Tim Iacono

CNBC reports that hedge fund manager John Paulson apologized to investors for misreading macroeconomic conditions in 2011 that led to spectacularly bad performance by his funds.

From the CNBC story, here’s a summary of the performance of Paulson’s funds this year:

• Paulson Advantage: -32.57 percent
• Advantage Fund: -45.35 percent
• Credit Opportunities Funds: -19 percent
• Credit Opportunities II: -15.31 percent
• Paulson International Ltd.: -10.40 percent
• Paulson Partners LP: -9.89 percent
• Paulson Enhanced Ltd.: -22.11 percent
• Paulson Partners Enhanced: -19.83 percent
• Paulson “Recovery funds”: -31 percent
• Paulson’s gold funds: +1 percent

by Karl Denninger

Oh, so there was inside information passed around?

On the morning of July 21, before the Eton Park meeting, Paulson had spoken to New York Times reporters and editors, according to his Treasury Department schedule. A Times article the next day said the Federal Reserve and the Office of the Comptroller of the Currency were inspecting Fannie and Freddie’s books and cited Paulson as saying he expected their examination would give a signal of confidence to the markets.

This is the narrative we heard on CNBC and elsewhere.

There’s one problem: It was a lie.

At the Eton Park meeting, he sent a different message, according to a fund manager who attended. Over sandwiches and pasta salad, he delivered that information to a group of men capable of profiting from any disclosure.

Around the conference room table were a dozen or so hedge- fund managers and other Wall Street executives – at least five of them alumni of Goldman Sachs Group Inc. (GS), of which Paulson was chief executive officer and chairman from 1999 to 2006. In addition to Eton Park founder Eric Mindich, they included such boldface names as Lone Pine Capital LLC founder Stephen Mandel, Dinakar Singh of TPG-Axon Capital Management LP and Daniel Och of Och-Ziff Capital Management Group LLC.

After a perfunctory discussion of the market turmoil, the fund manager says, the discussion turned to Fannie Mae and Freddie Mac. Paulson said he had erred by not punishing Bear Stearns shareholders more severely. The secretary, then 62, went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” — a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets.

In other words all equity would be wiped out, as would preferred stock.

Did Paulson break any laws by disclosing his intentions on a preferential basis?  That’s a bit more murky.  At first blush the answer would appear to be “no”; he had no duty to file an 8K since he wasn’t an officer of Fannie or Freddie, and it would appear that Reg-FD wouldn’t apply to him either.

The better question is whether he was a public fiduciary at the time, in which case disclosing inside information in such a preferential fashion would be a breach.

There’s no way to know if the hedgies involved in the lunch traded on what they learned.  The Bloomberg story says that at least one of them called his lawyer who told him to stop trading in any such securities as that was material non-public inside information (duh!) but whether they and the rest did so is an open question.

Both Bill Black and Janet Tavakoli went on the record for Bloomberg:

“You just never ever do that as a government regulator — transmit nonpublic market information to market participants,” says Black, who’s a former general counsel at the Federal Home Loan Bank of San Francisco. “There were no legitimate reasons for those disclosures.”

Janet Tavakoli, founder of Chicago-based financial consulting firm Tavakoli Structured Finance Inc., says the meeting fits a pattern.

“What is this but crony capitalism?” she asks. “Most people have had their fill of it.”

Let’s just call this what it really is: Theft.

Remember, all after-IPO trades of a stock or after-issue trades of some other security are at someone else’s profit or expense.  That is, if you win someone else either loses directly or they lose opportunity — that is, they sell you their shares, you buy them, they don’t make the money and you do.  Likewise, if you buy something and it goes down in price, you take the loss they otherwise would have.  And if you short something you’ve borrowed the shares from somebody and the person who you short them to swallows the loss while you gain.

Therefore what we really have to ask here is whether any shareholder of the common or preferred stock has a valid fraud claim against the Government and Paulson personally.  After all, his public statements, which if this story is accurate were intentional lies, resulted in a near-doubling of Fannie’s stock over the space of four days.

Isn’t it nice when the government steals your money?

Oh, and why do we sit for this crap again?

I hope the Gold and Oil Guy reports helped shed some light on the current market condition for you. Remember you canGet my daily pre-market trading videos, intraday updates , and trade alerts with my premium newsletter: www.TheGoldAndOilGuy.com BLACK FRIDAY WEEK SPECIAL OFFER

By. Oilprice.com

January Crude Oil closed lower for the second consecutive week but losses could have been worse if not for a strong comeback on Friday. The primary reason for the weakness throughout the week was concern that the European debt crisis would trigger the start of a global recession. As bearish conditions spread throughout the Euro Region, traders pressured the Euro, driving up the U.S. Dollar and lowering demand for the dollar-based crude oil market.

