet or metrics seen by analysts and rating agencies.

Hill's influence went beyond subdivision planning. He extended streets and then paved and named them -- mostly after birds.

He was the driving force behind the incorporation of Rolling Meadows, and the only reason the town wasn't named for him was because he didn't want it.

Hills son David took over the helm in 1969 and has since guided the ship steadily into the new century. But there the winds of the housing bubble caught the ships sails and control was ceded to human nature. The greed which led competitors to the steroids of subprime ingested profits, temporarily showing no visible sign of adverse consequence forced an impossible choice on Kimball Hill, to be blugened into bankruptcy by the competetion or be consumed by the same easy credit crack addiction of the subprime lending spree. And so it was that as the bubble swelled Kimball Hill entered markets it's dared not go into before the housing bubble.

The housing bubble has burst and the shock wave of the aftermath is unforgiving, mistakes made there like words spoken out of anger can never be undone only eternally regretted.

Kimball Hill, while a Chicago-centric builder, appears to have grown too aggressively with developments and joint ventures around the country in an attempt to opportunistically "ride the bubble". That business decision has now burned them badly.

In 2005 the company reported record margins and seemed well prepared to weather another impending housing downturn. As recently as January 2006 the company was seemingly in control of its fate. But Kimball Hills eternity of regret began in fiscal first quarter of 2006.

"Our wake-up call came in January 2006," he says now. "We were lulled to sleep during our first quarter of fiscal 2006 (October through December 2005) because we had the best margin closings in the history of the company. When we looked at declining sales, it was easy to attribute them to seasonal factors. "But in January, we saw the handwriting on the wall.

And the writing spelled doom as into year end 2007 the reeling builder, bled out $221 million. But there was one more blow dealt.

...,its net worth fell below levels for one of the covenants in its senior credit facility. Being in violation of that covenant limits the company's access to an estimated $100 million within that $500 million credit facility, which is why Standard & Poor's and Moody's last week downgraded their respective credit ratings of Kimball Hill, and S&P placed the builder on Credit Watch. "

So with the question of Kimball Hills ability to save itself resolved, the issue became simply when do they (creditors) remove the life support?

One of the turnaround scenarios for Kimball Hill and other home developers could be to renegotiate deals with local towns. More developers this year could show up at village board meetings for renegotiations, rather than new projects, according to real estate analyst Steven Hovany."A lot of developers will be forced to come hat in hand and ask to renegotiate impact fees, roads, water towers, open land," said Hovany,...'

It was in fiscal first quarter 2008 Kimball Hills eternity of regret came crashing to into chapter 11, where the hopes for renegotiations ran headlong into the reality of the housing crunch as the builder finally filed.

Kimball Hill, Inc. is private, it does not trade on an exchange, the insiders are family who did not simply abandon the company on a short term stock rally like rats from a ship and the product is a home instead of a flipping piece of property. After bankruptcy the company insiders took the full weight of the crisis on their shoulders by paying all vendors bills and finishing the houses already started and paid for at a loss. Kimball Hill is far more a victim than a perpetrator of the housing crisis and it's easy hope for a fairy tale turn around and survival for Kimball Hill, Inc. But the housing crisis between the final days of Ponzi finance and the beginning of peak oil is no fairy tale, it's the prelude to a depression, so there is no fairy tale rescue Kimball Hill.

Crime and Cover Up at UBS

Reeling from the staggering $38 billion in subprime related losses UBS is cutting 3000 jobs and raising $14.9 billion, its second capital increase to subprime losses and replacing its chairman. In addition the bank has issued a report which examines ”roots” of the problem. The bank is obviously taking painful, desperate measures it thinks will help it survive, right? Not really, the bank has committed a crime a see no evil fraud to the tax payer beat down of billions, which the Swiss economy will soon be taking painful, desperate measures to replace so that it will survive. The report is just a COVER UP, and the corporate bought financial media co-conspirators the spinmen.

With everything now in place all we need to really get the ball rolling is the ‘mea culpa’ for ‘’errors’’ made last year. To that end the board members wore their shame faces to a shareholder meeting, then issued a 50-page report released purportedly to lay out in extraordinary detail the roots of the problem. The real reason again is to cover up the roots of the problem.

