5/25/2010 - PONZI - PIGS & PROSCIUTTO DI PARMA

Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, wow now theres a mouthful. Yes friends the originator of the Ponzi scheme was born in Parma Italy, in 1882. He probably had no idea that the simplistic scheme would be used to bail out the EuroZone. Ponzi in his lifetime engaged in an array of schemes that relied on a similar simple premise, find some suckers, show them a form of trade or a supposed arbitrage that cant lose and promise them exorbitant short term returns.
The scheme without fail relies on one key aspect; you need new suckers to keep coming into the scheme to pay the unrealistic returns to the suckers who were duped in first. When Ponzi immigrated from Italy and wound up in Boston promising investors to double their money, by purchasing postal coupons from countries with weak currency, and redeeming them in US Dollars. It sounded like a simple trade, and Bostoners bought in in droves. Problem was there were no coupons purchased, Ponzi simply used funds from new investors to pay earlier ones and shaved off some luxurious living expenses for himself. The name Ponzi, soon become shorthand, for the con formerly known as "Robbing Peter to pay Paul"


Prosciutto di Parma
When I sat to write todays note it was unbeknownst to me that such a heinous schemester, as Ponzi, had immigrated to our shores from a place so near and dear to my heart. Parma my friends may not sound that familiar to you, but no degree of ponzi like chicanery could diminish the esteemed place Parma holds in my heart. For those of you who don’t immediately recognize the star power of Parma, let me help you. Parma is the birthplace of Prosciutto di Parma. Yes Paesonos that prosciutto. And being I am going to use this opportunity to say the name of one of my favorite meats repeatedly, lets get this straight once and for all. The proper pronunciation is Pra-jute. Period.
No pri-zute, Not Pro-shooto. Drop the o. Now say it with me one time…. Pra-Jute. Say it just like that in your favorite Italian restaurant and Enzo the waiter will think youre a star.
Tomorrows pronunciation lesson the often mangled, Mozzarella.
Back to Parma, nothing Charles Ponzi could do would ever destroy my utter gastro affection for Parma. For those of you wondering what is this magic meat, Prosciutto di Parma?? Its that luscious thinly sliced meat draped over the melon when you first sit down at a your cousins fancy wedding. Mmmm Prosciutto and Melon you gotta love that thought first thing in the morning.

Okay JT, decent info on Ponzi, and interesting segue to the dry aged ham imported from Italy. Chock full o Italian heritage in today's note, but why am I reading this when I want to know about the markets and short sellers behaviors to trade these markets? WHY WHY WHY?
I'm glad you asked, well a finely prepared Prosciutto is a the result of a long closely monitored process. IT begins with the leg of a pig, or a kinda regular ham, then its aged and rubbed and put through a curing process before it is reintroduced to your taste buds as a tasty Pra-jute.

PIIGS Ponzis and Prosciutto
Prosciutto is ham, which originally comes from PIIGS(Portugal-Italy-Ireland-Greece-Spain). This whole mess started rather blandly, it all started out with some regular plain old (ham) debt. The eurozone members all played the same ole game, Overspend, overpay the populous, create government jobs funded by sovereign debt, let the hams pile up and when we need more money to pay for our slovenly lazy behavior and unsustainable policies we issue more debt and sell it to the other hams around us. The problem is when the other hams don’t have anymore meat on their bone to shave off and purchase their neighboring hams debt, the problem starts to age. Or Fester. EURO BANKS with aging problems IRE-STD-RBS-ING
Now with Prosciutto the aging process is important. The aging process where the meat is rubbed with salt and sometimes garlic and possibly even sugar makes the meat more of a delicacy. The aging of the debt problem however, is different. No matter the spices, and other items rubbed on these hams to mask the odor, the aging of Euro debt will not create the same delicious results. And now its Cure time--- to cure a ham and lock in those delicious seasonings and flavors the ham is covered in pig fat, and hung out to dry for at least 12-18 months. Oh man I'm hungry.
The Euro PIIGS have tried to cure this plain ole debt issue by bringing in US Financial institutions to rub pig fat all over their problems and cover em up. To no avail. When Greece wanted to get accepted into the EU, and the Euro, they brought in Goldman Sachs to ‘cure’ a little problem they had with their ham. Side Bar: as a result of a bunch of ham handed synthetic products created by GS,and other US Institutions the US Financials have as much downside as any of the PIIGs, only right now everyone is looking at the PIIGS. Shorts are seeing GS-JPM-BAC-C- among others, in major financial jeopardy of trading considerably lower. The Problem: Their Debt to Gross Domestic Prosciutto … ummm Product ratio was too high to meet the “rigorous austerity requirements” (sarcasm included) mandated for Euro membership. The Cure: Greek Finance ministers paid GS to ‘cure’ the prob, by creating synthetic instrument to mask the debt. A healthy dose of PIIG fat was rubbed all over this ham, and wala this PIIGS ham was on its way to becoming a delicacy. Only now no ones eating it.