The soft crude oil market firmed up on Friday on the news that violence had erupted in Saudi Arabia. With unrest already taking place in Egypt and Yemen, the news that it had spread to Saudi Arabia led to speculation that an escalation of events may destabilize the country. Egypt and Yemen are small players in the oil game while Saudi Arabia is the world’s biggest crude oil exporter. Increased violence in this country would drive oil prices sharply higher on the fear that supply would be reduced.

Movement in the crude oil market is coming down to simple supply and demand analysis. If the Euro Zone problems continue to expand beyond the peripheral nations such as Greece, Italy and Spain then demand is likely to fall for crude oil, sending prices lower. “Risk-off” sentiment continues to drive investors into the U.S. Dollar, making crude oil more expensive to foreigners.

Since the markets are being driven primarily by the headlines from Europe and the Middle East, the impact of positive economic news from the U.S. has been diminished. This condition is likely to continue until Europe comes to a concrete agreement on how to manage its sovereign debt crisis. Up until now it’s been “all talk and no action”. Until this mind set changes, positive U.S. economic news is likely to have effect on the price of crude oil in my opinion. From now until the end of the year, Europe and other outside events are likely to set the tone in the market.

From a supply perspective this means that inventories are likely to remain high if Euro remains the key issue. If the emphasis shifts to the potentially explosive situations developing in the Middle East then the only thing that can be guaranteed is extreme volatility. What this market has come down to is this. If traders focus on Europe, the market is likely to weaken due to the stronger Dollar. If traders lean toward the possibility of supply disruptions in the Middle East then look for the market to rise.

Free investing webinar: Discover the power of Options

In addition to the eruptions of violence in Egypt, Yemen and Saudi Arabia, traders shouldn’t forget about Iran. Last week the U.S. announced a plan to sanction Iran because it is producing military grade uranium in its nuclear plants. Late in the week, France called for a European embargo on crude supplies. With Iran controlling the Strait of Hormuz, oil prices could soar if there is a military confrontation.

Factors Affecting Crude Oil This Week:

Supply and Demand: The U.S. supply and demand situation comes down to which set of fundamentals speculators decide to follow. If they follow the headlines out of Europe and decide to trade on a weaker Euro/stronger Dollar scenario, then look for oil prices to weaken. If the events in the Middle East escalate into full-blown confrontation then look for higher prices because of supply disruption concerns.

European Sovereign Debt: Last week Portuguese and Hungarian debt was downgraded to junk status. In addition, the European Central Bank’s Italian bond buying campaign seems to have failed. With European leaders unable to come up with a plan to manage the spiraling debt situation, the problems are likely to worsen. Europe seems to be facing either a sovereign debt default or a major bank collapse. It is likely to be both. This would plunge the region into a recession and perhaps the world greatly lowering demand for crude oil.

U.S. Economy: If Europe falls, the U.S. is likely to face another recession. The Fed has done just about all it can to keep the economy afloat but there are some things it has no control over. U.S. economic news is not as important at this time and is not likely to move the market. Traders are focusing on Europe and the Middle East.

Get your FREE Oil & Gold Bullion Weekly Report sponsored by NYSE

Middle East Conflicts: Egypt, Yemen, Saudi Arabia and Iran. What is it going to take to draw the U.S. into any one of these conflicts? While unlikely to move on the events in Egypt and Yemen, the U.S. has direct interests in Saudi Arabia and Iran. These scenarios have to power to drive oil prices sharply higher.

by The Mad Hedge Fund Trader

If you want to delve into the case against the long term future of US Treasury bonds in all their darkness, take a look at Foreign Affairs, the establishment bimonthly journal read by academics, intelligence agencies, and politicians alike, which I am sure you all have sitting on your nightstands. In a well-researched and thought out article penned by Roger C. Altman and Richard N. Haas, the road to ruin ahead of us is clearly laid out.

The US has no history of excessive debt, except during WWII, when it briefly exceeded 100% of GDP. That abruptly changed in 2001, when George W. Bush took office. In short order, the new president implemented massive tax cuts, provided expanded Medicare benefits for seniors, and launched two wars, causing budgets deficits to explode at the fastest rate in history. To accomplish this, strict ‘pay as you go’ rules enforced by the previous Clinton administration were scrapped. The net net was to double the national debt to $10.5 trillion in a mere eight years.