Now watch how Fortune and The Economist tag team the spin control of this one. Together they present contradictory confusing accounts of the causes of UBS collapse, but they present the report in the light of a company painfully scrutinizing itself for reasons to its own incompetence– thats your cover up. Spinn incompetence if you want boyz, but one of the surest things in life is that it was criminality not incompetence that threatens to send UBS spiraling down to the pink sheets and the Swiss economy into recession as a result. UBS was one of the biggest banks with designs to compete with the Goldman Sachs of the world across hundreds of different products. They didn’t get there by incompetence.

According to The Economist the 400 page report broadly outlines three causes of the banks failures and solves

The mystery of how UBS (latest nickname: Used to Be Smart) got into this mess is being resolved. On April 21st the bank released a summary of an internal investigation demanded by the Swiss Federal Banking Commission into the causes of the write-downs. The investigation was conducted by 20 lawyers from UBS, and their 400-page report is now being chewed over by the regulator.

It is no mystery as to how UBS got into this mess , its insiders and CEO put it there, sacrificed it to the altar of subprime profits well aware that they would clear by the time the sham cascaded down on every one else. And if you think the Swiss Federal Banking Commission isn’t in on this one ask yourself why it allowed 400 UBS lawyers to prepare the report?

Now Bloomberg jumps on the cover up wagon

“There are some damning criticisms about UBS management,” Peter Thorne, a London-based analyst at Helvea SA, said in a note. “The report will be scrutinized intensively for ammunition for those who believe that a fundamental restructuring of the UBS business model is appropriate.”

There are only toned down criticisms thrown up to block out true criticism. The report should be burned as all of the ammunition was left out. As for restructuring of the UBS business model — it’s not a business model, but an old tried and true MO.

The three broad explanations for the bank’s woes given by the report are.

1. The first was the investment-banking arm’s preoccupation with growth.
2. Another was the reliance of the control team on flawed measures of risk.
3. A third was the culture of the bank.

1. Let’s look at growth and the esprit de corps Fortune and The Economist put on this one.

First Fortune points to Dillon Read Capital Management (doesn’t say anything just points)

The document is highly illuminating for its detailed analysis of the central role played by its own so-called internal hedge fund, Dillon Read Capital Management, in the debacle.

Dillon Read Capital Management was a $4 billion fund launched in June of 2005 by former UBS investment bank chief executive John Costas, with the help of then-UBS CEO Peter Wuffli.

Then The Economist points away from Dillon Read.

Start with those growth plans. Many had assumed that Dillon Read Capital Management (DRCM), a hedge fund set up by UBS in 2005 and closed in 2007, was the primary culprit for the write-downs; in fact, it contributed only 16% of the red ink spilt up to the end of last year.

When someone finally says something it is not nearly enough. According to Fortune Dillon Read,

was a veritable warren of internal contradictions. It managed client money accessed via UBS’ massive private client network, but saved millions of dollars annually by using UBS operations and support staff. DRCM also lured away top talent, draining UBS’ investment bank of over 100 of its best and most senior personnel, almost all from its fixed-income desks.

Most important, DRCM accessed the bank’s exceptionally low cost of funding

Sweet, without coughing up capital, or recruiting personnel the hedge fund was profitable from day one.

This created a system of truly perverse incentives: Since all risk was UBS’ and DRCM’s clients, and since capital was both abundant and inexpensive, the immediate impetus was to buy and position bonds that offered the greatest carry, or differential between the cost of financing and interest paid

So the push to subprime or CDOs was on and it was Dillon Read that generated the risky profits or was it? We can blame Dillon Read for this can’t we? Can we? Remember The Economist says Read lead to only 16% of write downs. Oh ONLY 16%? I am confused. I’m supposed to be.

2. Absence of risk management

Where revenues could be boosted, they were. The CDO desk concentrated on riskier “mezzanine” CDOs, which generated higher fees but suffered heavier falls in value when markets seized up in August. Cheaper hedging strategies based on buying protection on just a tiny proportion of the bank’s “super senior” (least risky) positions tended to win out over more effective but pricier ones, such as insuring the lot. The end result: a desk that numbered just 35-40 people at its peak was responsible for write-downs of around $12 billion in 2007, two-thirds of the total.

