Federal Reserve Insider Reveals Shocking Truth Behind QE

A Federal Reserve whistle-blower by the name of Andrew Huszar has spilled the beans on the real motive behind the Federal Reserve’s QE program that began in 2009.

Andrew Huszar says that QE has been, “the greatest backdoor Wall Street bailout of all time.” Source: Andrew Huszar: Confessions of a Quantitative Easer. Andrew Huszar says, “We went on a bond-buying spree that was supposed to help Main Street. Instead, it was a feast for Wall Street.”

News flash: Americans are not stupid Andrew. What do you think Occupy Wall Street was about? It doesn’t take someone with an economics degree to follow the money and see how Wall Street was bailed out but main street was not.

Remember Michael Moore’s movie Capitalism: A Love Story where Michael Moore went down Wall Street and stopped into banking institutions that received billions in tax payer bailouts and demanded our money back?

The economic reports we tracking each month confirm what Andrew Huszar is saying. The unemployment rate has not really come down much at all. More Americans are on food stamps than ever. Median household income has been flat or has fallen for most Americans over the last 5 years. Meanwhile, the S&P 500 has gone up 140% since March of 2009. The stock prices of the big Wall Street banks have gone up even more: Bank of America (+270%), Wells Fargo (+280%), and Citibank (+230%).

From 2009 to 2010, Andrew Huszar was responsible for managing the Fed’s purchase of approximately $1.25 trillion worth of mortgage-backed securities. Andrew Huszar writes:

I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

Andrew Huszar said that a few months after QE started, the Federal Reserve had ample evidence that QE was not helping average Americans. There was plenty of evidence that QE was helping Wall Street bankers. The Federal Reserve made the decision to roll out QE2 even though they knew it would only help Wall Street. Andrew Huszar writes:

Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank’s bond purchases had been an absolute coup for Wall Street. The banks hadn’t just benefited from the lower cost of making loans. They’d also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed’s QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

You’d think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany’s finance minister, Wolfgang Schäuble, immediately called the decision “clueless.”

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street.

This is not some Federal Reserve conspiracy but a real Federal Reserve insider coming clean.

The Federal Reserve has lost a lot of credibility with average Americans. At some point, it wouldn’t surprise me to see the Federal Reserve chairman having to speak from behind bullet proof glass. That’s how unpopular the Federal Reserve is with most people right now. In my opinion, the idea that the Federal Reserve helps support main street and exists for the benefit of all is an idea that is gone forever, or at least a generation.

In the video below, Peter Schiff and Max Keiser talk about the greatest ponzi scheme of our time: QE. It’s a great talk that you won’t hear in the mainstream financial media. Enjoy and let me know what you think in the comments section below.

Will Twitter Go the Way of FUEL?

Rocket Fuel (FUEL) had its IPO at the end of September 2013. The stock ran up to $65 a share shortly after the IPO which put a market cap on the stock of $2.1 billion.

FUEL doesn’t make money so they have no P/E ratio. They have revenue of about $30 million a quarter or $120 million in revenue per year. There’s no way that a company that does $120 million in revenue per year should be valued at $2.1 billion. A company can have all the revenue in the world but if it doesn’t make it to the bottom line, it doesn’t mean much. FUEL lost $1.8 million dollars last quarter which was a bigger loss than many had hoped. Because FUEL was an IPO, it had a 30 day limit restriction for the underwriters on short selling. As the 30 day limit expired on short selling at the end of October, the short sellers began moving in.

Compare FUEL to the recent Twitter (TWTR) IPO. Twitter’s market cap was way overvalued at $25 billion, just like FUEL’s market cap was overvalued at $2.1 billion.

