Economic Replay: A house of cards, built on quicksand...

Flush...

2008-10-12T22:19:00.002-05:00

In case you missed it...markets down 18% - in ONE week. Down 30% in a month, etc. etc. Oh and by the way, happy one year aniversary of the all-time high in the markets - kind of eerie - to the day.

Can't really tell you much you haven't heard already - this is kind of what we've been building towards the past year+. The news is only about to get worse, but technically analysisly speaking, it appears to be bouncy time (but don't try to catch the falling knives...with your tongue - courtesy of Chris). Some of the smart ones are calling for a multi-monther.

Yes, it seems nuts, but nothing goes in a straight line. Still, it's hard to see anything that sustained in this environment - so just be safe. But when we do get that rally sometime soon, my advice is to A) get out of anything that was still long (your choice as to when), and B) realize that this is nowhere near done. Congrats if you haven't had your butt handed to you this year, been a rough ride for the masses. Sidelines are MUCH safer.

But now we know what 3 of 3 feels like. I've been talking about it, but never explained it well. Here you go, with charts - gives you a general idea of what to expect. I say general because preditcing the future is not easy, and tools like this are not exact - especially in real time. Unfortunately it's after the fact that it becomes really clear. Cool stuff though.
http://tinyurl.com/4f39kz

But do not forget that the downward action is NOT over. That was not meant as an endorsement to try to go long into this debacle. Do not go on margin, do not go all-in. If we get the sustained bounce, it's just an opportunity to get people out of the stuff that is probably making them very unhappy right now.

Expect the unexpected, it is not crazy to think that we will be getting a "bank holiday", and the market could be closed for days on end with you stuck in a position (which could turn out great or horrid). You will not be quick enough to get out if you are wrong, because the market will be closed - or the Dow will move up (or down) 900 points in about 30 minutes like it did Friday afternoon! 900 HUNDRED points. Anything can happen. Literally.

VIX at 75?! Shatters previous records. Basically saying that the Dow will finish 400 points away from it's previous close - that's nuts.

More to that point, courtesy of Nathan - The intra-day movement (high v low) in the S&P has been over 5% just 41 times in the last 45 years (over 11775 trading days). It happened every day this week. It was over 10% today and yesterday. That has only happened two other times.

But back to the bullish case I mentioned above. 10 of the things that point to rally (wave 4 of 3 from the Mish article you just read - maybe).
http://tinyurl.com/4yqstd

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But I'm not about to get all bullish that easy - no matter what the market does....

1 in 6 mortgages in this country are now underwater - WOW. Up from 4% in 2006, and 6% in 2007. Oh, and here come the option ARM's. Oh, and all the "experts" say we will be making money on the MBS's the government is going to buy with our bailout money. Yes, that's why everyone else on the planet was lined up to buy them - but our government said no, our taxpayers get first dibs, the rest of you can go away.
http://tinyurl.com/3opsmv

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Some of these are pretty funny. Pictures of "sad guys on trading floors".
http://tinyurl.com/4tzrov

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Oh goodie – the clock runs out of digits, but now they are preparing for it to go to a quadrillion! Did Dr. Evil just walk by?
http://tinyurl.com/49bkur

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Where will the money come from? From the USA Today:

“Unemployment insurance trust funds are being depleted in many economically hard-hit states, setting the stage for a federal bailout to keep them solvent, USA Today reported Tuesday. As the number of U.S. jobless hit 9.5 million in August, pushing the unemployment rate to a five-year high of 6.1%, states such as California, New York, Ohio and Michigan are projected to run out of unemployment insurance funds either this year or in 2009. About one-third of the jobless receive unemployment insurance from state governments. The federal government is required to loan states money when their funds run dry. "People will get their benefits. It's just a matter of where the money will come from," a spokeswoman at the California Employment Development Department said.”

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Items of "lessor" importance:

Carlin telling it like it is:
http://tinyurl.com/2y867d

Adler - generally considered one of the smartest guys in the room...

(Posted in its entirety on www.wallstreetexaminer.com)

"The Long March toward the destruction of the creditworthiness of the United States of America took a Great Leap Forward today, or perhaps we should say “one small step for Paulson, one flying leap for mankind.” The Treasury announced and carried out 2 same-day surprise auctions of medium term notes totaling $20 billion. They announced 2 more auctions of similar paper for another $20 billion tomorrow. The market choked on its vomit. 5 year yields rose 22 bp on the day, and at one point were up 50 bp from the low of the day, which came right after the open when the market was digesting the meaningless worldwide central bank coordinated rate cut.

The Fed action in cutting the Fed Funds target to 1.5% was merely rubberstamping the action it had already taken a couple of weeks ago when it first flooded the system with cash and drove Fed Funds rates into the ground. Today they just made it official that they intend to pursue aggressively reflationary policies of monetizing virtually anything. What next after commercial paper? Baseball cards? Monopoly money?

Ironically, today they had to pump in $20 billion via OMO as Fed Funds soared on Tuesday to nearly 3%. I suspect that they will have ongoing difficulty trying to peg actual Fed Funds trading to anywhere near the target rate.

The Treasury market’s problem is not theoretical. It’s not about the threat of investors discounting future inflation. It’s much simpler than that. It’s about simply choking on a barrage of new Treasury supply that’s running between $100 and $200 billion every week! There is no way that stocks, or corporate bonds, or GSE paper, or munis can compete with this supply. Today we saw first signs that the market can’t even absorb just the Treasury supply. As the interest rates rise on Treasuries as a result, we will be facing an unimaginable economic environment, one in which the world rightly questions the ability of the US Government to service its obligations.

The Fed is converting these Treasury funds into loans on, and purchases of, securities and loans, at least some of which are certain not to be repaid. We are now backing our money with assets that may never be able to be liquidated. A time is now virtually certain that there will be no realistic way to pay off the debts the Treasury is now incurring.

As the market begins to realize this, we may face the ultimate collapse, the collapse of US Government finance. Ultimately the world as we know it will be changed in ways that we cannot imagine. Even if the US Government were to reverse course now and say, flat out, no more bailouts, no more Treasury borrowing to finance bailouts, it’s probably already too late.

It’s one thing to allow private capital markets to fail. It’s another thing entirely to foster, foment, and cause the failure of government. A loss of confidence in financial markets is one thing. A breakdown of confidence in government would mean societal changes that we never dreamed of."

Well that was interesting

2008-10-07T23:20:00.003-05:00

Bailout Bill passes. Huge mistake, but for the best. If it hadn't passed then people would just blame the upcoming shit-storm on those of us who opposed the bill. The bill will help nothing, and in fact will only accelerate the destruction, much like the short-selling ban. Thanks to anyone who tried to help.

There are better "solutions" out there if you want to find them. My solution was to head this off a year+ ago when they could've done something about it under less system stress - instead of flat out lying to us and being so concerned with the equity markets. If so many "regular" people could figure it out, the powers-that-be knew (and made it worse). But that's just me, I've been known to be very wrong.

Back to the old way of doing the Replay, lots of links for a paper-trail of how we ended up in a depression. Well, with a little extra commentary...

Wrote all that a few days ago. Market doesn’t seem to have liked it’s bailout? On the same note - do you recall the phrase "no bid"? Since the shorting ban a mere 13 trading days ago, the Dow has lost just under 2 THOUSAND points. Darn shorts.

Wait, there are none! Exactly what anyone with sense should’ve expected – unfortunately the decision makers don’t have that (or were more concerned with helping their buddies for one day - September options expiration day).

Shocker - turns out the shorts were some of the only people buying these past few months (thus putting a floor under the market). Short selling ban expires tomorrow night. That should be interesting at first as they now get to re-apply the shorts with blood in the water. Then again, maybe they all took their ball and went home to avoid the corrupt system?

Earnings essentially started tonight with Alcoa missing huge. Analyst estimates are so off-base going forward it's not even funny.

1300 on the S&P doesn't seem that long ago - oh, it wasn't. 3 of 3 (the technical-analysis "holy grail" of every bear/bull market) is "fun", isn't it? Then again a very slight case can be made that we haven't actually started it yet. Better hope we have, 'cause if we haven't, get ready for Dow 7000 in a hurry. Might as well just get ready for it anyway.

Regardless, we are due for a bounce. I think. (The incredibly stupid SSO position I put on today depends on it.) The scary thing is Cramer is on TV screaming to sell everything. Took him long enough, he finally admits it. That is actually somewhat reassuring for my SSO as he is always wrong. Regardless, CNBC will now be filled with commercials for months talking about how Cramer saved everyone and was the one who saw this coming. You think I’m kidding? I SO wish I was. I wonder when they'll again air his emphatic call that July 15th was THE bottom?

Credit default swaps on Fannie/Fredding and Lehman are due to be settled on Oct 6th, 10, and 23rd. Rumor that a major insurance company is on the wrong side of that in a BIG way - the Lehman ones are the troubling issue - big time. LIBOR, the interest rate that so much on this planet is based on, is eight standard deviations from the norm. How can we rally on this? Actually I have no clue, this is about to get fugly.

So in other words, be careful. It is better to be out of the market wishing you were in, than to be in the market wishing you were out. If you are not playing options and willing to ride out a bounce, the market is heading much lower. Options players have decisions to make with the VIX in the 50's, it's tough to be a buyer.

We've seen big moves, and they could get bigger - in both directions.

Also on that note, once again for anyone trading, let me remind you to not get too crazy – and heed this advice I just read:

"Take it from an old and battle scarred hand on the tiller: This is an extremely dangerous market. The time for making money may be past, and now it is time to preserve what you have. For god's sake, only put at risk a very small portion of what you have. Shorts have been killed, as well as longs. IF this thing turns on, for instance, a global interest rate cut we could run 1,000 points before anyone knows what hit them. We could also fall as much if, for instance, nobody cares at any price about BAC, or GE pulls in their horns. It is just not a time to be a hero. It IS a time to sit back, observe, and know where you want to put your foot back in the water. Unprecedented in our lifetime. Expect the completely unexpected. Don't be foolish no matter which side of the tape you choose."

Speaking of the VIX - 30's is high, 40's is nuts, we've spent a few days in the 50's. You are supposed to spend a few MINUTES in the 40's. Shorting ban has fueled this as people used options to do it/hedge. Still, nuts.

What will the government/fed try to "fix" next anyway? This is the biggest game of whack-a-mole ever played. The unintended consequences of their moves is almost comical. Will they ban selling stocks period, you can only buy? Will they adjust the Dow so downward points only count as half a point? Will they just reset the Dow to 16k, startinnnnnnnnnnnng now? Close the markets? Wait, that one is real. Down 10%, we close for an hour, 20% two hours, 30% for the day. Rules relaxed in the last hour of trading. (Might as well know the rules just in case)

On a somewhat related note, over beers Friday night I finally proved to myself that over time all the Proshares funds (SKF, SDS, TWM, SRS, SSO etc) will eventually go to zero (both the long AND short funds). So these are not buy and hold for long periods of time type funds - you are better off getting in and out. For those who are interested, the "proof" is towards the bottom - most of you are math people, so please read it even if you aren't interested to tell me if I am wrong???

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Jobs number we got on Friday – down 159K, ouch a huge jump. Unfortunately that will be the "best" one we get for a while – the effects of the credit crunch will show up in next months report. Some expect over 200k. The real numbers must be just horrible.

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Wonder what happened after we bailed out AIG?
http://tinyurl.com/4k5en3

“Less than a week after the federal government committed $85 billion to bail out AIG, executives of the giant AIG insurance company headed for a week-long retreat at a luxury resort and spa, the St. Regis Resort in Monarch Beach, California, Congressional investigators revealed today.

Rooms at this resort can cost over $1,000 a night," Congressman Henry Waxman (D-CA) said this morning as his committee continued its investigation of Wall Street and its CEOs.

AIG documents obtained by Waxman's investigators show the company paid more than $440,000 for the retreat, including nearly $200,000 for rooms, $150,000 for meals and $23,000 in spa charges”

Excellent use of my money a-holes.

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And here's the quote from a Forbes story since we can’t let the size of the bailout just pass us by without comment:

"The secretary and the administration need to know that what they have sent to us is not acceptable," says Committee Chairman Chris Dodd, D-Conn. The committee's top Republican, Alabama Sen. Richard Shelby, says he's concerned about its cost and whether it will even work.

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

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Remember the record 187B a day I mentioned the banks were borrowing two weeks ago?

“Banks' discount window borrowings averaged $367.80 billion per day in the week ended October 1, nearly double the previous record daily average of $187.75 billion last week, Federal Reserve data released on Thursday showed.”

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In a Dow Jones column, Michael Rapoport points out the obvious:

"Wachovia went out with a book value of $75 billion. Citi paid $2 billion. Could it be that asset values are overstated, not understated?"

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It begins – like I said, our money isn’t staying in the country.
http://tinyurl.com/44xv4q

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Europe too big to bail? As mentioned before, they actually have it worse than us. Probably because of us.
http://tinyurl.com/3jgdyh

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Haven't mentioned the impending bankruptcy of California in a while. Arnold getting desperate. Will run out of money by the end of the month if something isn't done. What happens in California...
http://tinyurl.com/4zymqu

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From Trav

"Son, we live in a world that has bonds and those bonds need to be bought by men with balance sheets. Who's gonna do it? You? You, Lieutenant Fuld ? I have a greater responsibility than you can possibly fathom. You weep for Bear Sterns and curse the short sellers; you have that luxury. You have the luxury of not knowing what I know: that Lehmans death, while tragic, probably saved firms and that my existence, while grotesque and incomprehensible to you, saves markets. You don't want the truth because deep down in places you don't talk about at parties you want me buying bonds, you need me buying bonds. We use words like TSLF, PDLF, Super SIV. We use them as the backbone of a life trying to defend something. You use them as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom I provide and then questions the manner in which I provide it. I would rather you just said "thank you," and went on your way. Otherwise, I suggest that you pick a sub-prime option arm bond and pay par. Either way, I don't give a damn what you think you are entitled to."

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Items of "lessor" importance:

Wow, these are some of the worst auto numbers in existance. Good thing they snuck their $25B bailout in while nobody was watching last week. They'll need it.
http://tinyurl.com/4az4cl

Sen. McCain, what do you think of the bailout? Worst thing ever, hate it, hate it, hate it. So you are voting against it? No I am not.
http://tinyurl.com/4sxd8g

I watched Fast Money for the first time in a couple months - Adami and Ratigan look completely grey compared to what I remember! Bernanke's beard gave me the same thought earlier. There is some serious stress being put on people this year.

As for the Proshares funds. Lets use a simple extreme example. SSO is the double S&P 500 - it moves double the % of the S&P EACH day. Let's say the S&P is at 1000 and SSO is at 100. On day 1, the S&P goes crazy and rises to 2000 (up 100%). Then SSO should go up 200% - meaning it will be at 300. Now lets say the next day the S&P gives back all it's previous days gains and goes right back to 1000. This is a 50% loss (from 2000), meaning a 100% loss in SSO - which goes from 300 to 0. So the S&P is right back where it started 2 days ago, but you just went bankrupt. Again, this is the extreme example, but do it in smaller amounts and you'll see as the market zig-zag's you get an incredible amount of "slippage" that eventually over time will make all these funds worthless.