‘35-40 people at its peak was responsible for write-downs of around $12 billion in 2007’. How did these 35-40 get so much responsibility? Well they probability got it from a way on high. UBS didn’t get there by incompetence. And now the old familiar MO shows up. A small cadre of lose cannons doing all the damage ones easy to point a finger at.

More -risk out of control- management:

If the bank’s business leaders overlooked risk, its risk controllers miscalculated it. Confidence in the AAA ratings on CDOs explains the decision to hedge only 2-4% of many super-senior exposures. Those same reassuring ratings also led to more generous treatment of CDO exposures in the bank’s value-at-risk (VAR) calculations, a way of working out the maximum loss that it was likely to suffer. Liquidity was simply assumed, enabling assets to be placed in the bank’s trading book, where they attracted a lower capital charge.

No one overlooked the risk, no one miscalculated anything and the proof is that no one is in jail or even at risk of it.They didn’t get there by incompetence.

3. This one has been used before too, by Enron. The company culture was hostile, and too intimidating to asked questions

Probing questions could and should have revealed the extent of the risks that UBS was taking. Concerns were aired at various times in 2006 and 2007. The bank’s top brass was sufficiently attuned to the deterioration in the American housing market to have raised it in September 2006. But the report says that they were fobbed off by assurances from the investment bankers that all was well. Proposals from the bank’s treasury in early 2007 to cap the level of the investment bank’s illiquid assets also came to nothing.

There is no suggestion that anything untoward was going on. Assurances that risks were being properly managed were given in good faith, says Rupert Jolley, the UBS managing director who led the investigation: “The culture of the bank was to rely upon each other’s word.” But there was also a clear incentive to set aside any doubts as long as revenues were rising.

They want you to believe that billions of losses and write downs with more on the way resulted from “The culture of the bank was to rely upon each other’s word.” You’re kids wouldn’t put this over on you. The only thing anyone got right on this was the last line, but the spinn is unmistakable.

“But there was also a clear incentive to set aside any doubts as long as revenues were rising”.

Clear incentive, to look away, we call that a bribe.

And if you still don’t believe that the financial media is owned, then you can eat this Sundae without getting sick. Fortune feigning praise for credibility says of the report.

Like a cherry on top of a demonic sundae, the UBS report baldly confronts the poor risk management that put the bank in its current fix

You mean the report that UBS wrote on themselves by them selves, that one you mean? I’m gonna be sick, they didn’t get there by incompetence.

So its just the same ole see no evil scam where all the guards break their necks to look the other way, and no one complains as long as the profits are in the stock is up and the insiders options in the money. When the whole house of cards inevitably crashes they stick the tax payer with the recession driving bailout bill, frown and write a report.

Trade Alert: SLV

I do not like to guess, so I keep it to a minimum. You can see on the daily chart for SLV that it is now below its 100 day moving average (dma). After the huge double top it seems to be consolidating in a wide range from 160 to 182, it will not likely stay in that range after FED meeting on Wednesday.

But you can stare at the chart of SLV all day long and it will only tell you what has happened. To see what will happen you must look at the chart of the US dollar here. There is a wedge which formed on Marc h 17, in between 69 and 73. Whichever way the dollar breaks from that wedge SLV will break violently the other way. This is key, DON'T LISTEN TO THE FED, WATCH THE DOLLAR. What the FED does is not as important as how the market interprets what the FED does, there will be head fakes and bullshi$ , but the dollar won't lie. To me it seems that the FED and their bosses will want to crush commodities for many good self serving reasons. So in my opinion the dollar will most likely to breakout to the upside, but my opinion does not matter. The market is my master and I will follow the market.

Alert : C

The short squeeze is on in the banks as they want to rally the market and crush the commodities. Citigroup just touched 25.87 its high of last Friday. Now the stochastic (momentum) is over 80 and rolling over as is the price. We are 1/2 position short from 24.76, fill out the position.
Short 1/2 position C @ 25.85.

Alert:SLV

6:33 ET: It was a 1/2 position, but I didn't have time to post, trade and be accurate. Any we sold 50 shares @ 177.29 and bought @ 170.08 for 7.21 X 50 profit.

Do not let the gap fill-cover SLV: Buy to cover full position SLV @ 170.08

Alert: C

C is rolling over go get it. Short 1/2 position @ 24.76- stop @ 26.75

Trade Alert: C

The stochastic on the 15 minute chart of Citigroup (C) is approach 80 asymptoticly and yet the share price will clearly form a lower high when it tops out and rolls back over. That '' better than expected bull-sh#% is only good for a day. When C rolls over after it fails to break 25, short with a 1/4 position.