Just like Twitter, FUEL ran up 90% on the first day of trading in the secondary markets:

First… Here’s FUEL:

Now Here’s Twitter:

Twitter doesn’t make money so they have no P/E ratio, just like FUEL. Twitter has revenue of about $127 million a quarter or about $500 million per year. It’s absurd that a company that has $500 million in revenue per year is valued at $25 billion. Just like FUEL, the currently value of the stock is way above what the financials suggest it should be at. As Twitter proves, a company can have great revenue growth but if it doesn’t translate into the bottom line, it means little. Twitter lost $35 million last quarter. Just like FUEL, Twitter is losing millions of dollars a quarter.

30 Day Moratorium on Short Selling an IPO

The underwriters can’t loan out the shares of Twitter for short selling until 30 days after the IPO. Institutional traders and retail investors that hold shares of Twitter can, but the underwriters that control most of the Twitter shares cannot. I believe this has created an abnormally low level of short sellers in Twitter. Once the 30 day moratorium on short selling Twitter ends, I think this temporary abnormal condition in the market will correct itself by a huge number of short sellers moving into the stock. This is exactly what happened on FUEL. Notice that right after the 30 day moratorium on shorting selling FUEL came to an end, FUEL’s stock tanked:

In my opinion, Twitter will likely follow the same boom then bust cycle that FUEL recently followed. Think about it. JP Morgan is an underwriter on the Twitter IPO.

JP Morgan put up some of the money to fund the IPO and “buys” the shares of the company before they are actually listed on a stock exchange. JP Morgan makes its profit on the difference in price between what they paid before the IPO and when the shares are officially offered to the public.

JP Morgan then pushes the shares it “bought” before they were listed on a major exchange, into JP Morgan funds like J.P. MORGAN DIGITAL GROWTH FUND and J.P. MORGAN INVESTMENT MANAGEMENT so that these fund holders buy the shares from JP Morgan at the market price and JP Morgan pockets the difference.

Now JP Morgan waits 30 days then its active trading desks short sell the stock by borrowing the shares from the JP Morgan funds, and JP Morgan makes money on the downward move as well. What about JP Morgan fund holders complaining about Twitter dropping? Fund holders are told, “Naw dog, it’s all good. You shouldn’t look at short term market fluctuations. Twitter stock will come back within a couple of years, just look at what Facebook did.”

Twitter IPO Pops and I’m Wrong?

Here are some of the comments I’m getting about my opinion on the Twitter IPO:

“You’re an idiot Lance. What do you have to say about Twitter now?”
“Is it possible that you could have gotten your call on Twitter more wrong?”
“Twitter naysayers like you just got burned.”

After I said Twitter was a bad investment and something that should be avoided, the Twitter IPO closed up 70% on its first day of trading. Does that mean I’m wrong? Absolutely not. In fact, my opinion is that Twitter stock is even a bigger piece of dung than I previously thought.

Instead of Twitter being overvalued on its IPO price by over 125%, it’s now overvalued by about 200%.

This means that JP Morgan shoved Twitter into a lot of mutual funds.

Just how ridiculously overvalued is Twitter? The market cap on Twitter is now at $25 billion. In comparison, LinkedIn has a market cap of about $25 billion and LinkedIn is way overvalued with a P/E of 108. Twitter has a fraction of the revenue that LinkedIn has, a whopping 60% less, AND Twitter has no profits so they don’t even have a P/E ratio!

Yeah, in my opinion Twitter went from being a usual over hyped and over priced IPO, into being a flat out Wall Street scam against JP Morgan mutual fund investors that are going to be left holding the POS when it comes crashing down. Trust me, JP Morgan and Goldman Sachs, that took Twitter public, aren’t going to be the ones that wake up with a soar butt in the morning.

The Real Value In Twitter Now Is Shorting It

The real value in Twitter now is in shorting it but there’s probably not enough shares available yet to short. The way shorting an IPO works is that on the day of the IPO the underwriters and institutional/retail investors hold most of the stock. The underwriters of the IPO are not allowed to loan out shares for short selling for 30 days after the IPO. However, institutional/retail investors can lend out their shares to investors who want to short.