That being said, I'd think the no-fail money making opportunity here is to short EVERY proshares fund in equal dollar amounts. So if you short SSO and SDS (they are opposites in the S&P) your net moves each day should pretty much cancel each other, but over time both funds will work their way to zero. One caveat, the funds do pay a dividend/capital gains so that would likely need to be factored in - but the dividends just lower the value of the fund which brings it closer to zero anyway.

...And more of them voted....

2008-09-30T23:31:00.003-05:00

Video's that just weren't important enough to show up on the news - guess it wasn't newsworthy? The public HATES this bill. CNBC even admitted that of all the emails they got on the topic, they did not recieve a single email in support of it. Not one!! Don't believe the hype even though it is now known as a Rescue plan rather than a Bailout. Hype.
http://tinyurl.com/4zq2qt

What's going on here? As heard on CNBC:
http://tinyurl.com/3vn5xr

Paulson and Bush threatened to veto the legislation if there was an explicit prohibition of transfers from foreign banks to an American subsidiary.

The assets do not even have to be American Mortgage assets – they can be an office tower in Shanghai! This money is going directly out of the country.

Who knows what their plan is, but for two guys (Bush and Paulson) who are BEGGING people to pass this bill, why would keeping the money in the US be a dealbreaker?

The Senate is voting tonight, the House again Friday (should we just keep voting until enough people get bribed?).

Senator Coleman 202-224-5641
Senator Klobuchar 202-224-3244

If you are so inclined, call now and tell them to vote against this bill because the money will not stay in the US. More importantly, call your Congresman too since they don’t vote until Friday – they are all up for re-election in a month. Find out who they are at congress.org if you don't know. Tell them you won’t vote for them if they vote for the bill as the money will not be used here.

But far be it from me to say what is right, because no matter what we do there is a very rough road ahead. Some of you think I’m an idiot, which is fine with me - but you also thought that a year ago, so I'll just have to live by my track record. Regardless, you should also call and instead lend your support to the above representatives as they will be happy to have some citizens on their side - and the more people being active now, the better.

But since it’s my blog...The money is doing worse than bailing out wall street, it's bailing out everyone the dill-holes on wall street screwed. With OUR money. Now we see why foriegn ministers spent today saying we need to pass this - UNREAL.

If it was the end of the world because the market tanked, how come it didn't continue, rather that go up 500 points? We are being played. We are being blackmailed. Get ready for an even worse economy than originally predicted – which was going to be horrid.

Final summary of what this bill is: A giant margin call on our countries debt. We don’t play ball, the world tells us to piss off and cuts us off. (recall that we owe 2 Billion a day in interest, we kinda need them)

Not that I was one of the masses living irresponsibly beyond my means, but...Pre-emptive giant SORRY to future generations.

And then they voted...

2008-09-29T23:23:00.002-05:00

And now we see what happens when you don't allow shorting (and thus short covering). Floor gone. Have we ever lost 777 Dow points in a day? And we did it without the shorts help - who knew? That's enough on the market, other than 2 things, first a historical point you should heed, and 2nd a rumor - both as a reminder to be VERY careful out there:

With these major moves, I'm sure there's lots of people rushing to short the hole or go all-in long. Before you do, let me offer a quick sanity check -- historical perspective from the '29-32 bear market.

On Oct. 24, 1929 the Dow droped 9%. That was followed by a rally the next day of <1%. The next two trading days (Oct 28-29) saw a 13% and a 12% drop respectively.

If you shorted the hole on Oct 25, you did well - a 23% plunge over 2 days. However, if you shorted the hole after the Oct 29 drop, you got ***********, not for a day but for SIX WHOLE MONTHS, until April '30 with a peak of darn near FIFTY PERCENT above the low after the '29 crash.

In the spring of '30, it probably felt like the bottom was in. After all, that huge crash had happened 6 months earlier, and the market had been steadily churning out gains. If Jim Cramer were on TV in 1930, he would have been patting himself on the back for half a year on his correct bottom call. Ooops - wrong: the next two years would have to Dow drop over EIGHTY PERCENT to a 20th century low of 41.22.

So my point of boring you with this history lesson is that while history never repeats exactly, it often rhymes. Please be VERY VERY careful with positions. Volatility cuts BOTH ways. Market timing is very difficult and rather unpredictable - don't get overconfident just because you've timed the market right in the past. We live in truly historic times which are and will continue to be market by truly historic market moves.

And the rumor (for entertainment purposes of course):

I just recived a e-mail form a source in the big windy

"Spoke with a good friend, well-connected pension fund guy in Manhattan, he is CERTAIN the market tomorrow will close up huge. He only knows the close will be bloody for shorts."

"can you say the Intel you have? Rate cut? FDIC limits raised can you point me in the right direction?"

"Our source says the democrats have come up with the needed votes, that's all he told us on his cell phone from some lower Manhattan rest/bar."

At the second I got that e-mail the /es (futures) started to move north.

Take it with for what it is worth

What are the odds, especially now that it has been posted publicly, hopefully it doesn't work like that (but it seems to) - but be careful both ways regardless, nothing wrong with straight cash. I hope.

And now the less important part of me saying whatever I want 'cause it's my blog:

Let me state one thing off the bat. The bailout plan was a horrible deal. Anyone that says "see, we need it" is wrong. People who are long because the goverment would save us are wrong. And anyone who bought something expecting everyone else to cover them if they are wrong is not very nice/smart regardless. Go to Vegas and see how that works out for you.

The bill fixed nothing and stole $700B from us to give to people who caused this mess. They will ask for more, they need probably 5 times that. They tried to tell us we'd make a profit to push this through. ZERO chance of that. They told us the world would end if it didn't get passed to try to scare us. They pulled Buffet in (a private citizen) to talk to Congress (but didn't allow economists in) - talk about a conflict of interest, of course Buffet says to pass it, his empire depends on it.

Feel free to look it up, banks borrowed an average of 188 Billion a day from the Fed last week (which is already more than the miracle 700B). Where did that get us? It's not liquidity - it's solvency.

What we need is TRUST. We have been lied to. The rules have been changed on us. We are supposed to now trust them when they ask for $5000 per taxpayer no strings attached?

Who the heck wants to invest/play in a completely rigged game. EVERYONE is taking their ball and going home. The market isn't tanking because of the shorts, or the lack of a bailout - it's tanking because you don't know what to trust anymore. Confidence is gone. Thanks a lot Hank and Ben, this is the system you have now created.

On the other hand, major props to Fedupusa.org for the leadership in informing congress etc through massive faxes/phone calls and round-the-clock work. Every media outlet told us ALL weekend and right up to the vote that it was a DONE DEAL. EVERY SINGLE ONE. Talk about trying to sway the vote. The Fedup folks talked to
so many congressmen and it was very clear to them that this wasn't a slam dunk - so how did the entire media get it wrong???????????

Don't get me wrong, something HAS to be done. I don't have the perfect answer, because one DOES NOT EXIST. Greed and leverage destroyed the system. Can't fix that in a day/week/month/year. Time will heal it, but in the meantime there will be a lot of pain no matter what they do. That is why I'm against mortgaging the future
of the country to make a few few people happy now - seems pretty selfish. Oh, and I had a large long position that got hit quite hard today, so trust me, I'd much rather have had the market surge today.

My point is that I have learned the hard way over the years that throwing good money after bad doesn't fix things. The Fed has done that for the past year and where has it gotten us - oil is way up, food is way up, mutiple 100+ year old companies are gone, the largest Savings and Loan, the largest insurance company - not a single good thing has come from any of it.

Let them blame it on the public, the shorts, now Congress - there will be MANY scapegoats. Ignore it, the problem was the laws and Greenspan catering to the market with low rates, and everyone being encouraged and wrangled into buying a home whether they could afford it or not. The things I've read/heard that people did and said to swindle the public are sickening.

You want a solution - Denninger makes some great points here:
http://tinyurl.com/4ht4ns

Otherwise, if you want to see the severity of the situation, read Roubini's latest - he has been SO far ahead of all of this, and SO accurate. This should make everyone sit up and pay attention!
http://tinyurl.com/4t8ru7

The beat goes on!

2008-09-25T19:55:00.000-05:00

Gaaa, I can never catch up (I have so many saved up that I haven't had time to send yet). WaMu just got seized by the FDIC - largest bank failure in history. JPM buying the deposits (probably getting yet another sweet deal at our expense) to avoid completely bankrupting the FDIC. This is such a mess.

McCain causing problems for the 700B bailout too. Republicans actually showing some backbone here? Crazy stuff going on at the moment.

Call your senators, call your congressmen, tell them to stop the fleecing, it's being heard!! Calls have been 300 to 1 against the bailout.

Denninger and co have been on NBC news, the front page of the LA Times, the Financial Times and many other places, people are hearing us and at least asking questions of Paulson's joke of a plan.

Nobody even seemed to notice that the auto industry got their $25B bailout yesterday. More money for EACH of the automakers than Chrysler got in their major bailout (1.5B) back in the 80's.

The stuff I just mentioned (WaMu, auto) etc. is HUGE, and being dwarfed/snuck by everyone under the bailouts shadow.

Wish I could attach the hammer/sickle flag Trav sent me.

Tomorrow could be insane, if the talks don't go well tonight, Ben/Hank might just allow the markets to fail tomorrow to prove a point. Or they could come to agreement and "save the day" and the market rallies huge. Truly a time to play it safe on the sidelines or play VERY close attention.

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Don't even know where to start. Last Thursday the FED unleashed another $180 BILLLION onto the system. It disappeared. Literally. Gone. That forced Friday's actions of banning shorting (really?), announcing the bailout, and doing it all on options expiration. Nice job manipulators.

And they think the 700B will do anything other than be a complete waste of our money to bail out a bunch of jack-a$$es? Until the process starts again in a couple months.

Other great stuff on this site - but the two links on the left listing Paulson and Bernanke's lies is an eye-opener - and proof of what we've been discussing for over a year. This site was an off-shoot created by many hard-working individuals on the TickerForum - visit it!
http://www.fedupusa.org/

Paulson, reportedly to congress on his piece of sh$t bill:
"If it doesn't pass, then heaven help us all,"

F him and the F'ing bullshit he has spewed for the past year+. In case you still don't believe me, HE runs the planet. Do you think it's a coincidence that AIG, Bear etc get to live, and Lehman is let die? Be a friend of Paulson and you will live like a king. Unfortunately the other 99.99999999% of us are f'd.

He told us how strong everything was until he needs a bailout for his buddies, not it's heaven help us?!

Mish’s open letter to Congress
http://tinyurl.com/4275jc

Actually, Mish had a ton of good stuff the last couple days, scan them over if you have time.

Well guess what? Goldman and Morgan turned into banks last night. Not how I envisioned their end, but the investment bank model is now dead. I'm sure they will rally on the news, but they are now limited to be leveraged like 12 to 1 (oh, the humanity) instead of 30 or 40 to 1. Slash their future profits massively.

Taiwan, Australia, the Netherlands, Germany, Ireland, Dubai etc. all also banned short selling in some form. IT IS NOT THE SHORTS.

Ask Pakistan. Great charts in this one:
http://tinyurl.com/4orw6c

One of those fantastic Mish's I just mentioned. Includes "what you can do". Do it.
http://tinyurl.com/4thvvy

Finally, the video that explains it ALL. 47 minutes. Cartoon. Save it for later, but don't forget about it. It's the reason this country is on the verge of...
http://tinyurl.com/27jppm

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Sent to every congressman, but worth a read because it tells the story:

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Enabling Act of 2008

Dear Member of Congress:

You are being asked to assign unprecedented powers to an unelected, and unaccountable former Wall Street banker, under the guise of bringing stability to the markets and solvency to our banking system. With one hastily thrown together vote, you are going to create the most powerful human being in world history – Henry Paulson.

This is being done for the purposes of fixing a “crisis” that has suddenly, in the last hour, been presented to Congressional leaders. This act would remove the constitutionally mandated powers of regulation of the money supply, and the value thereof, from Congress and give it to an unelected member of the President’s cabinet. According to the act, this person would be above judicial review, and be allowed a $700,000,000,000 revolving line of credit to print money on behalf of the United States government. That is more power than anyone has ever had – anyone. Caesar did not have this power.

This should sound eerily familiar.

In March of 1933, after the “crisis” of the Reichstag Fire, newly named Chancellor of Germany, Adolf Hitler, petitioned the German Reichstag to give him plenary powers over the affairs of German government. The Reichstag transferred its power, on an emergency basis, to the Cabinet of Germany for a period of four years, and this was called “The Enabling Act”. This was to deal with the perceived “crisis” of Communists within the German government, when the “crisis” was never fully substantiated. It is believed by most historians that the Reichstag Fire was a deliberate act to coax the Reichstag into giving up its power.

That history did not end well.

You are being goaded into giving Henry Paulson plenary powers over the economy and government spending, money supply, and value of that money. Those powers belong to you, held in trust for the citizens of the United States. Our Founders gave you those powers TO PREVENT THE VERY SCENARIO THAT SECRETARY PAULSON HAS PRESENTED TO YOU.

You are being manipulated.

For the past 13 months, Paulson, and Federal Reserve Chairman, Bernanke have repeatedly given public statements through the various media, and have testified to Congress on the soundess of our banking system. As that time has worn on, they have repeatedly come to Congress for various bailouts (Bear Stearns, AIG, Fannie/Freddie), as well as acted to install confidence through the manipulation of the Federal Reserve Monatary Policy, and announcing various liquidity programs to keep money in the banking system (TAF, TSLF). While they have been taking extraordinary measures to shore-up the banking system, they have always maintained that the system is sound and just needs a little time to get through a “soft spot,” or a “contained” problem (Subprime).

You now know that they were lying the entire time. There is no way to sugar coat this. They have been lying to you since March of 2007. They are lying now. This was plainly known to many in the professional and amateur investment communities, recently smeared as “short sellers.” It turns out that the cynics were right all along. This is why we have a free press.

Ask yourself, why didn’t they come to you for this unprecedented bailout last October, when Paulson attempted the same thing with various Wall Street banks? Surely, the problem was known last fall when Paulson attempted to create his “super SIV.”

Had he come to you at that time, there would have been at least 11 months to debate the issue, open it for public review, and deal with it while the stock market was trading at an all-time high. Why did he wait until the weekend before the Congressional recess for the bi-annual election cycle, and present the plan over a weekend where the public could not comment? Why did he have to wait until the stock market teetered on collapse, and the credit markets were frozen solid?

He needs a “crisis” so you will not oppose him.

Ask yourself, why did the Senate Majority Leader and Speaker of the House, as late as September 16, attempt to leave the issue in Washington and head back to their districts, leaving the Administration to clean up the mess, then suddenly have a change of heart less than 36 hours later? What was said? Why are the details of the briefing given to Congressional leaders not available for public review? Why are you being asked to vote for something so hastily and without proper briefing or public review? Does Democracy flourish in the dark, or does tyranny and fraud?