Fallout

Bank of America pre earnings aftermath has already left a mark whose deepening impression threatens several aspects of the larger economy. By the time the bank reports in the morning many of it's assets will have been crushed under the burgeoning weight of the credit crisis.

Lehman Brothers analyst Jason Goldberg wrote in a client note it will be tough for Bank of America to meet expectations for the quarter. The bank's books are vulnerable to $18 billion in leveraged loans, $15.7 billion in commercial mortgage-backed securities, and $8.2 billion in subprime collateralized-debt obligations.

The bank's response has been to tighten up on credit itself, and as other banks join ranks the shots will be heard around the global economy. to begin Bank of America was one of several to abandon making private student loans.

Bank of America on late Thursday said it would exit the private student loan business, but continue to make loans backed by a federal loan program for students.

The next causality is Sears Holdings Corp.

Sears Holdings Corp. which operatesKmart and Sears stores, said in a filing with the Securities and Exchange Commission on Friday that Bank of America will not renew its $1 billion long-term credit amendment under its existing terms.

And not to be understated is that Bank of America's acquisition price of Countrywide Financial Corp. is also threatened by credit problems at the mortgage lender.

...weak credit trends could endanger the final sale price.

Countrywide is likely to report rising defaults among its option ARM portfolio, as well as other mortgage product holdings

The bank's bogus assets are being written down as global ponzi scheme is seizing up.

Royal Mess

The fevered pace of mergers and acquisition reach a crescendo last year marked by Royal Bank of Scotland’s historic takeover of Dutch bank ABN Amro for 71 billion euros. But it was the epic implosion of the US subprime home loan market and subsequent forced writedowns and losses of $3.6 billion in 2007, which sent RBS reeling toward insolvency, self dilution and dissension.

Royal Bank of Scotland Group Plc, the U.K.’s second-biggest lender, is considering a share sale to shore up capital depleted by credit-related writedowns and its part in the acquisition of ABN Amro Holding NV last year, according to a person with knowledge of the plan.

Colin Mclean, who oversees about 498,000 RBS shares, according to data compiled by Bloomberg, says of the RBS's mergers.

“…,this acquisition-led strategy has run down the capital and derated the shares.”

For a bank which has repeatedly insisted that it is content with its capital position and denied that there was a need for any capital raising initiatives, it smacks of more than just a little hypocrisy, it sounds a bit criminal. When things like that happens someone has got to be the fall guy and a CEO will do quite nicely thank you. Fred Goodwin is a high enough up sacrifice to make the appearance the company trying to correct itself.

The rights issue could also lead to pressure on Chief Executive

Fred Goodwin to quit, the newspapers reported.

The Times said at least one large shareholder has said privately it would call for Goodwin’s departure if the fund raising goes ahead.

That sounds stern enough, but it’s all just part of the scam.

“Had RBS known at this time last year the extent that the credit crisis would evolve, they would have been more cautious about what they would have paid and how they would have structured it,” Dolmen Securities analyst Stuart Draper told Forbes.com

Yea uhuh. Well Stuart, they did know it. We all knew it, but they made the deals that made no sense and collected the fees that made billions for the direct participants, but saddled the bank with mountains of debt which it could not carry. The executive's frowns at bankruptcy court will fool city folks all right, but my shares of his highness the Royal Bank of Scotland are and will be held SHORT to my chest.

Alert: SLV

Sell short 1/2 position SLV @ 177.29

Alert: SLV

GAP DOWN Leave it alone. wait for the gap to fill before shorting

Trade Alert: SLV

Be prepared to re enter SLV long or short on a breakout, up or down. Yesterdays exit was precaution only as the waters have become muddied. This is the first trade on the blog that I consider risky and leaving the market yesterday just removed some of the risk premium. Some of that mud was kicked up by the US dollar falling out of the bottom of it's consolidation pattern, but not a break of the wedge. I want to see the US dollar make a clear break out from the wedge, up or down. That will spell direction for silver and SLV. For SLV itself a break below 175 could easily send it back to the 200 dma at 150, where we could load up on more. Dream Dream. Faint of heart my want to sit this one out.

