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All of the major stock indexes are trading sharply higher today after a European bank recapitalization was announced during the European Union summit. If we have learned one thing by now, the markets will rejoice on any type of bailout news. The bottom line, debt continues to bailout debt and that theme has not changed since the Dow Jones Industrial Average crashed in 2008. The big question that everyone must ask themselves is how these banks can afford to take on new debt. In the United States the four large banks are able to do so because they can borrow money at zero percent from the Federal Reserve, however, that is only the four largest banks. The bailout in Europe is huge and will cover hundreds of banks. Again, the details here are very sketchy and nobody really knows what is going happen after this institutional euphoria wears off and the real details are released. 

Occasionally the SEC and other regulators will castigate, actually punish, fraudulent events on Wall Street.  Of course the real punishment is only meted out to individuals and small companies.  Mega banks – the banking mafia – are largely immune.
 
Martha Stewart was convicted of insider trading in 2004 – a relatively small amount – and was sent to jail.  It was an act of fraud alright, but it pales in comparison to the fraud of Wall Street banks.
 
Phil Falcone, a once high flying hedge fund manager, was just charged with fraud and it sounds like the regulators will throw him in jail for a very long time.  Among other allegations, Mr. Falcone was charged with “granting favorable redemption and liquidity rights to certain strategically-important investors in exchange for those investors’ consent to restrict redemption rights of other fund investors” and “Falcone and two Harbinger investment managers through which Falcone operated manipulated the price and availability of a series of distressed high-yield bonds…”
 
Remember, like Martha Stewart, the government wants to throw Phil Falcone in jail and maybe he belongs there; but what about the mega banks?
 
Barclays was found guilty of MANIPULATION (like Falcone) and giving PREFERENTIAL TREATMENT to certain clients (like Falcone) but nobody is going to jail.  Moreover, Barclay’s fraud was on a colossal scale, unlike Martha Stewart, and again I say: nobody is going to jail.
 
From the FSA' breakdown of Barclays traders caught in the act of manipulation:
 
On Friday, 10 March 2006, two US dollar Derivatives Traders made email requests for a low three month US dollar LIBOR submission for the coming Monday:

i. Trader C stated “We have an unbelievably large set on Monday (the IMM). We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help”;

ii. Trader B explained “I really need a very very low 3m fixing on Monday – preferably we get kicked out. We have about 80 yards [billion] fixing for the desk and each 0.1 [one basis point] lower in the fix is a huge help for us. So 4.90 or lower would be fantastic”. Trader B also indicated his preference that Barclays would be kicked out of the average calculation; and

iii. On Monday, 13 March 2006, the following email exchange took place:

Trader C: “The big day [has] arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”

Submitter: “I am going 90 although 91 is what I should be posting”.

Trader C: “[…] when I retire and write a book about this business your name will be written in golden letters […]”.

Submitter: “I would prefer this [to] not be in any book!”
 
And further…
 
Trader C requested low one month and three month US dollar LIBOR submissions at 10:52 am on 7 April 2006 (shortly before the submissions were due to be made); “If it’s not too late low 1m and 3m would be nice, but please feel free to say “no”... Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”. A Submitter responded “Done…for you big boy”.
 
And further it goes…
 
On 6 August 2007, a Submitter even offered to submit a US dollar rate higher than that requested:
Trader F: “Pls set 3m libor as high as possible today”
Submitter: “Sure 5.37 okay?”
Trader F: “5.36 is fine”
 
And further…
 
On Thursday 14 December 2006, Trader F emailed a Submitter, requesting a low three month US dollar LIBOR submission for the following Monday, 18 December 2006; “For Monday we are very long 3m cash here in NY and would like the setting to be set as low as possible…thanks”. The Submitter instructed another Submitter to accommodate the request; “You heard the man” and confirmed to Trader F “[X] will take notice of what you say about a low 3 month”.

Two seconds later, that Submitter sent himself an electronic calendar reminder to make a low three month submission at 11 am on Monday 18 December 2006: “USD 3mth LIBOR DOWN”.
 
And further it goes…
 
For example, on 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”. Trader G responded that he would “have a chat”. Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays’ LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger"
 
And further…
 
Trader E communicated with traders at Panel Banks 1, 2 and 6 in advance of the IMM date. For example on 12 February 2007, Trader E stated in an instant message with a trader at Panel Bank 6:
“if you know how to keep a secret I’ll bring you in on it […]
we’re going to push the cash downwards on the imm day […]
if you breathe a word of this I’m not telling you anything else […]
I know my treasury’s firepower…which will push the cash downwards […]
please keep it to yourself otherwise it won’t work”.
 