We know the following:

Paulson and Bernanke have lied for the duration of the credit crisis.
Every bailout has been bigger, more frequent, and has resulted in a much bigger “crisis.”

Now, Paulson and Bernanke are telling you that they really are telling you the truth and this bailout will work.

You are being played.

They are framing the issue in terms of Congress voting to rescue the banks and the markets. Let me be clear on this point: YOU ARE NOT VOTING ON THE HEALTH OF THE BANKS OR THE MARKETS. YOU ARE DECIDING WHO GETS WHAT MONEY IS LEFT OVER AFTER THEY FAIL. The markets (equity and credit) are going to experience a large dislocation, or in the common lexicon, “a crash.” That is an absolute certainty. You are merely deciding if the US citizens are going to keep their money, or give it to Wall Street bankers. You are deciding if the US government is going to survive or collapse. Giving Paulson unlimited spending powers will ensure that the government collapses. That is a certainty.

Paulson and Bernanke need to be removed from office for malfeasance. For 18 months, the health of the banking system has been very suspect. They have known all along what is happening and have failed to act. Their actions have been limited to lying to Congress and the American people and manipulating the accounting to cover the insolvency of the US banking system.

You are being asked to abdicate. The American people want their Constitution and their government to survive. We will rebuild what Wall Street has destroyed, but we need to keep our money in order to do it.

Vote against this unprecedented power grab. History shows the folly of such endeavors.

Very truly yours,

***************************

Sen Dodd: If we are paying $1 TRILLION (If that is the estimate, multiply it by 5 = America is gone, but that's a different story), don't you think we deserve to hear what was said?

Senator, you have got your hands full right now. Before we get into the specifics, describe the mood last night when you heard the potential dire consequences of what we're talking about now, if the federal government were just not to do anything. What were you told would happen?

SEN. CHRISTOPHER DODD (D), CONNECTICUT: Well, I'm going to be reluctant to repeat exactly the words, not because I can't remember them, but, because, if you were to repeat them exactly, I'm fearful it might cause even more concern.

I can't begin to tell you. I have been here for 28 years, Wolf, been in a lot of very critical meetings involving a lot of important events over the last quarter-of-a-century. I can't recall another occasion when I was in a room where statements were made about the conditions of not only our economy, but the global economy, that caused every member in that room, the leadership of the House, the Senate, Republicans, Democrats, leaders of committees, that, when Chairman Bernanke finished his appraisal, a brief appraisal, along with Hank Paulson, there was dead silence in the room for maybe five to 10 seconds.

The oxygen went out of the room. People were stunned by what they heard. And I'm angry about this, because I think this was preventable, I will tell you, but we're not going to talk about that today, because the issue is, what do we do?

As for the rumor as to what was said:
Rumour is that Ben said the DOW would go to 8300, payrolls would fail, factories would shut, businesses would close, within 48 hours.

Just a rumour...

********************************

Exerpt from Patrick Buchanan:

What we are witnessing today is how empires end.

The Last Superpower is unable to defend its borders, protect its currency, win its wars or balance its budget. Medicare and Social Security are headed for the cliff with unfunded liabilities in the tens of trillions of dollars.

What we are witnessing today is nothing less than a Katrina-like failure of government, of our political class, and of democracy itself, casting a cloud over the viability and longevity of the system.

Notice who is managing the crisis. Not our elected leaders. Nancy Pelosi says she had nothing to do with it. Congress is paralyzed and heading home. President Bush is nowhere to be seen.

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.

What the Greatest Generation handed down to us the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved the baby boomers, oblivious and self-indulgent to the end, have frittered away.

********************

Non-req as it is quite anecdotal but very interesting - esp the 2nd part:

Every now & then i get a call from a very upscale salon near Wall St. to be a hair model. And if my hair happens to be too long like it was today i accept their invitation.

Today i happenned to be chit chatting with a stylist there from Russia and i mentioned that i had heard that the russian stock market got shut down this past fri. and i'm not even sure if they re-opened it.

She said "i dont know about the russian stock market but this one here is in REALLY big trouble!". Playing dumb i said "what do you mean"? And she went on to tell me that the Salon has lost DOZENS of regular clients over the past few months - many confided that they had been laid off and the others simply disappeared. The clients who they still have come with an extremely noticable difference in mood and many confide that they simply have no idea from day to day if they will still have a job and how they will be able to support their wife and kids and house. When she asks how bad it is they say things like "its REALLY BAD - TRUST me". And she said one guy really scared her the other day by talking about some foreign land that he owns that he would go to as a possible exit strategy. She feels that many of them are simply grabbing any money they can and sticking it away and preparing for the life they had on Wall St. to imminently end.

In another piece of news that is SURELY going to get me accused of tin - I got a call last night from my father (now a semi-retired lawyer) who told me that a friend of his called him and told him that his son made 17 MILLION Dollars going LONG on thursday afternoon and selling Friday morning. The person told my father that his son was in some sort of group that was tipped off DAYS IN ADVANCE and basically told to buy on thursday before the announcement. My father then told me that the whole thing was a plan to help re-capitalize the insolvent institutions that had to be bailed out. By timing this properly and leaking the information to the right people the FED was able to get tons of money into these institutions which means they will have to be bailed out that much less now that they made so much money from friday mornings pop.

Wow! (Just a rant)

2008-09-14T20:46:00.004-05:00

No time to put my links together or anything, but wow. So you've heard by now that the biggest financial event of our lifetimes happened last weekend - the government taking Fannie and Freddie over. Insane. Washington Mutual is on the brink of bankruptcy - one that will eat up half the FDIC fund - a fund that only covered like 1% of the bank deposits anyway. Ummmmmmm...

Now a WHOLE week later (yes all of this is happening TONIGHT), Lehman going bankrupt. Merrill Lynch gets shotgun-wedding bought by Bank of America (as it was OBVIOUS that Merril would not have made it through the week otherwise, post Lehman - nevermind the fact that Bank of America doesn't have the money for this), AIG (a FLIPPING INSURANCE COMPANY with NO access to help from the Fed etc.) says they need $40 BILLION from the Fed to keep going because they can't get money elsewhere, and to top all this off, the Fed is expanding it's lending facilities even more - and it will now accept EQUITIES as collateral!!!!!!!!!!!!!!!!!!!!!!!!!!

Are you F'ing kidding me? Lehman went from $18 to zero last week, that's the type of stuff the Fed now accepts as collateral? And by "the Fed", I mean the taxpayer.

It won't get reported - as proven by the lack of caring the past week - but the Fannie/Freddie thing + this just sealed the fate of this country, and the financial system of the world. This WILL fail so badly. I don't even know what to say or think anymore. This is nuts.

If for some INSANE reason you still doubt the crap I've been spewing for 2 years now - welcome to the part where I say this: I told you.

Game over - you don't need me anymore. It'll be a real-time disaster for everyone to witness for generations to come. They'll blame it on other things - but these manipulations are what caused it. Greenspan caused it. Greed caused it. We'll all pay because we don't have friends in high places.

I am plain shocked. As for what happens to the stock market - who the heck knows in this rigged system? But nearly all banks are insolvent, and most companies will not be making money for a long time with a consumer that gets thrown more under the bus everyday (and doesn't even seem to notice/care) - so you tell me how that ends. Another hint the market gave us - the biggest bailout in the history of the world happened last Sunday, the market loved it - for 1 day.

(Oh by the way, I'm counting Merrill as having gone down. Which makes my Bear Stearns, Lehman, Merrill part of the prediction correct. Next is Morgan Stanley. I had it ending there. That just changed, JP Morgan and Goldman Sachs now go down too. Yep, the 6 biggest investment banks will be gone. Good riddance. Unreal.)

Oh, just get it over with!

2008-09-03T21:55:00.001-05:00

The market is schizo. S&P fading downward, financials and builders are up. Day after day. For the past year+ that has meant one thing and one thing alone, hedge funds are blowing up. They are forced to unwind – buying back their financial/builder shorts, and selling their oil/commodity longs (energy now being the biggest part of the S&P). Hence you get the nutty effect noted above. And you can imagine what eventually happens.

We are once again getting dangerously close to closing below 1260 (1257 to be safe) – but we’ve seen this before and the market shot up to 1300. 1300 seems to be impenetrable to the upside though. For those playing the home version - If you see it again, I’d up those short positions to 50% of your intended stake. But at the rate the world economy is decelerating on a daily basis, seeing those levels would probably take trickery. I’m not giving up on 1320 (but most are), but each passing day makes it tougher to see happening. But make sure we close below 1257, I'm nearly certain we will test this 1260'ish area again and bounce up - the question is how high?

Regardless, we're about to break one way or the other soon. Simply because this last 2 weeks has been ridiculous and non-sensical to even the experts.

But what do you I know? This picture sums it up.
http://tinyurl.com/3daqnu

FDIC troubled banks list just jumped from 90 to 117. Assets at those banks jumped from $26B to $78B. IN ONE QUARTER. As for the usefulness of said lists, Indymac was not on them. I'll let you pick the multiplier to apply to theses numbers to get the real answer. Hint: Your number was too low.

Before I get to the links, something to keep in mind from Bloomberg:

The Standard & Poor's 500 Index, which had the worst first half since 2002, added 0.2 percent this quarter, the only gain among the world's 10 biggest markets in dollar terms. Shares in the benchmark index for American equity climbed to an average 25.8 times reported profits, the highest valuation in five years. The last time that happened, the S&P 500 fell 38 percent.

And now for the links:

Couple of interesting charts. Nice feat indeed.
http://tinyurl.com/6coud9

This video is WAY too funny
http://tinyurl.com/6caavp

This is why the housing downtrun won't end for YEARS. Whoever is allowing this sh*t to happen needs to be tarred and feathered TONIGHT.
http://tinyurl.com/5frvqm

Chart of the S&P since 1971. Raise your hand if you think that trendline holds us up yet again?
http://tinyurl.com/69q489

I got on her once upon a time, but she is coming around - great work getting on Greenspan like he deserves!
http://tinyurl.com/6qt66l

Putting the pieces together. Great summary with some great charts (Decline in Mortage Lending Standards was the most shocking to me). Consumer, RIP.
http://tinyurl.com/6mk7x7

"Large bank may fail" (not my words)
http://tinyurl.com/5rwdxh

Nice work IndyMac. Nice job regulators. Good estimates of value to both of you.
http://tinyurl.com/5u6b73

####################################################################

Items of "lessor" importance

How can you not include anything that mentions "BenSteinery". (Todd, how could you have breakfast with him and not give me warning?!) #7 is spot-on too.
http://tinyurl.com/5a662y

Prime defaulting faster than subprime now - yep, well "contained" dill-holes. Didn't see that coming [/sarcasm]
http://tinyurl.com/58sdog

Final update on the WaMu pool of complete crap:
http://tinyurl.com/5qamkb

His comments always make these articles even more interesting as well as easier to understand.
http://tinyurl.com/5u9xfr

Companies on the edge
http://tinyurl.com/6kdqky

And for your reading pleasure to close the Replay - a take on the DAILY rumors we are hearing about Lehman (tick, tick, tick...)

Breaking News: Lehman To Be Acquired by Tooth Fairy

The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being transported back to that magical place where Lehman still sells for over $70 per share.

In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehman’s level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbell’s up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbell’s assets other than the Level III capital. If Tinkerbell defaults, Lehman’s successor entity will stick its hand down the crocodile’s throat and attempt to get it to regurgitate. The firm’s historical value-at-risk analysis shows that sticking your hand down a crocodile’s throat is completely safe.

Treasury Secretary Hank Paulson issued a statement: “I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over.”

Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, “Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately?” The SEC is reportedly planning to set up re-education camps for short-sellers.

You expect a 20% fudge - and tick, tick, tick...

2008-08-17T16:31:00.002-05:00

Not a ton of articles here (shortest Replay yet!) as I've been monitoring the market rather than the economy, but still some good ones worth reading.

Well we are reaching that point. The bounce that started at S&P 1220 is starting to lose steam. My target is still 1320 to 1350, but people smarter than me don't think we'll be getting there. I don't buy that just yet, but figured I should let you know.

If you don't like what happened to any long positions you had between May 19th and July 15th, you might want to consider taking action soon as I expect us to probably top out this week - with the upcoming downturn actually being larger than the aforementioned. Somewhere closer to 1060 on the S&P looks like an early indication (but not in a straight line obviously).

But anything is possible. I can put a comment out when I feel we've topped, but bottoms have been easier to pick than tops lately.

While it's convenient to blame this bounce on the technicals, or bailouts or the drop in oil - there is one thing you aren't hearing it blamed on. Hedge fund collapse. THE trade has been long commodities, short financials. Hedge funds who are getting destroyed by mortgage holdings/people cashing out are being forced to unwind THE trade, meaning they are buying back financials and selling commodities. Market goes up...

But just so you aren't tempted to get lulled in by all the happy talk during this corrective bounce - From David Rosenberg recently (chief economist at Merill Lynch):

The Dow has enjoyed a 452-point two-day bounce that seems to have a lot of folks very excited that the bottom has been turned in. Since this bear market began a year ago, we have seen no fewer than six of these flashy 400+ point two day rallies – these happen in bear markets, hardly ever in bull markets. In fact, in the 2003-2007 cyclical bull run, not once did the Dow manage to turn in a two-day advance of over 400 points.

To reiterate – these wild moves are characteristic of bear phases, not bull markets. As for the financials, take note that 9 of the largest 20 up-days of all time have occurred...In 2008!

This was no different than what we saw during the tech wreck – 19 of the largest 20 rallies in Nasdaq actually happened during the 2000-02 bust. Ditto for the Nikkei – 17 of its top 20 sessions occurred during its secular bear market than began in 1990. So stick that in your pipe and smoke it.

On to the links!

****************************************

These guys bring up some great points. Math doesn't lie.
http://tinyurl.com/698nsc

****************************************

A list of stores that have went away in recent weeks. Interesting cycle of unemployment, less spending, more closings...Carry on.
http://tinyurl.com/5um6ed

****************************************

Ah California, what are we going to do with you? What if we become you? 1300 a day - ouch!
http://tinyurl.com/63usob

****************************************

FirstFed figured that some borrowers had fudged their incomes and tried to protect itself with tighter credit standards. "But we were shocked by the magnitude of the lies," Ms. Heimbuch says. "You expect a 20% fudge. You don't expect 500%."
http://tinyurl.com/6kjzov
(article at bottom of Replay if link no longer works)

****************************************
Roubini interview: Yes, That's $2 Trillion of Debt-Related Losses. What ever happened to the $30B Bernanke told us it would be???
http://tinyurl.com/5llymg

####################################################################

Items of "lessor" importance:

Is the banking system safe and numerous other musings
http://tinyurl.com/5wmpmc

A good rant about those corrupt f**kers in office.
http://tinyurl.com/5p7fu8

That's some crazy profits! And guts. If the company was brought down underhandedly, shame on those who did it. But how about this, don't get yourself in a position to be brought down like that?! What person in their right mid leverages themselves 30 to 1 anyway? Nobody, that's who. Dumb asses deserved it.
http://tinyurl.com/6zu5sf

Is there a way to punch someone through youtube? She is clearly delusional - but FOX News shows how completely irrisponsible they are by continually bringing her on to mis-inform the public.
http://tinyurl.com/6hjkwo

FirstFed article from above

FirstFed Grapples With Fallout
From Payment Option Mortgages
By RUTH SIMON
August 6, 2008

LOS ANGELES -- Like many mortgage lenders, FirstFed Financial Corp. is struggling with rising losses. The bank posted a loss of nearly $70 million in the first quarter -- reversing years of profit. Forty percent of its borrowers became at least 30 days delinquent after the payments on their adjustable-rate mortgages were recast. The number of foreclosed homes held by the bank doubled in the second quarter from the first quarter.