Caught

Merrill Lynch and CEO John Thain sought to get out in front by playing fast and loose with reckless disregard for other peoples money and today those other people, if not Merrill saw that risk catch up.

Merrill Lynch & Co. posted its third straight quarterly loss and said it will cut about 3,000 more jobs after the credit seizure forced the investment bank to write down at least $6.5 billion of debt.

For the fiscal first quarter 2008 Merrill wrote down $6.6 billion to CDOs and another $3.1 billion to the plummeting value of mortgage-related securities on hold at its U.S. banks, giving a total of $9.7 billion written down this year so far.

In the bigger picture the company has written down $18 billion on CDOs alone in the past nine months, and has also written off about $29 billion worth of risky asset-backed securities and leveraged loans.

The reality for Merrill Lynch is as it was for Bear Stearns-STARKE. John Thain, was hired as chief executive four months ago, but not to save the company. For a major bank that rose to the top on ponzi finance, which knows only that finance system, now dying in the end of days of ponzi finance, there is no salvation. No it is more likely the only reason Thain is in is to hit one out of the park. That best explains psychotic frenzy of risky double down dealing that Thain has engaged his company in since his arrival. It is a low probability desperate attempt to squeeze a few cents out of each share for the cadre of elite insiders, ala Bear Stearns, but its no true rescue just another part of the scam.

Alert: SLV

There is no more room for error on this one. You can see the US dollar, trending ever closer to the lower boundary of it's wedge has actually violated it. Any bad news overnight could send SLV (silver) rocketing toward 200 and we would be helpless to prevent it, stops don't work overnight. I would sleep better tonight long SLV rather than short it.

Buy to cover 100 shares SLV @ 180.62

A Moral Hazard

Difficult as it is to fathom some companies are deliberately run into the ground for the self servicing interests of a insiders. A few prominent ones coming to mind are Country Wide and Enron. Poor Ken Lay still hold up in that CIA safe mansion must be missing his yacht real bad by now. Remember his stupidity defense? Yea well guess what? Enron did not write the Wall Street book of scams, they only took a page and now it seems Merrill Lynch and CEO John Thain are reading the same page. And you can bet that John too will prefer being called incompetent rather than GUILTY. The reality of course is that criminal intentions rather than stupidity are what is running the worlds largest corporations into oblivion.

And the cause of what looks like colossal stupidity is simple: bad incentives. Why be prudent when shareholders have no influence on your pay and the higher ups look only at calendar year results?

The financial crisis du jour is nothing new, just the same old scam from the same old worn out page of the same old play book.

Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

Why do you think they call it a moral hazard in the first place?

Trade Update: SLV

The US dollar is the real deal regarding gold and sliver. The dollar is in a wedge that unbelievably seems destined to form a sharp tip before it decides which way to pierce. With a full short position on SLV we are positioned to score big if it breaks up. There is really no way out of risk in this trade. When the wedge breaks the move will be made by dollars in milli-seconds, so you have to be in already or you will miss the move. No guts no glory, but you do not have to be all the way in, you can cover 1/2 of your position right here at a small profit and wait until the tip forms on the USDX.

Trade Update: SLV

We are short SLV a full position from roughly 179.00 and it closed at 175.78 on Friday. This trade may not be for the faint of heart. The economic news is all bad and the FED is dropping the worth of a dollar like a stone and it is really the US dollar who has the fate of silver in it's hand both short and long term.

As for SLV look first at the weekly chart and weekly MACD. First you can see the MASSIVE topping formation of the seven to four weeks ago. That alone should have scared the hell out of the longs. It scared the hell out of me, that is why we are short. But look at the MACD and notice how the blue line is crossing the red line. This indicates that the momentum to the down side is about to accelerate. This could provide a profitable short trade and extra cash to go long again at a great re-entry point near say $140-$150 per share. This is something I thought we never see again and we could conceivably see it as soon as next week. But before I get ahead of my self we could also get stopped out with the next round of earnings disappointments and rate cuts. So we put stops for 1/2 position @ 183.56 and a 1/2 position @ 185.75.

