The Old Wall Street Bulls Throw in the Towel… It’s All Falling Apart (The Financial Bloodbath Continues), by Al Martin

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by Al Martin

The Old Wall Street Bulls Throw in the Towel… It’s All Falling Apart (The Financial Bloodbath Continues)

(11-19-07) Last week was another major turning point in the worldwide financial debacle as prominent investors like George Soros and Jimmy Rogers pronounced the end of the U.S. dollar. Bloomberg reported that Rogers in an interview from Singapore where he has moved his family and business, is urging investors to get out of the dollar. He was quoted as saying, “If you have dollars, I urge you to get out. That's not a currency to own.'' …The dollar fell 9.5 percent this year against a basket of six major currencies as a housing slump slowed the economy and losses stemming from sub-prime mortgage defaults spread among U.S. banks.” Rogers also noted that he was shifting out of all his dollar assets and “plans to buy commodities, Japanese yen, the Chinese yuan and the Swiss franc.”

Rogers also called Fed Chairman Ben Bernanke “a total fool.” Rogers pointed out that Bernanke actually “said Americans who buy only American goods are not affected if the value of the U.S. dollar goes down. I was terrified,” adding “If you only buy American products and the dollar goes down, the price of oil goes up, copper goes up, wheat goes up,'' he said. “That affects you. He doesn't understand the economy as far as I can see.'' (http://www.bloomberg.com/apps/news?pid=newsarchive&sid;=aXH9wCx1oydw)

Last week equities were down for seven consecutive days. Furthermore, there were seven consecutive closes in the S&P; 500 below its 200-day moving average – an event that has not occurred since the Great Depression. It was a week of more signals that we are beyond the point of no return. And there was more consensus from these old Wall Street bulls who threw in the towel since they understand that a collapse is coming sooner than expected.

Another long-time bull on the Street who has a lot of credibility, Charlie Biderman of TrimTabs Services, who is regularly featured on CNBC and Bloomberg, was noticeably absent last week from what I call CNBC’s Council of Bullish Market Shill-Pundits, after he released a statement on Thursday saying that he has at last turned extremely bearish on equities, noting the both continuous and growing outflows of capital from domestic stock funds. Furthermore last Thursday he noted the huge outflow of equity from so-called long-only hedge funds. This was something that he had specifically warned about several weeks earlier and, indeed, there was a record outflow of capital from the so-called long-only hedge funds.

Now we are literally seeing capital fleeing the United States at a rate it has never fled before. Liquidity is drying up. We have been seeing capital flight from U.S. capital markets (equity markets more specifically) since the first of the year. That capital flight, by the way, has been moving not only into Asian stocks, but in global stocks in general, i.e., anything but the U.S. That has become this year’s new mantra – anything but the U.S. And anything but the U.S. dollar.

Indeed foreign equities have outperformed U.S. equities until very recently, when we are starting to see downturns in all foreign equity markets. We are also beginning to see, at the same time, something we have consistently warned about on InsiderIntelligence.com, and that is, a downturn in fungible commodity prices.

Now these old-time bulls and assorted market wizards, who have been around markets for 30 or 40 years and have always been bullish -- this is the first time that they have ever been bearish.

Warren Buffet has not come out publicly about this yet. The surprising thing is that Warren Buffet still claims to be bullish, but that’s strictly for public consumption. In fact, he’s also selling.

Jimmy Rogers has been touting Singapore as the place to go for smart people. and that in itself constitutes a change. Not only are the smartest-money Americans exiting U.S. marketplaces, they are exiting the United States. Period. This is something very new. Like Jimmy Rogers said, the United States is going to be a frightening place to live in during the next decade. And you don’t hear anyone disagreeing with that.

But what was important about last week is that the bullish sentiment of some of the smartest investors finally broke under the weight of the reality of what Bushonomics hath wrought.

Even so people are still under the mistaken conception that US Treasuries are still a “safe haven.” Why? Because Treasuries continue to trade that way.

U.S. Treasury paper along the entire yield curve rose for the last seven consecutive sessions. Buying Treasuries over the last seven days has been one of the easiest money-trades ever because they’ve risen in every single session.

What is happening has not yet reached the masses, the little guy, because the markets continue to behave as if Treasuries are the safe haven, which, in fact, of course, they’re not, as Jimmy Rogers points out, but they continue to act that way because small investors have been so brainwashed over the decades to think --Oh, when equities go down, you go into Treasuries. That’s a no-brainer, you don’t have to think.

We have already seen dangerous signs of the Great Unwinding, namely, that, as the dollar continues to fall, the price of gold is also beginning to fall back from its recent highs. And ooh boy -- is that a dangerous sign -- when the dollar and the price of gold and equities all begin to lose value at the same time.

The reason why it’s dangerous is that it smacks of deflation. There have been an awful lot of warnings from Fed governors this week about heightened inflation. And they’re right, now that we are seeing some up-ticks in inflation in short-term indicators. But the markets are telling you that the greater risk is deflation. Otherwise you wouldn’t see the price of financially sensitive metals, the so-called monetary metals, like gold, silver, platinum, and palladium falling.