This means that right now, only a limited amount of shares are available on the market and so there is an abnormally small amount of short sellers, especially when you consider that all the shares may not have been completely transferred yet. As the shares get transferred over the coming days and especially as we get closer to the 30 day limit of no loaning out shares for short selling by the underwriters, you will see a massive wave of short selling hit Twitter. This could be setting up into one of the great short selling trades of 2013.

So laugh away at what you perceive to be my bad call on the Twitter IPO. Chase that Twitter bird higher into the stratosphere but just remember, he who laughs last, laughs loudest.

US GDP Game Changer Hopes Dead

Could have been so beautiful… could have been so bright. The ‘Great Hope’ amongst traders on Wall Street was that the GDP report in November 2013 and December 2013 too, would show an economy so much improved that the Federal Reserve would begin tapering by the end of the year as unemployment dropped. Put a fork in it. That hope is done. Once again it’s not going to happen.

US GDP 2013

The GDP expanded at a 2.8% annual rate. Economists’ expectations were for 2% growth. Sounds great, right? Not so fast.

Economic growth picked up in the third quarter because businesses needed to restock shelves; however, consumer spending growth slowed by the most in 2 years.

Where would the GDP be if the calculation wasn’t changed a few months ago? It probably would be in the 0.8% growth area.

Markets dropped at market open today on release of the US GDP report.

It’s fairly clear that traders were hoping for a better GDP report that would suggest why the Federal Reserve was talking about tapering at the end of 2013 back in May. Now it looks more and more like the Fed’s taper talk back in May and June of 2013 was just a rope-a-dope to try and deflate some of the bubble that has formed in the bond market.

Max Keiser talks about how the U.S. has hit stall speed. Since the collapse of Lehman Brothers, it has taken $18 of debt to create $1 of GDP. Check it out and let me know what you think in the comments section below.

Biotechnology Stocks To Watch

Biotechnology stocks have been beat down over the last couple of weeks making for some nice oversold set ups. Keep in mind that these are swing trade candidates with a 1 to 4 day hold and a 5% to 10% gain. Stop loss orders should be set near the recent swing low.

My favorite biotechnology stocks to watch are below.

Biotechnology Stocks List

Sangamo Biosciences (SGMO) – Sangamo Biosciences news is that new clinical data was presented from an HIV study demonstrating sustained control of Viremia. “Infusion of ZFN CCR5-modified CD4 T-cells (SB-728-T) led to long term reconstitution of CD4 T-cells and reduction of HIV-DNA levels in HIV-infected subjects on ART.” Dale Ando, Sangamo BioSciences, Inc.

Sangamo Biosciences has over $47 million in cash and no debt.

The chart of Sangamo Biosciences shows an excellent oversold setup (click to enlarge):

We have a possible Bull Hammer reversal on the chart. A stop loss should be set near $9.

Progenics Pharmaceuticals (PGNX) – Progenics Pharmaceuticals news is that the FDA will convene an Advisory Committee on March 10-11, 2014 at which time Salix’s Supplemental New Drug Application (sNDA) for RELISTOR® (methylnaltrexone bromide) Subcutaneous Injection, for opioid-induced constipation, or OIC, in patients with chronic pain will be considered.

Progenics Pharmaceuticals has over $79 million in cash and no debt.

The chart of Progenics Pharmaceuticals shows an oversold stock that may bounce (click to enlarge):

We have some nice lower shadows over the last 2 days with the RSI in deep oversold territory and starting to curl up. A stop loss should be set near $3.45.

Idera Pharmaceuticals (IDRA) – Idera Pharmaceuticals news is that Baker Bros. Advisors, a biotechnology fund with excellent returns this year, opened a new position in IDRA. The company is developing a treatment for plaque psoriasis.

Idera Pharmaceuticals has over $16 million in cash and no debt.

There is heavy buying off the $1.50 level as evidenced by the long lower shadows over the previous two trading days. A stop loss should be set near $1.47.