Alert: SLV

We are short SLV by a 1/2 position. The market is showing strength today so short the remaining position. Sell short 50 shares SLV @ 178.45

The Goldman Ratio

Even now as we approach the end of days of Ponzi finance, that outdated discredited system’s biggest winner Goldman Sachs clenches it in a white-knuckled fist that can’t be shaken. When ask to explain its insistence at the keeping of the ruinous relic, excessive leverage, the Ponzi king simply boasts:

Leverage isn’t as important as looking at the type of assets a company holds, Viniar told analysts last month. Instead, Goldman pays closer attention to capital ratios that assign risk-weightings to assets, said Viniar, 52, who joined the company in 1980 after graduating from Harvard Business School. He has been Goldman’s CFO since 1999, during which time he also served as co-head of credit risk management.

Well, maybe he means what he says. Or maybe he thinks that soon Goldman will be the single remaining broker on the Street. Maybe he means the banks will be bailed out. Or maybe he’s telling us that after all the insider trading, insider Treasury Secretary, and insider insider-ing, mighty Goldman Sachs is still dependent on debt:

Goldman alone is holding course, refusing to trim its leverage, a measure of how reliant a firm is on debt. The adjusted leverage ratio of assets to equity jumped to 18.6 at the end of February, from 17.5 at the end of November.

To be fair, Goldman Sachs isn’t the only investment firm to make heavy use of borrowed money. Morgan Stanley, Lehman Brothers Holdings and Merrill Lynch among others have been heavily addicted to easy money in prior times. In some cases, the amount of assets held by a firm is 30 times more than shareholder equity, or net worth.

But you must understand that there is a difference between a company who invests to the hilt with leveraged assets, risky as it is, and one who is leveraged to the eyeballs because it has to be. The former is a soon to be dead man, the latter is a dead man walking:

“This is Wall Street financial engineering at its worst,” said Lynn Turner, a former chief accountant at the Securities and Exchange Commission.

“If at the end of the day you have to pay it back, then it’s not permanent capital,” Mr. Turner added. “Even if you can change the timing of when you pay interest, you still have to pay it.”

With Goldman’s leverage ratios going up (17.5 at the end of November to 18.6 at the end of February) there will be a breaking point for it too — a point beyond which the financing is unsustainable, and the Ponzi cards must come tumbling down.

Alert: SLV

Sell short 50 shares SLV @ 179.00 stop @ 185

Trade Alert: SLV

We want to take another bite out of silver by shorting SLV again on it's recent strength. You can see in the daily chart the index slam down to the 100 dma at around 160 and retrace to near the 50 dma under 180. All this going on as the volume is tapering off. It could be a nice set up. With the stochastic over 50 and rising SLV could turn right on it's 59 dma @ 180 and that is what we will be looking for.

Take Out

On the heals of yesterdays post TakeDown you might think that the bears got their snouts smacked, they did not, in fact they are licking their chops waiting to take Lehman out. When Bear Stearns was 130 and falling a rumor came out that Warren Buffet was buying in. Of course he wasn't, but the stock managed a short covering rally and we all know what has happened since. The same Warren Buffet saga appeared when Country Wide traded at 17, the shares rallied as the shorts covered and Country Wide has since imploded.

Yesterdays rally was as phony as any since the two involving Buffet last summer and for Lehman's bears it only sweetened the feast. What the bears did yesterday was to cover their shorts the way you would take a late night snack from the refrigerator and are poised to short again at a much higher price. You can see clearly how desperate the government and the Street elite are to keep this market from unraveling. But unraveling it is, in historic fashion right in front of our eyes and along with it Lehman brothers. And you can bet I am not the only one laughing my as# off at the games the Street plays.

Lehman (LEH) is announcing a $3 billion convertible preferred to 'institutional investors'. In other words, retail will never get their hands on the paper and it is likely a way for LEH to pay back some clients with a cheap deal.

If everything is so rosy, and just a few months back, LEH announced it was going to buy 100,000,000 shares at around $65 a share (stock it never bought) then why would it dilute itself at $37?

Because it has to.

Bonn appetite!

Alert: IAU

put the stop in @ 88.75 for IAU

Trade Update: SLV

We were stopped out of our SLV short position today @ 167.59. We were short 1/4 from 177.51 and short another 1/4 from 176.15. Now we are out of SLV waiting for new strength to short into or follow on the long side.

Alert: SLV

The SLV is currently trading at 164.36. Move all stops on SLV down to 167.59