Another $4 trillion in Keynesian reflationary deficit spending by president Obama since then has taken matters from bad to worse. The Congressional Budget Office is now forecasting that, with the current spending trajectory and last year’s tax compromise, total debt will reach $23 trillion by 2020, or some 160% of today’s GDP, 1.6 times the WWII peak.

By then, the Treasury will have to pay a staggering $5 trillion a year just to roll over maturing debt. What’s more, these figures greatly understate the severity of the problem. They do not include another $9 trillion in debts guaranteed by the federal government, such as bonds issued by home mortgage providers, Fannie Mae and Freddie Mac. State and local governments owe another $3 trillion. Double interest rates, a certainty if commodity price inflation continues unabated, and our debt service burden doubles as well.

It is unlikely that the warring parties in Congress will kiss and make up anytime soon. It is therefore likely that the capital markets will emerge as the sole source of any fiscal discipline, with the return of the ‘bond vigilantes.’ They have already made their predatory presence known in the profligate nations of Europe, and they are expected to arrive here eventually. Such forces have not been at play in Washington since the early 1980′s, when bond yields reached 13%, and homeowners paid 18% for mortgages. Since foreign investors hold 50% of our debt, policy responses will not be dictated by the US, but by the Mandarins in Beijing and Tokyo. They could enforce a cut back in defense spending from the current annual $700 billion. They might even demand a retreat from our $150 billion a year commitments in Iraq and Afghanistan.

Personally, I think the US will never recover from the debt explosions engineered by Bush and by ‘deficits don’t count’ vice president Chaney. The outcome has permanently lowered standards of living for middle class Americans and reduced influence on the global stage. But I’m not going to get mad, I’m going to get even. I am going to make a killing profiting from the coming collapse of the US Treasury market through buying the leveraged short Treasury bond ETF, the (TBT). I am sticking to my short term forecast for this fund to rise from the current $19.16 to $26, then $32, then $40. And that is despite a hefty and rising cost of carry of nearly 0.5% a month.

Looks Like I Can’t Afford the Next War

Thus far in 2011 the overall stock market movement has been much different from what we had in 2010. This year we have seen nothing but sideways to lower prices with wild price swings on a day to day basis. There just has not been any really solid trends to take advantage of this year. Instead we had to actively trade the oversold dips and sell into the overbought rallies to just pull money out of the market on a monthly basis. Last year we saw 3 major rallies that lasted several months making it easy for anyone who bought into the trend to make money if managed properly.

Looking forward to 2012 it looks as though we are going to see some major changes unfold globally that will change the way we do things live our lives. Unfortunately its a very negative outlook but I do have hope that something will be done to perserve are somewhat normal lifestyles. I’m not one to talk doom and gloom, there are enough of those guys out there already so lets stick with the charts and focus on what is unfolding now in the present and how to take advantage of it…

The charts below show what I feel is likely to happen going into the new year IF we don’t get any major headline news in Europe that triggers another selloff.

MY Black Friday Week Special Here enter code “black12for6″ at the checkout

Intermarket Analysis:

There are a lot of different things unfolding within stocks, commodities, currencies and bonds right now. And it is imporatnt to know that investments are inter-connected in some way. For example,  if one investment moves sharply in one direction it will have an effect on other investment classes.

My eye is focused on the US Dollar Index which has recently had a strong run up in price. For the past couple years we have seen stocks fall when the dollar moves up. So with the dollar index now trading at a key resistance level we should see the dollar top out for a few weeks and spark a Christmas rally into year end. After that, all bets are off and we re-analyze…

On the flop side of things, if Europe comes out with major negative headline news we could see the dollar index continue its rally and breakthrough this resistance level. If the dollar moves higher from here we could easily see a multi month run up in the dollar. You do not want to be long stocks if this happens, get short stocks and hold on tight.

Gold Daily Chart Analysis:

Here is my positive out look for gold and what I feel is likely to unfold near term. But keep in mind what I just said about the US dollar index above. If the dollar continues its rally and breaks out it could actually put some pressure on gold. I know gold is a safe haven so I do expect it to hold up, but a strong dollar will neutralize a lot of the buying in gold in my opinion.

SP500 Daily Charts:

Stocks should have a solid bounce this December if the dollar finds resistance and pulls back in the coming weeks. I am expecting a bounce of 5-10% if all goes as planned.