But FirstFed isn't another bank grappling with the fallout from subprime mortgages that went to less-creditworthy borrowers. In fact, FirstFed was ranked last year as one of the top five banks in the nation by a trade publication, partly because it appeared to have pared back on risky mortgage loans. Yet this year, the Los Angeles bank is on the front lines of what could be the next big mortgage debacle: payment option mortgages. These loans went mainly to people with good credit, but they are likely to experience defaults that are nearly as high as -- in some cases higher than -- those for subprime.
[Babette Heimbuch]

Barclays Capital estimates that as many as 45% of option ARMs, as they are often called, originated in 2006 and 2007 could wind up in default. Another analysis, by UBS AG, suggests that defaults on option ARMs originated in 2006 could be as high as 48%, slightly higher than its estimate for defaults on subprime loans. Both studies looked at loans that were packaged into securities.

Option ARMs typically carry a low introductory rate and give borrowers multiple payment choices, including a minimum payment that may not even cover the interest due. Borrowers who make the minimum payment on a regular basis -- as many do -- can see their loan balance rise, known as negative amortization. Monthly payments can increase by 60% or more once borrowers begin making payments of principal and full interest. That typically happens after five years or earlier if the amount owed reaches a preset amount, typically 110% to 125% of the original loan balance.

FirstFed's experience highlights the challenges lenders face as option ARMs recast. That is happening earlier at FirstFed than at some other banks because it set a 110% cap on many of its option ARMs, while many other lenders have higher caps.

FirstFed is a relatively small lender, with just $7.2 billion in assets. Babette Heimbuch, FirstFed's chief executive, says that option ARMs were "a very good loan for the borrower and the bank" for more than 20 years. But that changed, she said, when investment-banking firms entered the industry and set lower lending standards, which FirstFed and others followed.

For most of the product's history, Ms. Heimbuch says, the introductory rate on an option ARM was one to two percentage points below the actual interest rate on the loan. As long as interest rates were flat or falling, the minimum payment was enough to cover the interest due, making the option ARM equivalent to an interest-only loan in the early years of the mortgage.

But around 2003, as home prices accelerated, lenders began pushing mortgages that made payments more affordable. As competition increased, lenders dropped the introductory rate on option ARMs to 1% or even lower and made more loans to borrowers who didn't fully document their income or assets. FirstFed was initially reluctant to follow the crowd. But as mortgage brokers took their business to other lenders with easier terms, FirstFed's mortgage originations declined to $366 million in the second quarter of 2003, from $389 million a quarter earlier. At the same time, its existing borrowers refinanced into new loans at other banks that offered easier terms. "The fear was that at the rate loans were paying off we were going to have to close the company down," says FirstFed President James Giraldin.

Rather than shut its doors, FirstFed joined the crowd and business boomed. But as the Federal Reserve boosted short-term rates, the gap between the introductory rate, used to set the minimum payment, and actual rates swelled to as many as 7.5 percentage points. That meant that borrowers making the minimum payment weren't covering even the interest due.

FirstFed started to pull back in mid-2005 and, as a result, didn't see a big jump in delinquencies until loans began recasting in the second half of 2007. Others lenders are seeing borrowers fall behind even before recasts.

Now, as loans are recasting, FirstFed is scrambling to modify the loans of borrowers who can't afford the higher payments. As of the end of June, nonperforming assets climbed to 8.2% of total assets, compared with 0.85% a year earlier.

Instead of waiting for borrowers to fall behind, the company sends borrowers letters as their loan balances swell, offering them a chance to modify their mortgages. From January through June, the company had modified 705 loans totaling $345 million.

There have been unexpected hurdles. Many borrowers took out home-equity loans with other lenders after getting an option ARM from FirstFed. These borrowers account for 25% of FirstFed's mortgage loans but represented nearly 50% of its delinquencies in the third quarter of 2007, the company says. It is harder to modify the terms of these loans because FirstFed often needs the approval of the holder of the home-equity loan.

In addition, many borrowers submitted loan applications that overstated their financial condition, making it more likely that they won't be able to afford even a modified loan. FirstFed figured that some borrowers had fudged their incomes and tried to protect itself with tighter credit standards. "But we were shocked by the magnitude of the lies," Ms. Heimbuch says. "You expect a 20% fudge. You don't expect 500%."

Dien Truong, a 35-year-old, water deliveryman, pulled out $156,000 in cash when FirstFed refinanced the $628,000 mortgage on his Richmond, Calif., home in 2005. Mr. Truong used the money as a down payment on another home and turned the FirstFed home into a rental property. But the $2,500 a month he collects in rent is no longer enough to cover his mortgage payments, which have climbed to roughly $5,100 from $1,618.

FirstFed offered to refinance him into a new loan with payments of roughly $4,250 for the first five years, but Mr. Truong says he can afford only to pay the $2,500 in rental income. Because he has been making the minimum payment, his loan balance has climbed to more than $690,000, which is more than the home is worth.

"I've been a good customer," says Mr. Truong, who hasn't made a loan payment since March. "This time my credit will be screwed up for good." His loan application shows that Mr. Truong and his wife earn $165,000 a year, more than double their actual income, says Katrina Vizinau, a housing counselor with Community Housing Development Corp. of North Richmond. Like Mr. Truong, she says, many borrowers say they didn't read the application until later.

Frederick Cannon, an analyst with Keefe, Bruyette & Woods, believes the company should be "well enough capitalized" to absorb the losses.

MY COMMENT: Maybe Mr. Cannon should read this article? For those paying attention this was FED that we watched fall from $35 to $3 this summer.

Bouncity, bounce, bounce

2008-07-29T19:08:00.001-05:00

Bailout city baby! The good old United States of Amerika is kicking in as expected. Housing bailout works out to a few thousand dollars per person - starts to add up when your household has 3, 4, 5 members...

Don't worry, it's not a line-item that you'll see anywhere, they don't like to tell you when they are bending you over.

But don't worry, the banks say "thank you".

Mervyns Department stores going bankrupt, Bennigans filing too. They've been around since '76 - these aren't ticky-tack companies disappearing on us. The list is quite large - which is a lot of unemployed people.

Annual CPI numbers up the most in 26 years. The Fed is no longer of consequence, as they can't raise AND lower rates. But we've known that for a while...

Case/Shiller house price declines come in horrid again this month.

So how long has it been since I wrote, we've already had Wave A of the correction, Wave B back down, and now Wave C up looks to be starting. When that ends (S&P 1320 to 1340), we have a long deep flush heading our way.

Chalk one up for Technical Analysis. I've been saying for months we are heading to 1220 on the S&P. We close at 1217 last week and the bounce the next day was epic (Financials up 13%! Double financials up...you can do the math). We hit 1291 eventually and fall right back to just below my 1240 target and now a bigger bounce begins. As I said above, this one will likely last about 2 weeks (give or take) and at that point I'd advise not being very long at all!

2 more banks go down over the weekend. 7 on the year. Many to follow. The only people who seem to care are the ones who lost money in their account - bailouts are more newsworthy these days I guess?

On to the links....

The best 25-point summary around - if you only read one link in this Replay, this is it.
http://tinyurl.com/6prwvh

**************************************
Barry at his absolute finest. I just said it for the last one, but read this!
ttp://tinyurl.com/6zgv38

**************************************
John Stewart in a hilarious description of how things work - great vid!
http://tinyurl.com/6s4avr

**************************************
Don't fight the Fed? It's been uttered plenty of times. This chart shows how things turned out when people were still believing that. Imagine what will happen now that they realize it's a farce, and the Fed is powerless over what is about to happen.
http://tinyurl.com/662vsh

**************************************
Keith at HousingPanic put it best:

Americans have $6.8 trillion deposited in institutions. $4.2 trillion is FDIC insured. And the FDIC only has $52 billion tucked away to back the entire system. One more time, the FDIC only has 1% put away to back the entire thing. And Americans stupidly have $2.6 trillion sitting out there at naked risk. In the end, after the banks fail, and the tiny little FDIC kitty is swiftly blown away, the 'insured' deposits will still be backed up. But you-know-who will be called upon to cut the check. You and me. The taxpayer. And once again, if this happens, Bennie and the Inkjets would just get those printing presses going. And the US currency emergency would go into high-gear.

Here's a more complete view:
http://tinyurl.com/6mct67

***************************************
Why Fannie and Freddie Have Doomed Housing Prices, Regardless of Bailouts - good read
http://tinyurl.com/5vs4b3

****************************************
Jim Bunning (yes, the former Tiger pitcher turned Senator) is looking to be the one Senator who gets it – I wrote him a while back congratulating him, he seems to be taking all the support to heart.

At congressional hearings this week - on the bailout of Fannie/Freddie - great exchange between him and Paulson:

The strongest criticism came from Republicans.

“When I picked up my newspaper yesterday, I thought I woke up in France,” Senator Jim Bunning, Republican of Kentucky, said at the hearing. “But no, it turns out socialism is alive and well in America.”

Mr. Bunning complained that Mr. Paulson would be gone in January, while most lawmakers “will be sitting at the table” left paying the bill.

“You want an unlimited amount and some of us at this table don’t like an unlimited amount of federal dollars,” Mr. Bunning said in a particularly testy exchange. “Do you really think we can believe exactly what you are saying, Secretary Paulson?”

“I believe everything I say,” Mr. Paulson replied. “I’ve been around markets for a long time.”

“So have I,” Mr. Bunning angrily responded. “Where will the money come from if, in fact, we have to use the backstop?”

After Mr. Paulson replied that he did not think any money would be needed, Mr. Bunning said, “That doesn’t answer my question. Where is the money going to come from?”

“From the government,” Mr. Paulson said.

“And who is the government?” Mr. Bunning asked.

“The taxpayer,” Mr. Paulson said.

Mr. Paulson suggested that if Mr. Bunning did not like the plan, he should vote against it.

“I will do everything I can to stop it,” Mr. Bunning said, referring to the Treasury’s plan.

“And maybe you can come up with a better plan,” Mr. Paulson tartly replied.

Senator Chuck Hagel, Republican of Nebraska, asked why the management of the two companies should not be held accountable.

Mr. Paulson responded that since the companies were in one line of business and had not been lax in their lending standards, there was no reason to take it out on the executives.

*************************************
From the Economist:

Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks. The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.

So the stuff that nobody on the entire planet wanted (so the taxpayers will now have to purchase) will now be used as their way of stabilizing themselves – which will ALSO go on the taxpayer WHEN, not if, it eventually blows up.

Cash will be king. No matter how much they devalue it.

*******************************************

"Gov. Arnold Schwarzenegger plans next week to slash the pay of more than 200,000 state workers to the federal minimum of $6.55 per hour to deal with the state's budget crisis"

"The governor also will order an end to overtime pay for all but critical services, a freeze on state hiring and the immediate layoff of 22,000 temporary, seasonal and student workers."

******************************************
I don't even recall who said this now - but they are GOOD!

This rescue plan isn't about mitigating today's housing difficulties. Nothing in the plan gets a mortgage paid that wouldn't otherwise be paid.

Nor is the rescue really about today's credit crunch, except for the minor effect a doubt about the reliability of Fannie and Freddie guarantees might have on the capital of other financial institutions.

Instead, it's about enabling Fannie and Freddie to continue to do even more of the same in the future, and that's a bad idea. The rescue plan makes an implicit federal guarantee for Fannie and Freddie explicit. This would give them an even greater competitive advantage, enlarging their already dangerously overlarge presence in the secondary mortgage market.

The Bush administration and Congress are moving toward a much larger federal role in the housing market. Congressional Democrats propose that the federal government refinance some $300 billion in mortgages, while the Bush administration wants to open the federal checking account to Fannie and Freddie and perhaps invest in them.

Meanwhile, the Fed's balance sheet is getting corrupted with junk that others won't buy or lend against.

All this is to keep the housing market propped up at a time in which the market is screaming, about as loudly as it can: THERE'S BEEN AN OVERINVESTMENT IN HOUSING.

What the politicians propose to do about our economic problems has been consistently more troubling than the problems themselves.

**********************************************
SEC banning shorting on 19 "important" companies?! Looking to expand it to other stocks now too?! It's like they want a crash to happen. When stocks go down, it's the shorts covering and taking profits that puts a floor under the price - with no shorts, no floor. HINT to the F'ing clueless - the shorts DID NOT CAUSE THIS PROBLEM.

I hope communism is gonna be fun.

Mish on the topics
http://tinyurl.com/6z4h3a

http://tinyurl.com/6fhrnq

***************************************
In an interview with RTT News, Nouriel Roubini, Professor of Economics and International Business at NYU's Stern School of Business and Chairman of RGE Monitor stresses that we are in the middle of a "severe recession that is deepening" and will cause "at least a couple hundred small banks," to go "belly up," a third of regional banks to be in "severe trouble" and "at least a couple" major national banks to become "insolvent."

Roubini says there is "no doubt" that the FDIC's reserve will be "drained 100-percent" and stresses that there is "nothing that can be done" to prevent this financial crisis and recession.

In addition, Roubini predicts that Lehman Brothers "won't be able to survive" as an independent broker dealer.

################################################################################

Items of lesser importance:

Yep, it's the bloggers that caused this. My fault. Nothing to do with Greenspan, greed, corruption. Have fun with that theory FDIC.
http://tinyurl.com/6hmulq

The never-ending destruction of value – and the lies.
http://tinyurl.com/57cwm4

Indymac pics of people wanting their money
http://tinyurl.com/676enq

People will care when WaMu leaves a giant crater in the financial system the likes of which nobody has ever seen:
http://tinyurl.com/58zdex

Great summary from the NYT – not too much should surprise you, but still kept me interested throughout:
http://tinyurl.com/5ou6n2

Great Fleckstein piece on why the shenanigans won’t work.
http://tinyurl.com/5tmy5s

HELOC exposure for later use
http://tinyurl.com/5z9c3b

Ba-bye Fannie, Freddie, Indymac, Lehman...

2008-07-13T11:04:00.001-05:00

Indymac bank taken over by the Fed's late Friday night - 2nd biggest bank to ever fail. They couldn't even find anyone to take on their deposits - no other bank wants to deal with this crap becuase they have so many problems of their own. Never understood why this was a $30+ stock a few months back. I can say that about a lot of financials...