And further the FRAUD goes…
 
Various instant messages exchanged after the final benchmark rates were published on 19 March 2007 indicated that the traders involved considered that their strategy had been successful. Trader E commented to the external trader at Panel Bank 6 “this is the way you pull off deals like this chicken, don’t talk about it too much, 2 months of preparation […] the trick is you must not do this alone […] this is between you and me but really don’t tell ANYBODY”.
 
LIBOR is a major international interest rate used for rate calculations that may have affected you.  Let’s see; if you had and ARM loan at any time from 2005 until today, or student loans, or car loans…or any damn loan…you may have been harmed by this outrageous and blatant FRAUDULENT activity!  In fact, LIBOR sets the interest rate for $350 TRILLION in interest-rate sensitive products.
 
So what was the penalty you’re wondering?  The usual for big banks: a small fine of $200 million and a “promise” to never do it again.  
 
Why isn’t Phil Falcone being fined $1 million and why wasn’t Martha Stewart fined about $10,000?  Oh yeah, they aren’t mega banks like Barclays, JPM, Shitibank, and Goldman Sachs.
 
If the government refuses to put one person in jail for this scandal, I personally hope Barclays is sued into permanent bankruptcy – never to rise again.

 
Trade well and follow the trend, not the so-called “experts.”
___________
Larry Levin
President & Founder - TradingAdvantage

Nearly every talking head in the financial media is hoping for good news to come out of the European Summit which starts tomorrow. What does good news actually mean? Well, it actually means more debt will be created for another bailout. Isn’t too much debt the problem in the first place? All these years of increasing the debt has finally caught up with the people, governments, and banks. Another bailout whether it comes from Germany, the International Monetary Fund, China, or the Federal Reserve will simply create a bigger problem down the road. The way governments spend money must change, and the way banks lend and get bailed out must change.

Nearly everyone in the investing community is now looking for a bailout in some shape or form. The same goes for the banks. A case can be made that the large banks around the world are the biggest welfare recipients in the world. After all, the Fed funds rate in the United States has been zero percent since December 2008. This means that the four largest banks in the United States such as J.P. Morgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C), Wells Fargo & Co (NYSE:WFC), and Bank of America Corp (NYSE:BAC) can borrow money at zero percent. These same banks essentially pay you no interest in a savings account, charge you an average of 17.0 percent interest on a credit card, and speculate in the stock, bond, currency, and derivative markets. What a racket! 

In Europe, there are many entitlements for their people; Health care, long vacations, a lenient work schedule, and early retirement are all part of the European life. These same people also pay a boatload in taxes to have it that way too. So what is going to happen to that way of life from this point on? Is life about to change in Europe as we know it? Of course it is, because debt cannot bailout debt like the politicians, and the central bankers would have you believe. 

At this time, the stock market institutions that move markets are betting on more stimulus or money printing in one form or another. Simply put, everyone knows that these institutions are addicted to stimulus. As a trader we must simply read this type of action on the charts and play the near term moves. This does not have to be a time when money cannot be made, it is the opposite, it is a time when money can be made almost on a daily basis if you can read the charts. Lets see if the so called good news out of Europe will happen soon. This will usually lead to good trading opportunities on both the long and short sides in the stock market. 

Investors continue to buy the greenback for one reason only and that is deleveraging. To deleverage means to reduce risk and with the high level of uncertainty in the Eurozone, investors around the world are cutting back on any risky positions. In other words, even if the U.S. economy is worsening and the Federal Reserve is implementing measures that make the dollar less attractive, if the level of fear in the market remains high, the dollar can still rise. 

One common measure of fear is the VIX index and the following chart shows the strong correlation between the VIX (white line) and the Dollar Index (orange line).  When the VIX rises, the dollar appreciates and vice versa which tells us that fear is driving investors into the arms of the greenback.

www.bkassetmanagement.com

Hong Kong’s Hang Seng Index HK:HSI +0.34%  rose 0.2% while the Shanghai Composite indexCN:000001 -0.56%  reopened after a long weekend to trade down 0.5%. Japan’s Nikkei Stock Average JP:100000018 -0.38%  edged 0.3% lower after trading in both directions.

http://www.marketwatch.com/story/stocks-sink-in-korea-australia-as-japan-seesaws-2012-06-24

HONG KONG (MarketWatch) — China’s manufacturing activity deteriorated in June, according to preliminary HSBC data released Thursday which registered a seven-month low

http://www.marketwatch.com/story/china-manufacturing-weakens-further-hsbc-2012-06-21

Despite this speculation there remains a political dynamic with respect to further Fed intervention in an election year, which could make any further substantial easing politically problematic for the Fed, given fierce Republican criticism of the policy a year ago.

http://www.cmcmarkets.co.uk/blog/posts/currency/markets-looking-fed-placebo