Christmas Holiday Rally Trading Conclusion:

In short, we are entering a tough time to trade the market. Volatility is low, there are a few holidays and typically we see volume thin out as December unfolds. Light volume generally favors higher prices for stocks and commodities which is one of the reasons we get the holiday lift in prices.

The recent selloff in stocks is looking overdone to the down side and ready to bounce any day. So I am looking for signals to get long the SP500. Overall risk remains very high as sellers are still in control of the market and because we are looking to put on a trade against the intermediate trend which is down.

On Friday morning myself and my followers exited our short position on the SP500 at the open locking in 13.5% profit. We exited the position because the intraday charts are showing signs of a potential bottom and we want to avoid the tear your face off short covering rally that I feel is just around the corner. Now we are waiting for a another low risk setup and will take action to go long or short depending how things unfold in Europe.

I hope this report helped shed some light on the current market condition for you. Remember you canGet my daily pre-market trading videos, intraday updates , and trade alerts with my premium newsletter: www.TheGoldAndOilGuy.com BLACK FRIDAY WEEK SPECIAL OFFER

Courtesy of Michael Panzner of Financial Armageddon

Sign Up Now for a Complete Breakdown of Current Market Conditions
Updated DAILY by Veteran Trader, Adam Hewison

Courtesy of Joe Weisenthal of The Business Insider 

Quickly!

If Europe is going to survive, Germans need to understand that central banks can radically expand their balance sheets and print money without it causing crazy inflation.

Specifically, what needs to happen in Europe is for the ECB to buy tons and tons of Italian (and Greek and Spanish debt, etc.), but the Germans — fearing what happened during Weimar Germany, when money printing led to massive inflation — don’t want to see it happen.

This chart shows how when the Fed embarked on quantitative easing (massive bond buying) in 2008 during the crisis, it didn’t cause inflation to boom.

Specifically, this chart compares the size of the Fed’s balance sheet (all the assets it bought) against the monthly change in the CPI (inflation)

This chart is from the St. Louis Federal Reserve, so any newspaper can publish it totally free of charge. Go! Do it!

Gold Scents

The recent market action has me wondering if the next leg down in the cyclical bear market has begun.

I always expected that we would see a very convincing rally out of the October yearly cycle low. I thought it even possible that we would test the 200 day moving average. Most bear markets do rally out of the initial leg down and test the 200 day moving average.

Recently the S&P made two attempts to close and hold above the 200 day moving average. They both failed. That was a loudly ringing warning bell.

As a matter fact every index, except the utilities, is now trading below its declining 200 day moving average, and that includes all the major European and Asian markets.

Get your FREE GOLD Bullion Weekly Report sponsored by NYSE

At the moment my concern is that the market is now moving into the timing band for a major daily cycle low (due in the next 5 to 10 days). The current daily cycle is left translated (topped in less than 20 days). That is relevant because most of the time left translated cycles move below their prior cycle bottom. The last cycle low occurred in October at 1075.

Now I’m not suggesting that the stock market is going to crash below 1075 in the next 5 to 7 days. However the S&P has broken below the 1220 support zone. When support was broken in July it led to a seven-day 17% crash.

I don’t know if breaking of support this time will lead to another climax selling event or not. I do know that the market is now in the timing band for some serious selling. And, this is beginning to look like a counter trend rally in a bear market that is in the process of topping. If that’s true then we are in the period of time when the next leg down should begin.

Confirming this is the fact that the dollar index has rallied back above its 200 day moving average and completed an intermediate cycle bottom. The dollar index is currently on only the third week of this new intermediate cycle. Those cycles tend to run about 20 weeks, so there is potentially many more weeks of upside left before the dollar moves down into another significant correction, which presumably would drive the next bear market rally in stocks.

The safest position at this time is to be in cash, and that’s exactly what I did with the model portfolio yesterday morning.

There are just a few days left to get your free report, The Most Important Investment Report You’ll Read for 2012.

Every year or two Elliott Wave International (EWI) publishes analysis with a message so critical that they decide to share it, FREE.

Now is that time.

The Most Important Investment Report You’ll Read for 2012 includes 25 charts and 14 pages of analysis on the markets and economy that you will not find anywhere else.

You get a review of ALL of the charts and ALL of the indicators that EWI has been watching over the past year or so — to provide you the full impact of what they are seeing. The entire picture will show you a rather radical conclusion about the future of stock prices.

Subscribers pay up to $59/month for this critical analysis, but until November 30 you can read it free.

Don’t delay! “Most Important 2012″ is only available for a few more days.