Oh, and people were camping out Friday night at IndyMac, Downy, and FirstFed to withdraw their money Saturday morning. Customers in Indymac had $1 Billion over the $100k limits - money they won't be getting back.

By the way, FirstFed (FED) made it under $5 - long run from the $30's I mentioned it at.

I have a new one for you that was in th $30's but I was going to wait for it to bounce before recommending it - hasn't happened yet. ZION - have fun, it'll be in the single digits eventually too. For some reason people think Utah is immune to this mess???

I also said Lehman Brothers (LEH) was next for the investment banks when it was in the $40's post Bear stearns - made it's way to the lower teens this week. Tick, tick, tick...

Preview: After Lehman, it'll be Merril Lynch (MER).

As for the markets overall - still expecting a multi-week bounce sometime. Then a monster decline that could last through the Fall before bouncing. Otherwise know as wave 3 of 3.

******************************

Interesting action in the markets on Friday afternoon due to the rumor that Fannie and Freddie will now have access to the discount window too! When will anyone learn? Oh - the rumor was false?! Oh, they waited to tell people until after the market closed?! Oh, all the people who have been calling for jail time because of the "shorts" spreading rumors have no comment now?! Oh - and if you pay attention at all you'll now know with near certainty that nearly every "bad" rumor has proven to eventually be true, and every "good" rumor has proven to be false - who belongs in jail???? Must be nice to be in charge of what the public knows.

Don't get me wrong, Fannie and Freddie will get all sorts of taxpayer money.

Leveraged at 60 to 150 to 1 (depending on what "accounting" they use) - hedge funds aren't even that dumb. How did they expect this to end??? Funny what a government backstop will make you do...

************************************

Oh and never mind that Bernanke and others were on TV the DAY BEFORE adamantly saying how well capitalized Fannie and Freddie are. As if they don't have complete access to all their books. QUIT ruining the trust in our system you idiots!!!

6 straight down weeks in the markets is quit abnormal, so yes markets have to go up (and I'm still waiting for the bounce) - but destroying the trust will destroy the dollar and send interest rates uncontrollably higher.

I assume you now believe that joe-6-pack has nothing but pain ahead - they are laying the groundwork for it to get MUCH MUCH worse.

***************************************************

We knew Fannie and Freddie were insolvent long ago. As I’ve said, Fannie and Freddie stock will both be zero when this is done. And everyone will own (and pay for) everyone else’s house. Stock action this week tells you the world figured it out. I should've followed my own advice.

They own more than $500 billion in Alt A and subprime paper. They have taken less than $20 billion in write downs. Legislation keeps giving them power to take more junk on (because they supposedly had the “safe” stuff before).

CNN Money talks about the doomsday scenario if/when this goes down. And that's exactly what it is...
http://tinyurl.com/56au5q

**********************************

Housing bailout bill passed this week - quote of the century from the press relase:

"To make it more palatable to Republicans, the Senate measure would take responsibility for any losses away from taxpayers and instead cover them by diverting a newly created affordable housing fund drawn from Fannie Mae and Freddie Mac profits."

What's realy silly about it - the Republicans were the one's who didn't like it very much. Only 68 Senators voted for some reason?? Where were the other 32???? Nearly every one of which was a Republican too...
The list:
http://tinyurl.com/65g8uh

**************************

On that note, this is what happens when you let the foxes run the hen-house:

CBO Projects Housing Bailout Program Will Send 140,000 Families Into Second Foreclosure
By Dean Baker - July 6, 2008, 11:35AM
The Congressional Budget Office (CBO) is not terribly optimistic about the success of the housing bailout bill going through Congress. They project that 35 percent of the homeowners "helped" under the plan, or 140,000 families, will find themselves again facing foreclosure. The reason for the pessimism is that the lenders get to decide which loans enter the program. Naturally, they will pick homeowners who they think will be the least likely to make it.

I wonder what the folks who support this bill will tell those 140,000 families? Many of these families will struggle to make their mortgage payments for 2 or 3 years, sacrificing health care, child care and other necessary expenses in a hopeless effort to hang onto their home. At their end of their struggling, they will end up out on the street, foreclosed a second time.

That is what Washington policy wonks call "asset building."

It was painful to have a housing policy designed by economists and analysts who were too out to lunch to recognize the largest housing bubble (in absolute size) in the history of the world. It is even more painful to see that the same folks are still calling the shots.

As a result, we see Congress rushing to push through a bill that CBO projects will hand $680 million to lenders. Yes lenders -- you know, the folks who issued predatory mortgages on an enormous scale to low and moderate income families in the last few years. Given the structure of the program (it does nothing to prevent loans from being issued at prices that are still inflated by the bubble), it is questionable how much any homeowners will actually be helped.

And, CBO's numbers are likely to prove optimistic. Remember, these are the folks who over-estimated capital gains tax revenue in their 2001 budget projections by $600 billion because they assumed that the stock bubble would persist indefinitely.

*************************************

Mish quote:

“It took nearly 80 years for people to get as reckless as they did in 1929. 80 years! Few are still alive that went through the great depression. That is the nature of the game. People have to forget what a depression is like to bring about the conditions that cause them. And they did. And they made the same mistakes over again, except larger.

The madness of crowds, however, can only go so far. A significant reversal is now underway. The secular peak in consumption has been reached. A reversal in attitudes towards consumption started with houses, but it’s spreading to cars, boats, and even Starbucks coffee. It will take a long time for attitudes to get back to equilibrium. And attitudes, like pendulums, will not stop at equilibrium once they get there.

The odds of a significant bout of inflation now are about the same as they were in 1929. Next to none. History is about to repeat.”

**************************************

Got SRS? This'll make you want to get some when the time is right...
http://tinyurl.com/66ry82

****************************************

European inflation hits 4% - a 16-year high. Chances are they’ll be raising rates here soon (they did). Guess what that does to the dollar – it makes it weaker. Which sends oil etc. higher. Unlike our Fed, they only have the mandate of “low inflation” in Europe (they don’t have the added pressure of rigging stock markets like the Fed here has). So if rates need to be raised to stop inflation, they are going to have to do it no matter how much we continue to balk...

*****************************************

Very interesting view. Not sure about the $1 house thing – but the rest works for me.
http://tinyurl.com/4ewnul

################################################################

Items's that are "less" important.

ShSuHorn on why the Fed is in a box. (mentioned the name as a couple of you may remember him as a strong Big 12 picker in the college football ranks)
http://tinyurl.com/5jn7o4

Long on Bear's final week - but quite interesting. Didn't realize
how cutthroat it is at CNBC (page 5)
http://tinyurl.com/5c25lf

3-minute Video From NBC: Former Countrywide exec says one thing,
company says another. You can decide who to believe.
http://tinyurl.com/3tf6hs

Vegas in big trouble
http://tinyurl.com/65un4u

Poor lackey. Almost felt bad for him - or not.
http://tinyurl.com/66hubc

10 best “Doom and Gloom” websites
http://tinyurl.com/6ah7ax

Ahh, the amount taxes are going to have to increase to cover all of this is insane.
http://tinyurl.com/5nknha

Camels, faulty bailouts and scary price increases

2008-06-28T10:22:00.012-05:00

My favorite quote of the week:

"The consumer is an overloaded camel and the air is full of straws."

Consumer confidence: third-lowest reading in the 56-year history of the survey

Don't need to tell you how the markets reacted this week. A 4-digit Dow isn't as far away as you might think.

But we are overdue for a bounce - although the VIX shows no "fear" in the markets. Regardless, it looks like a multi-week bounce may start at some point this week.

GM stock at a 53-year low.

Want the head's up on Tuesday's announcement on June auto sales? Not good.

According to J.D. Power's forecast, generally accepted as among the most accurate in the auto industry, General Motors Corp. will see a 26.2% decline, Ford Motor Co. a 31.4% drop and Chrysler LLC a 30.1% fall.

**********************

Uh-oh - the world is catching on:

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5pc by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond.

http://tinyurl.com/3tjerw

******************************

For the large former Fortis contingent in the house:

"American 'meltdown' reason for money injection Fortis. 28th of June, 9:10
BRUSSELS/AMSTERDAM - Fortis expects a complete collapse of the US financial markets within a few days to weeks. That explains, according to Fortis, the series of interventions of last Thursday to retrieve € 8 billion. "We have been saved just in time. The situation in the US is much worse than we thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US"

******************************

I didn't mention it last month, but Dow Chemical raised prices 20% across the board. They make “thousands of products ranging from plastic wraps to car parts and insecticides.” Now a month later, they do another 25%! 50% price increase in a little over a month!! This affects pretty much everything in Target - why is nobody concerned about this...yet? This surely won’t help the CPI...
http://tinyurl.com/5mnmwk

********************************

Mike Morgan - read him while he still posts publicly...
http://tinyurl.com/64ply3

**********************

$300 Billion Housing bailout bill passes 83-9.

“The resounding vote reflected a keen interest in both parties in claiming election-year credit for helping homeowners amid tough economic times.”

Welcome to paying for irresponsible people/lenders to continue their ways. People’d probably care more if a line-item showed up on their taxes showing you the charge, instead it will be hidden in there with all the other increases for years to come. Be ready.

*********************************

We aren’t thinking about winter yet, but it’s definitely not too early for people to prepare for this – maybe some of our Maine-ites can comment...

Apparently, the sky IS falling!

That’s the word not from Chicken Little, but from former Maine Governor Angus King, who says he doesn’t use the term “catastrophe” lightly.

“This is a human catastrophe coming at us in the state of Maine in terms of energy supply and costs,” King said last week at a daylong seminar on harnessing tidal energy and offshore wind to confront runaway energy costs, costs he sees as a direct threat to Maine being habitable.

“This winter, the cost of fuel oil is going to more than double,” he said. “What’s being quoted now is $4.96 — $5 a gallon. That’s $1,000 to fill up your tank in the basement one time, and most people are going to have to fill up their tank six times.

“How is somebody who is making $350 or $400 a week going to pay to fill up the tank to keep warm? How are they going to pay to fill up the truck to get to work? This is, I think, the most serious crisis to ever face the state of Maine.”

“Eighty percent of homes in Maine are heated with oil,” he said. “The national average is 9 percent. If you do the math, 87 percent of the total energy bill of the average Maine person is dependent on oil or natural gas, and that is a particularly serious problem.”
King notes that oil prices have more than tripled in the last 10 years. Only six months ago, he said, the price of oil was $75 a barrel. Last week it was $114.

It’s not $114 any more...
http://tinyurl.com/4uu5cr

Just as bad expected in Montana:

Natural gas is used to heat more than 250,000 Montana homes. During winter months, a household with natural gas heat may use 15 to 20 dekatherms. At current prices, that means a $300 monthly bill.

http://tinyurl.com/6qfovm

***************************

In case you haven't seen the pictures of Iowa - unreal
http://tinyurl.com/3oy5qh

**********************

Here we go – Fannie and Freddie already abusing the power we just gave them – taxpayers beware!!!

Three months after Fannie Mae and Freddie Mac won the freedom to step up home-loan purchases, the government-chartered mortgage-finance companies are doing what critics in the Federal Reserve and Congress had predicted.

Instead of using powers granted by Congress to buy jumbo loans for the first time, Freddie Mac and Fannie Mae are purchasing their own mortgage-backed securities, helping reduce losses, company filings show. The large loans, above $417,000, made up almost a third of the U.S. market last year, according to the Mortgage Bankers Association.

Since the rule change took effect in March, Fannie Mae has packaged $24 million of jumbo loans into securities, while Freddie Mac added $220 million, according to the Inside Mortgage Finance newsletter. In April, the companies spent more than $32.4 billion to buy their own instruments, regulatory filings show.

``They were granted expanded opportunity to help recovery in a troubled housing market and yet have appeared to focus on their own recovery,'' said former U.S. Representative Richard Baker, a critic of the companies who left office earlier this year to run the Managed Funds Association in Washington.

Congress had kept Fannie Mae and Freddie Mac out of the jumbo market to force them to concentrate on low- and moderate- income borrowers.

The change places taxpayers at greater risk ``without facilitating the policy goals I believe the Congress had in mind when they eased these portfolio limits,'' said Baker, 60, a Louisiana Republican.

http://tinyurl.com/6jtd8h

**************************************

“It’s never been this bad” – bad omen.
http://tinyurl.com/584v2a

*************************************

I'll sum this one up for you if you've made it this far - it's from the monolines to the banks. "Remember that $125 BILLION of insurance we have you covered for? How about we round that down to the nearest zero?" Ridiculous. Oh, by the way, I moved this up from the "less important" section because of the exposure that Merrill Lynch and Citigroup have to the monolines. Monolines go down and those two are boarderline toast.
http://tinyurl.com/6bvne7

#################################################################

"Less" important, but still worth a scan:

Bank of America is doing just fine - which is exactly why they leave messages on peoples answering machines "offering to settle all 3 accounts (credit card) with me for 70 to 80 percent OFF existing balances.... I'm delinquent on all 3 and getting ready to file. YIKES and they left that on my voicemail!!!"

When the banks go, credit goes, and it all goes...
http://tinyurl.com/3p7k8t

It does seem like everything is happening at once on this planet..
http://tinyurl.com/54rkwk

Lest we forget the upcoming ARM resets - the numbers in here are scary. Oh, and don't forget how BADLY the banks need this money from people.
http://tinyurl.com/6pxwwt

And don't forget the unemployment situation. For the record, I think his unemployment estimates are way low.
http://tinyurl.com/654g6n

If the Fed doesn't have to play by the rules....
http://tinyurl.com/5jqyer

More on how the banks are the ones who actually wrote the bailout bill. Sad how this country is now run.
http://tinyurl.com/6sbdq8

Yep, these are our leaders.
http://tinyurl.com/56w9w8

Multiple states suing Countrywide, some asking their boards to remove Countrywide’s license to sell in their state. Bank of America says the deal is going through (duh, it came out this week that the taxpayers will be paying for up to $5 Billion of it!). This blemish could bring them down. Remember when I said it was a mistake to make Bank of America a Dow stock a few months back??? Have fun taking over Mozillo’s rapidly SINKING ship – and tying your anchor to the Dow Jones...

Friends of Angelo

2008-06-22T09:21:00.003-05:00

Oil up 80% in the last year. ONE year. Care to guess how much worldwide demand increased over that time? .9% - not even one percent. Aren't bubbles fun. Nice job Ben.

Remember the run wheat had last year? (and what it's doing to food prices now) Now we are getting a repeat in corn. Limit up, limit up, limit up. Aren't bubbles fun. Nice job Ben.

PPI up 1.4% last month. Don’t annualize that number, it’s not pretty. You think the consumer has it bad now? Wait until those prices get passed through to them. This gets uglier by the day.

FedEx has bad guidance – shocker. They are a bell-wheather, when things aren't getting shipped...