Heres the “rub”
Goldman isn’t in the business of making deli meats, and the aging and attempted curing have caused this ham to become not a delicacy but a deadly dose of rotting PIIG meat. This PIIGS are now coming home to roost, and the antipasto isn't looking too good. So what happened to Parma Ponzi, the reason these PIIG problems and the Parma, prosciutto and Ponzi have given me the writing tactic of a symphony of P’s this morning is that the PIIGS seem to be relying on the scheme of the original Prince of Parma Ponzi to try to extricate this rotting PIIG meat problem, and the Curing process is getting as ugly as the practices that go on in the slaughterhouses that deliver these pig legs to Parma in the first place.

The Earth is Flat After All
The EU and IMF have yet to disclose which member states are contributing to the Bailout. Spains banks are burning, Greece Citizens are rioting against work, and any day the home of the beloved Parma, Italy will start to look to the other PIIGS for the $450Billion they need to meet their maturing Sovereign debt obligations. The PIIGS are basically turning to the other PIIGS to cure their aging problems so the rotting PIIG meat hangin in there meat lockers can magically be turned to a delicacy. Ponzi would be proud. The Peter to pay Paul scheme is coming to his home town.
The EU members are 2 distinct groups, they are either PIIGS or holders of PIIG debt. So to repay them selves they need fresh meat, umm fresh dough. They need new investors just like in Ponzis scheme to pay off the earlier investors themselves. Problem is the Globe may be flat after all, Flat Broke that is. No one on this planet has the loot to cure the PIIG Problems and printing Euros is not the solution.

The Pigs are out of the Pen
The Proscitto is out of the fat, and its looking like a rotten smelly mess. The meat is bad, the cure didn’t work, and now there are a bunch of rotten hams laying all over Europe with gnats, flies, and maggots multiplying daily. There can be no remedy without a recognition that the solution is as tainted as the process that got the PIIGS to here, and the markets aren’t buying this rancid meat.
The Prosciutto di Parma Ponzi is on and the Eurozone can only look 2 places for fresh new investors, US and Asia. Last time I looked China was covering their bubbles in a tightly wrapped Kimono so I doubt they have any loose romnimbys (Chinese money) laying around for the PIIGS. And here on the homefront. we are broke as a joke, and those supposed Green Shoots that rose colored glass wearing optimists were seeing last year have turned out to be nothing more than weeds growing unchecked in the front yards of the ever increasing glut of foreclosed homes in America.

DON’T BE FOOLED
The one piece of positive news we keep hearing this week is April existng homes sales were up and woweee kazowee up big. Real big!!! The US government program that gave first time home buyers an $8000 credit to stimulate sales ended on April 30, and the reason we saw a big pretty number in April was buyers rushed to close on houses before the Govt plan expired. Watch todays Cse Schiller be down and more than expected and then watch unemployment and exsiting homes tank over the next few months and things will only get worse. I said last week that other than the Expiration Friday this week would be a blood letting, and the fear of some rotting PIIGS and how that rotten rancid meat will communicate its diseased symptoms to its neighbors is starting to become a very clear and present reality. The market must go lower to find a value zone.
There is no disinfectant better than Sunlight, and when the EuroPIIGS finally put their aged and poorly cured meat on the table then we can start to devise a plan for recovery.

Wheres my Shorts
Ok you made your way through the PIIGGy word play, and maybe just maybe youre hungry, and possibly starting to understand the scheme being perpetrated on global investors. But what to do??
To me the macro play is short DIA—SPY, these are easy plays I have publicly professed my thoughts that the DOW should be 9000, and then 7500 in short order and 950 is my intermediate target on the S&P with 650 to 700 as the next real value level.
Single Stocks…. Yesterdays top plays… S – RIG—RIMM--

Patty di Parma
At the 2008 International Securities Lending conference, I sat at the bar (surprise surprise) in Hotel du Cap in Monte Carlo looking up the coast of the Riviera, while single handedly devouring the plate of Pra-Jute put out for everyone to snack on, I commented to my trusted comrade Patty Curry, that the meat was excellent. He pointed out the window up the coast and reminded me, “whats wrong with you of course its fresh, its Prosciutto di Parma, Parma is like… right there.”