Very simply, deflation is too many goods and services versus too little consumption. Inflation is too much money chasing too few goods. Deflation is too many goods and services chasing too little money.

What the markets are telling us is that the greater problem continues to be deflation. That has been the underlying problem throughout Bushonomics, and especially throughout the term of the current Bush-Cheney Regime.

In other words, the bottom 50% of the economic strata is not buying and it has become economically non-productive.

Furthermore, what has confounded the bears has been the ability of the American people to maintain consumption in a falling real-wage environment, despite record levels of household debt. The reason they were able to do so has largely to do with falling interest rates, particularly from 2000 to the 2005 period, where interest rates essentially went in a straight line.

So to reiterate the last bulls on Wall Street are dying. And how is the media reporting this? They simply say what the releases are from Biderman, for example, but then they don’t have him on to follow up on it.

Bulls who have turned bears become verboten on CNBC and Bloomberg. And they’ll try to fill in the gap with endless diatribes by what’s called “retail wire house shills” that nobody ever heard of and who are just going to jawbone the markets because that’s what they’re paid to do.

The last-week market action has signaled what Comptroller General Walker has been saying for 4 years, that Bushonomics has put us, fiscally speaking, beyond the point of no return. More economic pain is coming. Goldman Sachs put out a report that was widely circulated last week, noting that the sub-prime et al. debacle in the United States will reduce domestic lending capability by $2 trillion. What sub-prime is doing is it’s going to create a credit squeeze. Nobody will be able to buy anything

Traditionally credit squeezes occur because of rising interest rate. This is a different type of credit squeeze. This is a much more dangerous type of credit squeeze, similar to what occurred from 1930-1935, wherein interest rates were not the culprit. Indeed, interest rates from 1930-1935 actually declined. The problem is that economic liquidity is drying up.

That’s going to diminish buying power because money is becoming less available. It’s not a question anymore of the rate that you pay for that money; it is a question of availability of funds.

There are some weekly statistics that people are trained to look at that have really become meaningless. One of the weekly releases that bond traders look at is the weekly National Mortgage Brokers Association new mortgage application and refinance statistics, which come out every Wednesday morning.

It’s not what they’ve been saying, but it’s what’s happening in the real world. What difference does it really make if, like last week, mortgage applications rise 6%, refi applications rise 5%, and the equity market bulls immediately go out and shill that by saying -- Ah, yes, consumption can be maintained because you see people’s continuing ability to refinance. After all that’s where the money is coming from that is maintaining a seventh of total consumption in the nation. However, what those gross statistics belie is that the number of mortgages actually being funded is the lowest ever.

Only about 23% of all mortgage applications actually get funded now. We started saying last year that cash is and will be king. Under Bushonomics I (1984-1992), cash became “king.” The result of Bushonomics II, as practiced from 2001 to present, has promoted cash to “emperor.”

In the next decade, as the full impact of Bushonomics is realized in the global economy, cash will, this time, be elevated from “emperor” to “god.”

So what can we expect? The small investor should be aware that a seminal change in capital marketplaces is occurring. This isn’t the time to buy the dips anymore.

Don’t listen to the shills on CNBC like Larry Kudlow or Cramer who said every single week on the close -- Oh, buy now because the market was down a hundred or 2 hundred today. Then you saw the market down the next day and the next day and the next day. The days of buying the dips are finished. This is the time of selling, of shorting, selling short rallies, which is what we have been doing.

Here’s the most startling statistic of all. Not only has there been a dramatic outflow from so-called regular investors, that is, non-Bush-Cabal-aligned investors (regular investors) out of so-called long-only hedge funds, but there has been a record inflow, particularly into what are known as ‘short funds,’ or funds that specialize in shorting markets. Last week there was a record inflow into so-called “short funds.”

Of course, the bulls would like to talk about the perpetual record short interest on the New York Stock Exchange and a variety of other exchanges. And they say -- Oh, well, you know a short interest is bullish -- the concept being that a record short interest is bullish because eventually those shorts have to be bought back. That’s true, but that presumes that there is a counter-force on the other side that has the ability to mount a rally to induce short-covering. And that does not exist.

What we have seen last week is that there is no such counter-force anymore. Indeed, of the short interest in domestic equity markets, if one looks at all exchanges – NYSE, Amex, OTC, etc. – here’s a startling statistic -- half of all of the short interest is controlled by eight offshore funds, all managed by Carlyle Group or its subsidiaries, trusts, limited partnerships and other such vehicles. I heard this last Wednesday. In these 8 funds, there are only 300 investors common to all 8 funds. They are, in fact, the top 300 members of the Bush Cabal.

Most hold interest through offshore blind trusts, ranging from the Cayman Islands to Panama. But they are all Bush-Cabal-aligned interests. They are the top 300 members of the Cabal that, for lack of a better definition, control the short side of domestic equity markets. And, of all of the planet’s capital marketplaces, the short interest is concentrated in U.S. markets. The short interest in the rest of the planet’s markets is minuscule by comparison.

So here are more danger signs to look for.

When U.S. Treasuries begin to fall at the same time that equities, gold, dollars and fungible commodities are falling, that is another sign that we have taken another step down, as it were, into the Abyss...

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

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