*************************

Seriously, this situation is f'ed up. This is as big a cluster f knock on the system as you can find. The chairman of the banking committee - are you kidding me?! This WSJ editorial sheds more light on the picture. Nice system we got here. Disgusting.
http://tinyurl.com/3p2jel

*************************

I was gonna tell you which numbers to read, but just read all 12. Florida is to the rest of the states what subprime was to all mortgages - just the beginning.
http://tinyurl.com/5amhxu

**************************

Here's the deal gang. Ben recently said it was time to fight inflation. If his next move is to cut rates again, that will PROVE how bad things are behind the scenes. He did the bail-out-the-buddies game, and now interest rates are moving up on their own. If he tries to buck that trend with the amount of damage he has done to his $800B balance sheet already - well there is your $200 oil. Aren't bubbles fun. Nice job Ben.

On that note - From the Telegraph: Morgan Stanley warns of 'catastrophic event' as ECB fights Federal Reserve
http://tinyurl.com/3jovcj

As if that wasn't enough - RBS should be big enough to be worthy of your attention: "Crash Alert".
http://tinyurl.com/5qckkp

********************************

What goes up, must come.....

From an NY Times article:

Only a year ago, Wall Street reveled in an era of superlatives: record deals, record profit, record pay. But a mere 12 months later, nearly half of the profits that major banks reaped during that age of riches have vanished.

The numbers are staggering. Between early 2004 and mid-2007, a period of unprecedented wealth on Wall Street, seven of the nation’s largest financial companies earned a combined $254 billion in profits.

But since last July, those same banks — Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Merrill Lynch, Goldman Sachs and Morgan Stanley — have written down the value of the assets they hold by $107.2 billion, gutting their earnings and share prices.

********************************

Back to the whole "Friends of Angelo" fiasco from above - Is it any wonder CONgress votes the way it does? Flat out illegal. The poster-boy and first person that should end up in jail when all this is done is Angelo Mozillo. Bribery by any other name...
http://tinyurl.com/5e755g

Arresting the jerks is the right choice – but no, we continue to let them make the rules of our country instead.

Standing Rules of the Senate - RULE XXXV - GIFTS

1. (a)(1) No Member, officer, or employee of the Senate shall knowingly accept a gift except as provided in this rule.

(b)(1) For the purpose of this rule, the term "gift" means any gratuity, favor, discount, entertainment, hospitality, loan, forbearance, or other item having monetary value.

********************************

As for the housing bailout that Dodd (Friend of Angelo) and friends are trying like all get-up to push through, this is what the SC rep had to say:

Sen. Jim DeMint, R-S.C., signaled he might try to block the
measure, saying, through a spokesman:

"The housing bill has a
multibillion-dollar taxpayer bailout for a company that reportedly
gave preferential loans to members of Congress. This is exactly the
type of thing Americans are sick of."

***********************************

Probably should move this right to the top, but I don't expect we can stop it due to the massive corruptness of this country.
http://tinyurl.com/6exjbq

***********************************

Just click on the chart (although there is a short explanation below it) – that is a disturbing trend the Fed is setting up.
http://tinyurl.com/5umcfo

**********************************

There aren’t enough "Bunny Ranch" stories in the Replay (formerly known as the Update)...
http://tinyurl.com/6f7xh7

**********************************

When the media gets blamed for being too gloomy, they should read this. I’ll believe the media is being too gloomy (and it’s time to go long) when I see Erin Burnett all-out balling on the air.
http://tinyurl.com/6nlg28

*********************************

Investors Business Daily goes for the Democratic jugular as well – strong words in this one.
http://tinyurl.com/46gcmg

##########################################################################

Non Required:

Hope this is an aberration and not some sort of beginning of a trend in this country.
Two garden hoses and six outhouses for 350+ people.
http://tinyurl.com/62ded4

Gas hoarding in their apartment turns out badly...
http://tinyurl.com/594ewk

Why housing is nowhere near bottom. Rates are starting their upward climb. Mortgage rates are higher than they were before the rate cuts began – good job Ben, AS IF you didn’t see this coming when you bailed out your buddies. Jack a$$.
http://tinyurl.com/59o78n

What this chart tells me is that those on the left side have a long way to go...
http://tinyurl.com/5jmflq

More power? That’ll turn out well...
http://tinyurl.com/693so6

These were the "smartest guys in the room" over the past few years – constantly being praised for having hedged away all fuel costs. That appears to be done. Imagine how bad it must be for the not-as-smart guys...

Southwest Airlines Co., the biggest discount carrier, must keep increasing fares "gradually and continuously" as jet-fuel prices surge, Chief Executive Officer Gary Kelly said.

The U.S. airline industry is struggling with a "terrible" operating environment as fuel stays near $4 a gallon, Kelly said today at a Merrill Lynch & Co. conference in New York.

"We're going to have to move fares along gradually and continuously to be able to overcome these dramatically high fuel costs," Kelly said.

An 82 percent surge in jet fuel in the past year is forcing Dallas-based Southwest to juggle its low-fare business model with the need to charge more to recoup its costs. Kelly said that after taking no first-quarter price increases, Southwest has adopted three this quarter.

On the heels of that Continental cuts 15 cities and lays off 3000 more people. Don’t for a second believe the unemployment numbers.

From Todd. Long one, but the lack of accountability is nicely summed up by:

"Today, the Bakers owe $30,000 on credit cards and $105,000 on a home worth only $63,000. They blame themselves but also say lenders share responsibility for 'making it so easy' to borrow."

Regardless, the money is gone, the credit is being removed from the system, and that’s the oxygen this system runs on.
http://tinyurl.com/59ff2u

Actual LEH NPA’s since there was a bad link in the last Replay
http://tinyurl.com/5p86eq

The oil rampage continues

2008-06-12T23:19:00.000-05:00

Retail sales up almost $4B this month! Don’t pay attention to the $48B in "stimulus checks" that were sent out though, or where that money ended up...

Unemployment biggest rise in over 20 years from 5 to 5.5% - in ONE month. This will ramp.

Oil has biggest one-day gain ever by jumping $5.50.

Oil has biggest one-day gain ever by jumping over $10 (the next flippin’ day!!!). Morgan Stanley analyst says $150 by 4th of July. These predictions are usually 12-18 months out – not 3 weeks.

*******
A picture that tells the story pretty well
http://tinyurl.com/5flymk

*******
Peoples equity in their homes dropped to 46.2% - the lowest level ever. That had never even went under 50% until a couple months ago, it’s dropping quick. Foreclosures come in at their highest rate ever as well.

Every article is quick to point out that oversupply is the problem (and that stopping foreclosures is then the answer) – how about QUIT BUILDING houses without buyers. That’s what builders do. You should be writing your reps (congress.org) reminding them that a tax break for builders adds to this problem.

*******
The monolines get downgraded. This is most certainly not priced in - this will cause serious problems! Meredith Whitney (the one analyst you can trust) expects another $40B in just bank write-downs due to this.

*******
Interest rates are spiking before Ben’s eyes. Here is the mortgage rates for the past 6 months. How those rate cuts working now. Imagine what happens now that he is going to have to raise rates??? EXACTLY what happens when you have to bail out Wall Street for being stupid. The fun is just beginning for Joe 6-pack. Ten year rates up to 4.2% - not gonna be pretty...
http://tinyurl.com/65hy6h

********
Go look at my statements about who the next Investment Bank to go would be the day after Bear Stearns went down. These aren’t penny-stocks that are going away either…

Just look at the trend in their ratio of Non-Performing Assets (NPA) to Equity over the last couple years…
http://tinyurl.com/65hy6h

Erick provides the definition of NPA’s:

"A loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue. More generally, an asset which is not producing income."

And they are buying back shares with all that "spare" money to try to stop the bleeding and make themselves look worthy of investment (foreign or otherwise). Problem is, you can’t buy back your own shares in the last 30 minutes of trading. Look at their chart at that time the last week...

Of course now they say they are raising another $6B in capital – best put:

"Lehman is raising capital it said it didn't need to replace losses it said it didn't have."

UPDATE: Stock now trading near $22 – why would the deal will go through at $28 now? Could see that Bear Stearns repeat quicker than you think unless something drastic happens very soon. Don’t you hate when “one-time isolated” events happen 3 months apart...

UPDATE part 2: Deal went through. Word on the street is they are being shopped somewhere in the teens....

***********
A Fed governor resigns (thankfully, he lived for bailouts and rate-cuts), another former one rips the system, the Mpls Fed president prepares the markets for rate increases. That one’s funny, as rates are increasing already. It’s becoming more and more clear that the Fed actually tries to give the illusion of control, but the market sets the rates, the Fed just follows. Never knew that before.

***********
Epic. That will describe the number of voters come November. Drove past the Excel before the Obama visit last night and the line was 3 deep for 20 blocks (1.6 miles). I talked to people near where I was going – they had about 15 blocks to go still – they had already been there for an hour and a half. My prediction is between now and November this race will turn into a landslide for Obama. (Then our taxes will go through the roof, ouch)

************
A clip I found interesting because of the numbers in the section I highlighted:

Banks know that they are too big for the government to allow them to fail. The moral hazard that is created will be reflected in their continuing to take on high degrees of debt and financial leverage and invest in risky assets with no concern for the consequences. And much of the activity in the derivatives market is nothing more than mere speculation. When Bear Stearns was saved from bankruptcy it had $120 billion of debt outstanding, but for some crazy reason there were $2.8 trillion of credit derivative contracts written guaranteeing that small amount of Bear Stearns debt. If Bear had gone bankrupt and these counterparties had to actually pay, it would have caused massive bankruptcies of hedge funds and other financial institutions, not to mention the fact that Bear itself was also a counterparty to tens of trillions of derivative contracts and their prime brokerage business financed trillions more of derivative positions at their hedge fund clients.

Credit Default Swaps are a mess. There are now $45 Trillion of them. A nine-fold increase in THREE years. Triple the size of the US GDP. Yep, that’ll end well...

************
California out of money by August? 8th largest world economy.
http://tinyurl.com/5tws6g

************
Turns out it’s not even easy being less rich. Yep, it’s just subprime – everyone else is fine. Read this to forever extract that thought from your mind.
http://tinyurl.com/6s4l45

Oh, and as a refresher of what the resident “genius” Bernanke said last year:

"We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."

************
Think this will have repercussions across the economy?

General Motors Corp. on Tuesday reported a 27.5% drop in May U.S. light vehicle sales to 268,892 cars and trucks from 371,056 a year ago. Cars fell 13.8% while trucks plunged 36.9%.

************
My favorite description of the balancing act between interest rates and the equity markets:

"Bernanke has a choice - he can allow the interest rate curve to ramp which will kill what's left of housing, or he can crash equities to drive the 10-year rate back down.

But he can't have it both ways, and that, for him, sucks.

He's trying to "manage" the process. That's kinda like trying to juggle plates - it looks really cool until a wasp flies up your pants and stings your wiener, at which point it all comes crashing down around you."

*****************
Well First Federal's (FED) run from the $30’s is about to make it into single digits – let me know if you are looking for advice on an exit point for those who played the ba-bye game a few months back.

*****************
Just paid $68 to fill up my tank. That was fun. Guess it could be worse if I didn’t get 24mpg though.

**************
Not sure how he gets this info before it hits the presses – but here is the May California foreclosure data and it’s UGLY.
http://tinyurl.com/4n3v9e

"California broke a major foreclosure record in May with $10.4 BILLION in loans going back to lender’s balance sheets. This was a near 9% increase month-over-month. Last month $9.237 Billion went back to the bank. See my April CA Foreclosure Report. It is obvious that the foreclosure crisis is continuing to worsen. If the banks are lucky and sell the homes for 60% of the new appraised value or BPO, this represents another $6 Billion+ in losses for the nations largest banks in one state for one month!"

*********************
Want to hedge against the price of your house???
http://tinyurl.com/6gyo7u

*********************
Again, what happened to all the rate cuts? This will soon blow in Ben’s face. Jumbo rates already blowing through their 5-year highs in this chart.
http://tinyurl.com/3dyztj

********************
When they say how great “pending home sales” are looking every month – this tells you why to not even bother listening.
http://tinyurl.com/6lfhur

2/3rds of the sales...ouch.

############################################

Non-required:

Year over year chart of Case Shiller house prices
http://tinyurl.com/69mrz2

New home months of supply. Don't be alarmed, the blue section on the right is only a "probable" recession - they are still trying to figure out if we are in one. This chart wouldn't help them at all...
http://tinyurl.com/67awlc

Happy 1st birthday to the WaMu pool of loans. 31% is 60-day delinquent or worse. 23% foreclosed or bank-owned. 93% of it was rated AAA.
http://tinyurl.com/5kecyw

Just because it’s so funny to hear him completely rag on the idiocy that is our Fed (I don’t even bother to read the article, just his comments tell me enough).
http://tinyurl.com/3kgxgd

The sham that is government statistics. The GDP deflator.
http://tinyurl.com/5egpow

Over a million homes in foreclosure for the first time ever.
http://tinyurl.com/6hwchw

Another $20B comes off the banks non-borrowed reserves (column 3). You can still see the +43B that we were at every month before this started. How ugly is this?
http://tinyurl.com/2fykqe

The 5.5% unemployment really is 9.7% per the government numbers in this chart – which are of course still flawed...
http://tinyurl.com/6zou24

I think Mish is going easy on some of the predictions here – namely unemployment. Regardless, Paulson and Bernanke are publicly proving to be the buffoons we predicted long ago.
http://tinyurl.com/65zkw3

States fiscal years don't start until July 1 - they are still funneling money into the system until then. Funny how many different things are eating up the entire stimulus check - it did nothing.
http://tinyurl.com/5lsamu

What's scarier - the banks having to bring 5 TRILLION dollars back on to their balance sheets - or the fact that they were allowed to do something that INCREDIBLY stupid in the first place?
http://tinyurl.com/4xgqj3

Nobody has described the true situation of housing better than Mike Morgan (esp. Florida) - paints a VERY grim picture here based on that.
http://tinyurl.com/6oe7uj

Maybe wishful thinking on my part, but after reading this quote from John Hussman, and then seeing the article in the link below - might they do the right thing???

"As a side note, with all of that said, Senator Richard Shelby made an important observation last week that the Federal Reserve's intervention in the Bear Stearns' wipeout dangerously crossed the line from monetary policy to fiscal policy. I couldn't agree more. The Fed's actions in that case were outside of its mandate precisely because by taking Bear's assets into its own portfolio, the Fed effectively provided public funds to a private corporation without recourse if the collateral goes bad. Only Congress has that power. It was literally an illegal act, but it was also done so quickly that it was presented as an irreversible fait accompli. My impression is that there is less of a “Fed backstop” for other financial companies than investors believe, because the Fed is essentially on notice from Congress that the Bear deal went over the line."

http://tinyurl.com/6f4f93
Removing that "backstop" would force the hand of the IB's big time. I still say JPM and GS are "safe", the rest could go away (MS, MER, LEH...)

Another quote worth reading:
The downturn has sapped the morale of industry survivors, who often resort to gallows humor to describe the mood. "You want to know how morale is?" said a high-yield investor. "How should I know? Everone I could have asked is gone."

