The Cockroach That Ate Manhattan

The Cockroach That Ate Manhattan
By Jeff Clark
December 1, 2009

Nothing ruins a good meal like the vision of a cockroach scurrying across the table.

In the financial markets, debt is a cockroach. Debt is an ugly, six-legged insect that feasts on rubbish and carries disease.

One cockroach is an inconvenience – a minor nuisance that can be handled with one well-timed thump of a shoe. But as anyone who has ever had the misfortune of watching a cockroach scamper across the kitchen floor will tell you, there's never just one.

On Wall Street last year, we discovered the same debt-ridden cockroaches that devoured Lehman Brothers had also infested Bear Stearns, Countrywide, Merrill Lynch, AIG, and nearly every other financial firm in existence. The infestation threatened to topple the global financial markets. So the leaders of Wall Street's most influential firms called in the exterminators – the U.S. Treasury and the Federal Reserve Board.

But rather than implementing measures to pare down debt, shore up balance sheets, and get rid of the pests for good, the exterminators simply threw a couple of pastrami sandwiches into the cupboard beneath the sink and then duct-taped the cabinet doors shut.

"That'll keep 'em busy for a while," Chairman Bernanke figured. "We won't see those disgusting little pests again."

And it worked. For the past several months, nobody has worried about the cockroaches. Wall Street feasted on higher stock prices. Banks were free to ignore the true value of their nonperforming mortgage loans. And every time a cockroach stuck its antennae through a crack in the floorboard, the Federal Reserve Board shot a little Cheese-Whiz into the crevice and held back the swarm.

Until last Thursday, that is.

As Americans celebrated Thanksgiving by stuffing themselves with turkey, cranberries, and sweet potatoes, and watching the Detroit Lions lose another football game, Sheikh Mohammed of Dubai noticed a cockroach scurrying across the gold inlaid floor of his palace dining room. "This isn't good," he must have thought to himself. "I must call the best exterminator in Abu Dhabi to take care of this."

The best exterminator in Abu Dhabi saw the success Chairman Bernanke had here in the United States, so he threw a couple of pastrami sandwiches into the cupboard and duct-taped the cabinet doors shut.

Stock markets around the world rallied on the news.

But what happens weeks or months from now when there's not enough Cheese-Whiz to fill the crevices?

Too much debt led to the destruction of Drexel Burnham in 1990. It led to the collapse of Argentina's economy in 2001. The debt cockroach devoured Iceland in 2008, and it almost wiped out most of Wall Street earlier this year.

A Letter to the Chairman of the Federal Reserve

The Stupidest Government Program Ever

You can't solve a cockroach infestation by throwing food at the little buggers. It only makes them stronger. And you can't solve a debt crisis by lending more money. It only delays the inevitable default.

Sadly, the cockroaches are back on Wall Street. And this time, they're hungrier than ever.

Best regards and good trading,

Jeff Clark

George Soros: Major bloodletting ahead
Billionaire says commercial real estate about to be crushed.

Top market strategist: We're in a depression, not a recession
A giant credit collapse doesn't end this quickly.

Contrarian alert: Newsletters are very bullish
Bullish indicator at highest level since December 2007...

•	High-quality corporate bond rally continues... LQD touches fresh high.
•	Indian carmaker surges... Tata Motors spikes 25% to new high in November.
•	Amazon extends gains... mega online retailer hits another high, rocketing 160% higher this year.
•	Earnings today... Shanda Interactive, Staples.

	Last	Change	52-Wk
S&P 500	1109.30	+1.45%	+27.03%
Oil (USO)	40.29	+2.99%	-12.75%
Gold (GLD)	111.63	+1.72%	+52.29%
Silver (SLV)	18.01	+5.01%	+92.41%
U.S. Dollar	75.37	+0.68%	-13.15%
Euro	1.49	-0.70%	+17.54%
VIX	22.89	-2.01%	-65.48%
HUI	475.53	+3.26%	+155.07%
10-Year Yield	3.33%	-0.10	-0.37

Advertisement

Company	Sym	Industry
Zimmer Holdings	ZMH	medical devices
Buckeye Partners	BPL	pipelines
WuXi Pharma	WX	pharma
Taseko Mines	TGB	copper mining
Origin Agritech	SEED	farm products
Amazon	AMZN	online retail
Harley-Davidson	HOG	motorcycles
Interoil	IOC	refining
Medivation	MDVN	biotech
STR Holdings	STRI	industrial equip
Cytori	CYTX	biotech
Accenture	ACN	outsourcing
Am Water Works	AWK	utilities
Sunoco Logistics	SXL	pipelines
RINO Intl	RINO	industrial equip
China Auto	CAAS	auto parts
Alloy	ALOY	marketing svcs
MedcoHealth	MHS	pharma
Tata Motors	TTM	carmaker
Spectra Energy	SEP	pipelines
Canadian Solar	CSIQ	semiconductors
Teekay Offshore	TOO	shipping
KMG Chemicals	KMGB	chemicals
Kimberly-Clark	KMB	medical supplies
Perrigo	PRGO	pharma
Williams Partners	WPZ	chemicals
A-Power Energy	APWR	utilities
Intl Tower Hill	THM	gold mining
MGP Ingredients	MGPI	packaged goods
Stryker	SYK	medical supplies
El Paso Pipeline	EPB	pipelines
Alliance Holdings	AHGP	mineral mining
CSG Systems	CSGS	outsourcing
SIGA Tech	SIGA	pharma
Staples	SPLS	office supplies
American Natl	ANAT	life insurance
MPS Group	MPS	outsourcing
Calumet Specialty	CLMT	refining
Jinpan Intl	JST	electronics

Company	Sym	Industry
Capitol Federal	CFFN	bank
Duoyuan Printing	DYP	printing equip
TranS1	TSON	medical devices
American Public Ed	APEI	for profit ed
Crawford	CRDB	insurance broker
Farmers Capital	FFKT	bank
Energy Conversion	ENER	semiconductors
CardioNet	BEAT	medical devices
Ancestry	ACOM	family trees
LaBranche	LAB	broker
WesBanco	WSBC	bank
Smithtown	SMTB	bank
Seahawk Drilling	HAWK	oil & gas drilling
Odyssey Marine	OMEX	treasure hunting
Berkshire Hills	BHLB	bank
Nobel Learning	NLCI	for profit ed

How to Spot Phony Newsletters
November 30, 2009

Weekend Edition: I'd Like You to Be My Partner
November 28, 2009

Half-Wit Bureaucrats Serve Up a No-Brainer Biotech Trade
November 27, 2009

Thanksgiving - Markets Closed
November 26, 2009

Commodity Q&A: All Those Do-Gooders Are Simply Trading Gas for Coal
November 25, 2009