Get Your FREE Download: The Most Important Investment Report You’ll Read for 2012.

Regards,

SMN

By JW Jones – OptionsTradingSignals.com

The current trading environment is one of the most difficult that I can recall in recent memory. Risks abroad regarding the European sovereign debt crisis is keeping market participants on edge as headline risk seemingly surrounds traders at every turn.

In addition to the risk posed by Europe, the market’s reaction to the Congressional Super Committee’s upcoming statements also poses risks. As it stands now, the media is reporting that the committee is in gridlock and has yet to compromise. The deadline for the Super Committee is Wednesday, November 23^rd. The gridlock leads to uncertainty, and Mr. Market hates uncertainty. High levels of uncertainty corresponds with increased volatility levels, thus caution is warranted.

Recently I have been actively trading around the wild price action, but I have been utilizing smaller position sizes in light of the elevated volatility levels. In addition to the smaller position sizes, I have been aggressively taking profits and moving stops in order to protect trading capital.

This past week, members of my service enjoyed two winning trades. We were able to lock in gains on a SPY Put Calendar Spread for a nice 20% gross gain. On Friday we closed a USO Put Calendar Spread for a gross gain of 17%. These trades were relatively short term in duration, but the gains they produced were strong.

Both trades took advantage of increased volatility which resulted in enhanced profits. If volatility remains elevated going forward which I expect, these types of trades will offer great risk / reward going forward. Volatility is an option traders friend, and this past week members of my service were able to lock in some strong gains with relatively muted levels of risk.

Gold Futures

I have not written much about gold recently as I have honestly not seen a great deal of opportunity in either direction there. The price action has been quite volatile, but this past week we saw gold futures sell off sharply. I believe the explanation for the selloff is partially due to strength in the U.S. Dollar. The daily chart of the U.S. Dollar Index is shown below:

Get your FREE GOLD Bullion Weekly Report sponsored by NYSE

The recent selloff in gold can likely be attached to the increase in margin calls around the world as a likely consequence of the MF Global bankruptcy. Uncertainty surrounds the commodities market as the collapse of MF Global has interrupted traditional capital flows and broad based volume around the world. The MF Global situation continues to provide a negative headwind for financial markets in general.

I continue to be a long term bull regarding precious metals as nearly every central bank is either printing money deliberately or is increasing the money supply through quantitative easing. With multiple calls coming out of Europe over the weekend for the European Central Bank to print money to monetize European sovereign debt, it may not be long before the ECB begins their own quantitative easing program. In the long term this can only mean higher prices for gold.

Right now the short term looks bearish for gold as the daily chart of gold futures shows gold tested near the top of a recent rising channel and failed. The selloff was strong, but  a pullback here makes sense from a technical perspective. The daily chart of gold is shown below:

The longer term time frame continues to remain technically positive for the yellow metal. As long as gold prices hold in their multi-year rising channel, higher prices remain likely. Right now the $1,500/ounce price level needs to hold as support if the bulls are going to remain in control in the long term time frame. The weekly chart of gold futures shown below illustrates the long term rising channel:

Right now we are in a seasonally strong period for gold. I am going to be watching closely in coming weeks for a solid entry point to get long the yellow metal for a longer term time frame. Right now the short term remains bearish, but the longer term is bullish from technical and fundamental viewpoints.

S&P 500

The S&P 500 Index sold off sharply during the past week. In my most recent article, I discussed two key price levels to monitor to the downside. The key support levels were the 1,230 and 1,190 price levels respectively. The bulls need the 1,190 area to hold as support to give them any chance for a “Santa Claus Rally” into year end.

Last week the S&P 500 Index closed below the 1,230 support level meaning the 1,190 area has to hold. Otherwise, we could see a sharp selloff into the end of the year. The daily chart of the S&P 500 below illustrates the key support levels:

The S&P 500 looks vulnerable to the downside presently. However, headlines coming out of Europe and/or the Super Committee this week could push prices higher. The key pivot line remains around the 1,257 price level on the daily chart. If the bulls can regain the 1,257 price level on a weekly close a test of 1,290 will become more likely. However, as long as prices remain below 1,230 and 1,257, the S&P 500 is vulnerable to additional downside.

I would not be shocked to see the S&P 500 push higher this week to work off short term oversold conditions. Truncated weeks result in lower than average volume which generally favors the bulls. However, in this environment anything could seemingly happen. Risk is high in either direction.

Subscribers of Options Trading Signals have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out my OTS service at optionstradingsignals.com and join the hundreds that are taking home the profits.