Just as gloomy as Mike Morgan, but not as recodnized of an "authority". 12 to 22 years until housing bottom...
http://tinyurl.com/5ab35z

Zilliow banned in AZ - oh no, information is evil.

"Relying on the experts is how many Realtors thrive, so tools that aim to level the disparity of knowledge are seen as bad; in this case, illegal."

Piss off.
http://tinyurl.com/6ow2aa

2008-05-23T11:11:00.000-05:00

Been over a month since I sent one of these out! I have a ton of stuff here, but a lot of it was collected a while back - so lucky you, I'm going to move a bunch of it to the non-required reading at the bottom for those who are still interested in seeing it.

At least read the first section to see how my "updates" can be profitable to you - otherwise, hope the rest is insightful too!

Stimulus payments start getting mailed!!! The following Q&A is a quick summary

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn't that stimulating the economy of China?
A. Shut up.

For those of you who are Cub shoppers. They advertised a thing in the paper Sunday saying if you brought your stimulus check in they would give you a gift card with an extra 10% on it. So it would cost $300 for a $330 card, $600 for a $660 card or $1200 for a $1320 card.

They have no way of knowing if you got a stimulus check or not because they can be direct deposit. The gift cards do not expire. I just bought mine. It's free money that you will spend at Cub anyway someday, Something to consider for whatever amount you want from those listed above.

Also, I had her split it on 2 cards just in case I somehow lose it, at least then it would only be for half the amount.

***************************************************************

So oil at $135 this morning?! Remember when oil hit $100. I said get ready for $125. Of course you remember - that was LAST month (April). Thanks for playing. Oh, driving season starts this weekend, that's when gas is supposed to *start* going up. Guess it started a tad early this year? Hurricane season is next. Bring on $150. They can blame it on speculators, they can sue OPEC (yes, congress passed a law allowing that this week - good luck with that!), they can say demand is up (35% in a month?), but the blame remains in ONE spot - the US Fed. They are the one and only reason for this. Destroying the dollar, and giving investment banks money to play with for worthless mortgages (not inflation, no money/credit was created) has gone straight to commodities. Bring on $200 for all I care, eventually the blame will end up where it belongs and a lesson might for once be learned.

Oh, and they didn’t seem to care when all the funny-money (easy credit, bailouts) was creating the largest housing bubble known to man, or heading straight into the equity markets – but oil, now we need to do something ‘cause that’s just wrong….

*******************************************************************************

Quote of the century to CNBC commentator: "You are not allowed to call the bottom of a downturn you refuse to acknowledge"

A bigger "wow" quote:
"The Federal Reserve's moves to prop up Bear Stearns Cos. will come to be seen as "the worst policy mistake in a generation," the Fed's past head of monetary affairs said.

The action is comparable to "the great contraction" of the 1930s and "the great inflation" of the 1970s, said Vincent Reinhart, a scholar at the American Enterprise Institute, who retired from the Fed last fall.

Mr. Reinhart's assessment, delivered at a panel discussion at the institute Monday, is one of the harshest appraisals yet by a high-profile observer of the Fed's decision in mid-March to lend money to Bear both as temporary funding to make a merger possible and then to finance $29 billion of Bear's assets to make its takeover by J.P. Morgan Chase & Co. possible.

The Fed's actions "eliminated forever the possibility the Fed could serve as an honest broker," he said..."

More quotes:

Starbucks CEO: "worst consumer environment in company's history"

Buffet: "My general feeling is that the recession will be longer and deeper than most people think."

Greenspan in 1977 " from a document he's tried to keep hidden as it refutes everything he pushed on the country during his tenure.

"There is no perpetual motion machine which generates an ever-rising path for the prices of homes."

************************************************************************

Ambac lost about $12/share. Double their stock price. In one quarter. They insure things. Makes sense.

**************************************************************************

Is this chart bad?
http://tinyurl.com/59m9c7

More specifically - every single number in this article about CA foreclosures is shocking - yowzers! 500+ a day...
http://tinyurl.com/5d8jzy

************************************************************************

All we ever hear from in the press is Greenspan - he's clearly an idiot. Volcker before him was the one that set the country up to prosper in the Greenspan years, but we never get much press on him. Greenspan set up the demise of the Bernanke years. Eventually the blame/praise will be set straight - enjoy this:

The Bernanke Fed may have already seized too much power and has abandoned historical principles, says Paul Volcker, who was Fed chairman from 1979 to '87. "The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers," Volcker, 80, told the Economic Club of New York on April 8. "A direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time- honored central bank mantra in times of crisis: lend freely at high rates against good collateral. It tests it to the point of no return."

Allan Meltzer, a Fed historian and economics professor at Carnegie Mellon University in Pittsburgh, agrees that Bernanke is swatting a fly with a sledgehammer. "In monetary policy, he has not been good," Meltzer, 80, says. "It is a silly policy designed to head off a recession that may come but hasn't come yet."

Meltzer says the Fed, by ignoring the inflationary potential in its latest rate cuts, is creating the possibility of negative real interest rates. He also says the Fed should never take credit risks, especially to save floundering banks. "We can't have a system that continues to work well if the bankers make the profits and the public, the taxpayers, take the losses," he says. "That is not a viable system."

Meltzer says Paulson's plan for expanded Fed oversight of the financial industry is both overreaching and impractical. "It's hard to see how the Fed is going to do it," he says. "The Fed's record of anticipating and heading off crises is poor. Now they are going to go out and examine investment bank portfolios? Most of the people who are buying and selling this stuff don't fully understand it. How is some Fed auditor going to figure it out?"

*************************************************************************************

From Merrill's research report dated 4/15:

Five major takeaways
1. Recession a reality, not a forecast (short & shallow ... or deep & prolonged?)
2. No asset class or security fully priced for it (esp. a 73-75 consumer recession)
3. Stagflation maybe today's story but deflation is tomorrow's story
4. More Fed rate cuts to come; still bullish on bonds
5. Major risk: another 20% decline in home price

They proceeded to go on CNBC and proclaim another 5% rise in stocks.

I believe that's called talking out of both sides of your mouth. Guess which of the two the public likely took in??

I feel bad for the many people who have and still will lose jobs - but I will continue to laugh my a** off as these investment banks eventually go under. Lying, deceitful sacks of complete sh*t - every last one of them.

****************************************************************************

Of course I'm not condoning doing anything illegal when I talk about maxing the Home Equity loans (in my last message) - just getting caught in the countries newest hobby, moral hazard.

As for why the banks will be thrilled to get ANY of it back if I were to do it:

"I have a source in the credit markets. HELOCS and the 20 part of the 80/20 Mortgage loans are sold as secondary mortgage debt. The word is the bid on secondary mortgage debt is one penny on the dollar. Wall St. essentially sees this debt as worthless and will never be paid back because the 80% part of the loan is paid back first by law."

************************************************************************

Pat my own back for easily calling this one:

(Reuters) - Bank of America Corp (BAC.N) is likely to renegotiate its deal to buy Countrywide Financial Corp (CFC.N) down to the $0 to $2 level or completely walk away from it, said Friedman, Billings, Ramsey, which downgraded Countrywide to "underperform" from "market perform."

Or more recently:
It looks increasingly likely that the deal of Bank of America (BAC) buying Countrywide (CFC) may collapse: according to many banking experts once BAC does its due diligence on this deal it will become obvious that Countrywide is effectively bankrupt (negative equity) and saddled with a mountain of litigation and potential liabilities whose size are likely to be extremely large and uncertain. The point that is becoming clear is that BAC will be better off paying the modest break-up fee and walk away from a deal that sucks in every dimension. So if CFC goes bankrupt (its bank subsidiary into a FDIC receivership and the holding company into Chapter 7 liquidation) what will be the systemic implication of the biggest banking bust in US history? Remember that CFC originated almost 20% of all mortgages in the US in the last few years. So the collapse of the biggest mortgage lender will have massive and systemic ripple effects in financial markets.

******************************************************************************

The massive misinformation being spewed by the mass media is sickening. CNBC's constant mission to absolutely screw the investing public is shameless. While insiders and wall street continue to dump shares, they trot out pumper after pumper talking about how fantastic everything is. Coupled with glossing over anything remotely negative that might be considered newsworthy. This is what proves it is clearly intentional. That's what is sick about it.

Merrill Lynch said they don't need to raise money two weeks ago and the market loved them. $7 BILLION of it yesterday. Lies. Surrounded by lies.

********************************************************************************

The system is purposely being gamed by the Fed/Gov't to save the banks. They are orchestrating a consumer collapse. You think it's crazy, just watch. Wages down, costs up, credit gone. Those are the ONLY 3 things that can keep the consumer afloat, and all are underwater. The consumer is done. The government and the banks are about to own a LOT. It's not going to be the "accident" it will be portrayed as (for anyone that will even bother to pay attention).

Word is that an alarming number of stimulus checks are being confiscated to pay off things like student loans – the gov’t had that right. So it turns out this “stimulus” for the public was yet another way of creatively bailing out lenders.

*********************************************

If you think you can't make a difference, you are wrong.
http://tinyurl.com/69ta2w

Call them, write them. Don't give them your money without a fight.

********************************************************

California setting up parking lots for people who live in cars:
There are 12 parking lots across Santa Barbara that have been set up to accommodate the growing middle-class homelessness. These lots are believed to be part of the first program of its kind in the United States, according to organizers.

******************************************************

Now THIS is inflation:

Weary Zimbabweans are facing a new wave of price increases that will put many basic goods even further out of their reach: A loaf of bread now costs what 12 new cars did a decade ago.

Independent finance houses said in an assessment Tuesday that annual inflation rose this month to 1,063,572 percent based on prices of a basket of basic foodstuffs. Economic analysts say unless the rate of inflation is slowed, annual inflation will likely reach about 5 million percent by October.

As stores opened for business Wednesday, a small pack of locally produced coffee beans cost just short of 1 billion Zimbabwe dollars. A decade ago, that sum would have bought 60 new cars.

And fresh price rises were expected after the state Grain Marketing Board announced up to 25-fold increases in its prices to commercial millers for wheat and the corn meal staple.

*********************************************************

Nope - nothing scary about where this is heading. We are about to have a SERIOUS problem, and they knew when they did this stuff if we knew (which tells you how bad everything really is)
http://tinyurl.com/5fkmz8

It won't stop them from trying, but the intelligent Robert Shiller tells us why a mortgage bailout won't work.
http://tinyurl.com/6d49uz

An absolutely fascinating article that basically shows how this all started. Happens to be long, but if you just read the first handful of paragraphs you'll get the scoop - and may likely be hooked into reading further like I was...
http://tinyurl.com/5n5rl7

*****************************************

Just to bring back another old favorite - from my update January 10th:

Do you want another bank that's in the $30's that likely won't be there 6 months from now - FirstFed Financial Corp (FED). Feel free to play the home version of the ba-bye game with me.

The main reasons:
90+% of portfolio is Adjustable Rate loans. Based in California. Non-performing (delinquent etc) assets to total assets ratio was .22% last November, jumped to 1.81% by October of this year, and to 2.34% in November. It's not about to go down any time soon. 25% of their loans were stated income or stated assets. Hence 75% fall under the good old liar-loan heading. But I'm sure keeping up with the Joneses in California didn't cause anyone to overstate their ability to pay...

It's down over 50% since then. And not anywhere near done. The other beauty I didn't realize then - when people pay the minimum payment on Option-Arm's, the amount they underpay by counts as EARNINGS for the company. Ha ha - suuuuuure, FED is going to get all of that money they already booked. Ba-bye.

Ok, so that's First Federal (FED), WaMu (WM), National City (NCC), and Countrywide (CFC) that I've coughed up. Ready for another bank in the $30's (it was when I wrote this) that hasn't taken it's medicine? This one's a whale that the government won't let go easily (and they happen to be my bank - ugh). Wells Fargo (WFC). Like I said, there is plenty of reason that bad things won't happen to them - so will the people in charge win or will math win again? The math says that they are loaded to the hilt in Home Equity loans that aren't going to get paid back (and you saw above what they are actually worth). Honestly, tough call.

50 to 100B of this stuff sitting out there - and NONE of it has been reserved for.
http://tinyurl.com/6b3eyl

I really don't see how Wells Fargo comes out of this unscathed - but I'd put them under the "too-big-to-fail" umbrella - which means the public might be on the hook for this one too.

************************************************************************

Brazil now halting rice exports. Thailand considering the same (they are the largest exporter if I recall?). Costco and Walmart raising prices AND putting limits on amounts purchased. It's all happening, and it's happening fast.

****************************************************************

Fannie and Freddie are done - this is going to be horrible - and put on the public, yet they continue to stuff all the junk they can in there (maybe that's why). "Wagner pointed out that at the end of January, 82% of all mortgages in the U.S. were backed by one of the firms, up from only 46% in the second quarter of 2007."
http://tinyurl.com/4ylwt9

**************************************

Alstry summary - and correct.
http://tinyurl.com/5r4fy4

************************************

This is a sad article about a local lady. When this many people can't afford the basics, we have big problems. This is why they can't keep cutting rates - which kills the dollar - which spikes oil - which is used to create plastic the plastic that nearly everything includes, as well as adds to transportation costs - which is spiking food higher and higher. All to bail out homebuilders/lenders/dumb f*ck greedy sh*t heads who caused this problem in the first place. This has to stop.
http://tinyurl.com/6rn2s2

*****************************************************

Courtesy of a Nobel Prize winner:
The U.S. economy is already in recession -- and may echo the 1930s, Nobel Laureate Joseph Stiglitz said Friday.
...

"This is going to be one of the worst economic downturns since the Great Depression," said Stiglitz.

