Former Head of Structured Products at UBS: Game Theory Exposes Toxic Asset Plan As Fraudulent (Washington’s Blog)

“Keller presumably understands financial markets, toxic assets and game theory quite well. And he is calling Geithner’s toxic asset plan ‘fraudulent.’”

Stress Test Results To Be Delayed ‘Til Later Next Week Or Possibly Never (Dealbreaker)

“Regulators and bank executives are concerned about how the disclosure is handled because weaker institutions could suffer a collapse in their stock prices.”

The Naming of Swine Flu, a Curious Matter (New York Times Asia Pacific)

“While the new virus seems to be most heavily composed of genetic sequences from swine influenza virus material, it also has human and avian influenza genetic sequences as well, according to the Centers for Disease Control and Prevention in Atlanta.”

Peace

In today’s edition of Trader Art, I present the S&P 500 Index. As noted on the chart, the same setup from May of last year is taking place this year.

History doesn’t repeat, but it often rhymes.

If history has taught us anything, it’s that history teaches us nothing.

The Setup

Peace

Christina Romer, top White House aide, declares Uncertainty is biggest econ risk from flu now. (Reuters)

“A top White House aide said on Thursday that the economic fallout from swine flu would be dictated by the severity of the health problems it causes, but at the moment the biggest threat was uncertainty.”

Derivatives Hit Austrian Railroad With Record Loss (Bloomberg)

“There was a climate that pressured publicly owned companies to look for creative ways to finance themselves,” said Thomas Hofer, the Vienna-based owner of H&P Public Affairs, which advises political campaigns. “They were given the feeling of being financially negligent if they didn’t invest in derivatives.”

Flawed Credit Ratings Reap Profits as Regulators Fail (Bloomberg)

“S&P President Deven Sharma says he knows his firm is taking heat from all sides — and he expects to turn that around.
‘Our company has always operated by the principle that if you do the right thing by the customers and the market, ultimately you’ll succeed,’ Sharma says.”

Peace

North American pork hit with bans on flu scare via Reuters

Below is the weekly chart of Lean Hogs. You need not listen to government statements and denials. The market price of Lean Hogs will tell the story. The swine flu is having ramifications on the market for Lean Hogs. The ramifications will be measured precisely by the price of Lean Hog futures. It looks to me as though Lean Hog futures will trade much lower. I will continue to monitor this situation.

Lean Hogs

This will also have ramifications for Feeder Cattle. Feeder Cattle looks like a safer short here. They have not sold off as much as Lean Hogs. Yet!

Feeder Cattle

Peace

Back at the office, my traders and I were discussing the bond market, specifically the Ten Year Treasury Note and it’s rate.

I don’t watch CNBC. One of my traders keeps an ear on it for me. He alerted me to the rumor Rick Santelli spoke of today: The Treasury would start to sell a 50 year bond. Rick Santelli is one of the only people on CNBC worth listening to. After all, who else on that channel has been in and around the trading pits since 1979?

In my post from April 22nd, I laid out my thesis on how the Ten year will be moved higher. I said that the FED would halt sales of the 30 year, exactly as they did in the year 2001. This action would then spike demand for the Ten Year. If US bonds are a safe haven, and you cannot buy 30 year US bonds, the safe haven becomes the Ten year.

Rick and I agree. The Ten Year goes higher. Rick thinks they’ll halt the 30 Year and offer a 50 year. I think this is possible. One thing that gives me pause is how embarrassing the UK’s offering of 40 year gilts (bonds) was in March. I don’t think it would look too good for the FED to offer a 50 year to a tepid response.

Whether they offer a 50 year or not, I don’t know. I do know that rates must go lower. Markets don’t move, they are moved. As the FED moves the Ten Year to new highs, the rate will move to new lows.

Below is a chart of the Ten year and the rate on the Ten Year. Notice the inverse movement. Notice the red line at the bottom. Rates will go below there. They have no choice. The mathematics are irrefutable.

Inverse

Peace