The New York Times Article regarding the change in accounting rules cannot be found on their website because they block their content.

Here is the essence of the article:

“Giving the market momentum was a change to accounting rules that could make some banks look more profitable on paper (emphasis mine). The Financial Accounting Standards Board voted to ease mark-to-market standards, giving companies more leeway in valuing mortgage-backed securities.”

Conclusion : Just because something looks better “on paper” doesn’t mean that it’s any better. Suspending this rule will, of course, backfire.

Peace

“The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world, with the most stable political system in the world.  I don’t believe that there’s a need for a global currency.”
-Barack Obama
March 28, 2009

In many of my musings here at Trade the Picture, I have written of the dollar being a short and US bonds being a short. I believe this to be true AT SOME POINT. I was not sure when that would be. I have more clarity now. The bond and the dollar are not shorts here and now. It is my thesis that the dollar and the bond will rally fiercely. As this happens, equities will weaken to new lows.

The Bond and the dollar are the same. They move together. Think about who needs the dollar stronger. First, the United States does. We are starting to hear the President stress this fact. Second, China needs the dollar strong. Why? Because their currency is pegged to the dollar. Why else? Because they are the largest holder of US bonds.

The shills on TV keep declaring a bottom in equities. The shills don’t trade. The only thing the shills want are viewers, so they can sell advertising. Why do people even bother watching the propaganda that the television feeds them? I think I know why. History. If history has taught us anything, it’s that history teaches us nothing. Knowing this, the TV shills will continue their game. Meanwhile the cycles that have happened over and over again will play out.

Peace

Sunday night update:  The dollar is up, bonds are up,  equity futures are down.

Timothy Geitner declared to the press circuit that he cannot say whether more bailout money will be needed.  Well, Mr. Geitner, that’s a vague way of saying that much much more money is needed.  The question is what process are you going to use to secure more funds?  Trying to get EVEN MORE bailout money passed through the mumbo jumbo soundbites that congressional hearings have turned into might not be a real popular way to go about it.  The business journalists that are covering this whole mess might really start to scratch  their heads and wonder.  You at least need to keep the press circuit on your side.

So, though you may not be able to get more bailout funds passed through the circus of congressional hearings and political double entendres, there is another very obvious way to fire up the printing presses and ease credit.  You already announced the plan.  You’ll buy back $300 billion worth of treasuries.  Though the bond market witnessed an initial jolt, no one seems to be taking this treasury buyback plan very serious.

To achieve it’s goal and ease credit more, the Fed has no choice but to drive bond prices higher.  Remember, markets don’t move, they are moved.  The Fed has a rather large set of tools to aid them in moving things where they need them moved.  I would not recommend taking the other side of their trade.  The old saying “don’t fight the Fed” is going to have a whole new meaning when you see the short squeeze they can orchestrate.

With this in mind, it is my opinion that we may be in front of an extreme outlier move higher in the bond market.  And when viewed through the eyes of Mr. Volatility, this is nothing but an opportunity.

I wrote in my March 9th post that at some point this year, the bond is going to be a massive short.  I have not veered from this opinion.  However, it is not a short yet.  It can go way way higher and very quickly.  Right now, it is the best tool that the Fed has to ease monetary policy.  I continue to hold calls in bond futures.  I believe the bond will ultimately be a huge short.  But that is not today’s business.  Today’s business is that the fed announced they are going to systematically buy back treasuries and calls in treasuries remain extremely cheap.

Peace

This is, in essence, the entire story of the stock market, as I have found it. Like the South Sea Bubble, the great tulip trading mania in Holland, the Ponzi swindles, and the chain letters of the depression, it is kept in motion by one thing–faith. Sometimes the chain is broken, confidence lost, the whole house of cards comes tumbling down, and we have another Wall Street crash. Then it starts all over again.
-Nicolas Darvas
Wall Street: The Other Las Vegas

A relatively quiet day on Wall Street today as the dollar rose so equities sank.

Someone mentioned that there was a meeting amongst bankers today. Of course, more important than the meeting was the press circuit. Special emphasis was likely placed on make up and less expensive clothing. After all - this bonus scandal is a bit hot right now. Best not to wear the $10,000 suits around for a while.

Supposedly, one of these guys that runs one of these banks (hint : $BAC) declared over the television that at the meeting everyone decided that “we are all in this together”.

Now that, my friends, is the epitome of irony. YOU’VE been in this together for a long long time. Unfortunately, what YOU were in on (excessive use of leverage and negligent risk management) is what brought US here. Now YOU are declaring WE are all in this together. Unfortunately most of US aren’t running around with multimillion dollar bonuses in our bank accounts. Now WE are all in it together. Why ? Because of the losses that YOU racked up through deplorable risk management and excessive leverage. Now, all of this has to be paid for by US.

And that just isn’t right. Is it?

Peace