*****************************************************

Retail sales chart. They loved that retail sales were up. Look at the chart and tell me if it was up, or if maybe the price of a certain item was WAY up?
http://tinyurl.com/3pwr2f

*************************************************************************************
Non-required (at least read my headlines to see if you'd be interested):

When Warren speaks - two quotes from Buffet:
http://tinyurl.com/5ebodl

Then again...Most of the world would side with Buffet, but I'm with Mish on this one. Warren HAS to say the worst is behind us - those puts he wrote are the type of thing that could bring Berkshire down - literally.
http://tinyurl.com/5jjhfd

Two articles in this link - 2nd is more shocking. The public plight will continue to grow big-time.
http://tinyurl.com/4jbj4n

You heard so much about the monolines, here is a great Mish article talking about Ambac's numbers yesterday.
http://tinyurl.com/5naphx

You literally CAN'T make this stuff up - AAA???
http://tinyurl.com/63j9qp

This most certainly will not help the banks - I didn't see this problem coming.
http://tinyurl.com/569kow

Close to home, sad, and easily blamed on greed.
http://www.startribune.com/local/west/17932454.html?ref=patrick.net

Even the Philly Fed has a study saying inflation has more volatile pieces than food and energy, and that core inflation is not the way to look at it
http://bigpicture.typepad.com/comments/2008/05/core-measures-o.html

Sad state of affairs close to home. This was part 2 of a 3 part series in the Strib recently. The scams the builders and lenders did here are deplorable. And now they want money from us to bail them out. Sign the petition!
http://www.startribune.com/templates/Print_This_Story?sid=17958114

And the quest for food begins...
http://nysun.com/news/food-rationing-confronts-breadbasket-world

Target writes off 8% of it's loans in March - this is getting ugly faster and faster...
http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=TGT:US&sid=a1QsfMUcMs4w

This is so sad it's funny...
http://globaleconomicanalysis.blogspot.com/2008/04/congress-threatens-oil-producers.html

At least they are honest over the pond. Still doesn't remotely make this right. When it's done with the publics money (and $100 BILLION at that). The system becomes more of a joke.
http://www.thisismoney.co.uk/news/article.html?in_article_id=440824&in_page_id=2&ct=5

Anecdotal evidence:
"Hey bill, this is your car dealer friend. I will have to tell you that I am seeing a troubling crash in prices at all actions around the country. I spoke with a few dealers in florida and they were selling 50 percent less cars. The worlds largest car auction is in orlando {6000 cars a week} and one dealer told me that most cars did not even get a bid. One dealer said that business is so bad that there might be a rush to dump inventory. An enterprise rental car manager told me that they shipped thousands of cars out of florida. The cars are just sitting at actions. they will have to dump them at some point. The car business was just like the housing mess. Free cars were given to all. Anyone could buy a 40,000 dollar truck. now dealers are advertising that they will not accept trucks and big suvs as trades. It is crazy. ford motor credit and gmac are piling cars and trucks up. dealers are full an we just look at one another at auction and yell man that's cheap! I have been very optimistic for 20 years but not now. We have created a new class of poor in this country.I do not understand the disconnect in the stock market. The middle class is going away and melting into the poor. Unfortunately my costomers are now poor. How long can the stock market not get it? "

we had a tire blow out about a mile from the imaging center. i took us cross country walking and we made it about 5 minutes late, called gmmotorclub, and they dispatched a local service to assist me. while the guy changed my tire, he told me that he and the other wrecker services in the area had noticed that over the last 2 months people were calling in out of gas about 10 times the normal amount. and most of them were out of gas in their own driveway? he told me that one of them actually told him they needed enough gas to make it till friday from wednesday morning.

Sunday Night Update

2008-04-21T11:03:00.000-05:00

Been 3 weeks, so if you haven't finished the last one, you likely won't. Again this one is disjoint but I can never find time to fix it up so I'm just going to send before it gets amazingly long. Lots of stuff has happened since we last spoke...

$117 oil. That is getting interesting. Summer driving season doesn't start until then end of next month. Hurricane season the month after....

$4 gas? $5?

In the middle of the 3rd straight “kitchen sink” quarter of earnings season – how many more kitchens do these companies have left???

Personal experience: Customized a laptop last week through HP. They said it would be done by the 25th, and with 6 to 8 days for shipping I should get it in early May. My thesis was that neither HP nor Fedex has anything better to do right now, and that the "strong" global economy the stock market seems to believe is a complete sham - so I predicted getting it BEFORE the day they claimed it would even be completed. Sure enough it was in transit this weekend already and I'm supposed to get it Wednesday (a couple days before it was to even be completed).

Oh, and shipping was free and I found a 30% off coupon (in 15 seconds of searching online) for the computer, as well as throwing in a free printer - tell me how you think margins are working out in the real world?

*******************

Some awesome (i.e. the truth) quotes from the last real Fed Chairman we had (i.e. the one before Greenspan).

http://tinyurl.com/5yoqgo

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I don't think there were too many other Mish articles in here - but this one got more to the point the further you read!

http://tinyurl.com/5yvdgu

************************

What Middle Class? How long until that comes true?

http://tinyurl.com/45phfu

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People dying in food riots in Asia/Egypt. Rice up 50% in a week. Wait until that spreads. It will. China alone will cause it to as it’s citizens are now being able to afford more “mainstream” foods. Last I checked they have a lot of citizens.

*****************

What’s with airlines? I’m obviously for safety and all, but this few hundred flights a day getting cancelled is starting to get out of control! Seems crazy, but I wonder if it has anything to do with reduced passenger loads, reduced business travel, and insane oil prices…

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You may have thought I was kidding when I said the Fed is going to run (and RUIN) the entire country. I wasn’t. If we allow this to continue, it’s done.

http://tinyurl.com/43euuf

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Read these 3 paragraphs, and think about what door was just opened.

The Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns' mortgage debt. But the bank – J.P. Morgan – was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.”

The Fed did not act to save a bank, but to enrich one. Congress has the power to appropriate resources for such a deal by the representative will of the people – the Fed does not, even under Depression era banking laws. The “loan” falls outside of Section 13-3 of the Federal Reserve Act, because it is not in fact a loan to either Bear Stearns or J.P. Morgan. Bear Stearns is no longer a business entity under this agreement. And if the fiction that this is a “loan” to J.P. Morgan was true, J.P. Morgan would be obligated to pay it back, period. The only point at which the value of the "collateral" would become an issue would be in the event that J.P. Morgan itself was to fail. No, this is not a loan. It is a put option granted by the Fed to J.P. Morgan on a basket of toxic securities. And it is not legal.

Not only was the action illegal, the vote itself was illegal. The Fed needs 5 members to vote on such actions and only 4 members were present. Fed Governor Mishkin was missing in action. Was he opposed to this illegal hijacking? There was an excellent discussion of this idea in the comments section of the California Housing Forecast.

Nothing will stop them from destroying this country as they are now "above the law".

Best guess at their "plan": Faulty rocket shot upwards to destroy shorts with lies/deceit/illegal acts, then massive crater to destroy longs when they let the truth out. Everyone is even, broke, and willing to do whatever they propose.

Privatized profits, socialized losses?

Hammer and sickle.

You might ask “why would they do that”? They have no choice. They all got greedy and F’d up the entire system. Bear Stearns showed it’s done. Why couldn’t they let it go bankrupt as it should have? Credit Default Swaps. Those 1 in a million lottery tickets that pay in full on default could not be paid. It would have resonated through the entire system and brought down the entire world financial market in one fell swoop. Doubt if you want, it’s true - they pretty much said it to Congress the next week. Bear isn’t even a real bank, heck they were the smallest of the “big 5”. That’s how intertwined it all is. The rest did the same stuff as Bear. Time is not on their side, it will get worse. Government bailouts at the taxpayer expense, no matter how illegal/unconstitutional it is, is the only way out. And it won't work. It’s math people. They want people to remain debt slaves – but the people can’t afford it – house prices NEED to come down to unlock the system.

**************************

Far be it from me to tell anyone else what to do with their finances, but if I had access to a Home Equity Line, I’d likely have maxed it out by now – with the intention of selling it back to the bank in a year at about 25 cents on the dollar (50 if I’m feeling generous that day). And the bank would likely be thrilled.

****************************

California is done with muni-bond insurers (they are making their own), Credit Default Swaps are worthless as the bankruptcies are no longer allowed – it was all a farce. People paid for things that didn’t exist so Wall Street could line it’s pockets. Then when the lottery hit, they claimed the Powerball number only counts if the ball is blue – sorry everyone, thanks for playing.

The systematic demise of the largest ponzi-scheme joke of a system is happening.

Sign the petition AND contact your reps.

To contact your reps
http://www.congress.org/

Type in your zip code and it gives you your senators etc. and let's you write them. I'm sure they will soon be sick of me. I've also made more than a few phone calls to Senators Klobuchar and Coleman. Feel free to do the same and complain about your bailout of choice. If we sit back and let them get bought by big business while we foot the bill we are all going to be very sorry.

Klobuchar: 202-224-3244

Coleman: 202-224-5641

************************

From Bloomberg (via Mish):

Seventy percent of consumers who have received their 2007 income tax refund are using it to pay off credit cards and bills, the first time in 20 years that figure has topped 50 percent, according to Beemer. People who may have never seen the inside of a Wal-Mart are now buying groceries there, he said.

"In my 29 years of research, consumers are doing exactly what they said they are going to do: they're not spending," Beemer said in a telephone interview. He said his firm interviews 8,000 to 15,000 consumers a week.

This is a stunning announcement: "Seventy percent of consumers who have received their 2007 income tax refund are using it to pay off credit cards and bills, the first time in 20 years that figure has topped 50 percent."

Anyone who thinks Bush's economic stimulus package will work is sadly mistaken.

****************

The homebuilders NEED to go away, and NOW. Oversupply is destroying the housing market of this country – why do we continue to encourage it?

An easy cause to call a rep about as there isn't a SINGLE reason for these companies to exist, much less be funded by us for their blatant destruction of our neighborhoods and communities.

"Neither the National Association of Home Builders nor the National Association of Realtors saw these housing declines coming, but somehow they know what the answer is. The answer is always the same: more handouts to the NAHB and the NAR."

Meanwhile back at the ranch... As people rubberneck the Bear Stern (BSC) demise, one of the most putrid legislative moves in the modern era is getting shoved up tax payers' arses without nary a peep by the mass media. I am talking about the http://biz.yahoo.com/ap/080123/economic_.... proposed loss carry back provision, which would allow homebuilders to recover taxes paid during the bubble years by offsetting the income with the losses they are incurring now.

In essence Minyans, you and I will give back to the Robert Toll (Toll Bros (TOL)), and Ara Hovnanian (Hovnanian Ent. (HOV)),of the world millions of dollars to prop up their closely held companies, i.e. companies' in which they have majority interest and/or control, whose stocks these individuals had the magic foresight to dump by the millions of shares right before the whole Ponzi scheme collapsed.

If ever there was an action that should undermine investors' confidence in our market system and reinforce the view that the government exists to grease the palms of those who pay their way into influencing the government, this is it.

I have not had a position in homebuilders in quite a while, so I could care less whether homies stocks go up or down. Furthermore our money is likely to do sweet nothing to the business prospects of those companies, except permitting them to show our involuntary charity as income on their statements, which probably will trigger some more option grants to the insiders. Alas, the involvement I do have in the homies is one with only clearly defined downside, that of a taxpayer watching money being transferred from my pocket to the pockets of those whose dog and pony hype shows were part and parcel of the disaster we are facing right now.

**********************

Great food for thought. How does this even get fixed? What I do know is that it's surely not by doing what they are about to do (which by the way is illegal, but nobody seems to care about the law anymore).
http://tinyurl.com/4fcrqc

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I stopped reading after the first paragraph. But all I can say is cry me an F'ing river! After the numerous Buffet rumors, the China rumors, the Ambac rumors and on and on, NOW they suddenly care?! Downright ridiculous.
http://tinyurl.com/3q232s

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Reminder: Go back and read the Herb Greenberg piece in the last message I sent about how it's not the "shorts" that are to blame, it's the longs. 100% correct.

Delusional would be their word, not mine. But we already know they get it over there...
http://tinyurl.com/3pxvt8

The best way to illustrate that it ISN'T the shorts. China's market is now down about 50% (ouch) - and shorting is not even allowed.

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Short article, but beautifully said.
http://tinyurl.com/4j7ja5

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"The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system."
http://tinyurl.com/2yzu84

Really, you better get me those designs quickly or we aren't going to have ANY say on where to put the hammer or the sickle on the flag. Wow, this is moving fast. Although good luck getting something like this passed quickly.

The Dilbert way of looking at it:
http://tinyurl.com/4phfr8

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Fraud in CPI – let’s just change how it’s calc’d when we don’t like what it says. Good luck to anyone in this country on fixed income.

http://tinyurl.com/4zxfbg

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Even worse - Banks lying about LIBOR?? What a joke of system this has become. Ponzi would be proud.

http://tinyurl.com/3ndyf9

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Socialism, and who's to blame. Loved the last paragraph, but read the other stuff too.
http://tinyurl.com/4cumq2

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Once again, the quote in the last paragraph is the clincher, but you might as well read the rest to see how ugly Florida is getting. California has been lagging Florida - we better hope it's not next. By then it's light's out as that's the 6th largest economy on the planet:

The Herald Tribune reports from Florida. “The crowd filed in to the large white tent behind the Bahia Mar resort for Friday’s real estate auction organized by Sotheby’s and Daniel DeCaro Auctions as a four-piece jazz band played a peppy rendition of ‘I Feel Good.’ Only a handful of the properties would be selling absolute, where any bid would be accepted. The rest carried a non-disclosed reserve, or minimum bid. The auction, which was anticipated to take four to five hours, wound up clocking in at barely two.”

“The first property out of the gate was not a good omen: auctioneer Daniel DeCaro tried opening the bidding for 1850 South Treasure Drive in Miami Beach, a waterfront lot, at $1 million. There was no response.”

“He then tried to get something started at $500,000, but again, no dice. $250,000? Still dead air. $100,000? Silence. At that point, DeCaro threw in the towel and passed the property by.”

“‘Please come see us afterwards,’ he told the crowd.”

“By the time it was over, 67 of the 99 properties on the block had no bids. ‘This was a disaster,’ said Fort Lauderdale broker Paul Merlesena following the auction. ‘They’re basically going to have to give them away now.’”

*******************************

If you happen to have faith in the government, I might as well pass along this "colorful" advice:

All losses go on The Public Debt.
Therefore, buy all financials.
That's the trade guys.

HB&B are going to end up with all the assets, especially houses.

They are engineering a bond market collapse. I am certain of it, having gone back and listened to Bernankes testimony, especially the exchange with Kennedy.

He played Kennedy like a f*cking violin and they are draining cash at the same time they're prodding Congress to take the entire loss from the housing mess onto the public balance sheet.

Its the same f*cking playbook that was run in the 30s and we know how that turned out. Bernanke claims "The Fed inappropriately held policy rates too high" - that's horsesh*t.

The Fed follows, not leads.

What caused rates to go up? Congress tried to print its way out of the bubble by propping asset prices.

That caused a bond market collapse and THAT is why we had the Depression.

We're headed for a sh*tstorm of unprecedented size folks.

I can't tell you when its going to happen, but I can tell you with absolute certainty that it will.

This sort of fraud doesn't live for long. Eventually the people who are being f*cked get tired of it and force a fix.

There's nothing honest in any of these numbers. JP Morgan's "earnings report" is total horsesh*t; read the actual release. Goldman and the rest of the IBs have "met lowered estimates" by shifting a total amount of debt that equals their MARKET CAP from Level 2 to Level 3.

That, under an honest accounting regime, would be a Chapter 11 filing, not an "earnings release."

We don't have that any more.

So far investors are "allowing" this, but is this really being overlooked or are people heading quietly for the door while shoveling shares into your 401k and IRA account?

I don't know the answer to that but if its the latter then we have once again suffered what happened to people in the Tech Wreck, which I warned repeatedly about at the time and was called all sorts of names by people that two years later went bankrupt and lost everything.

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Keep up the games banks, many of your days are numbered. This ought to help consumers.

http://tinyurl.com/65kmfs

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A submission from Mr LaMar that I thought I’d pass along:

The Roaring Twenties was a time of prosperity and excess in the city, and, despite warnings against speculation, many believed that the market could sustain high price levels. Shortly before the crash, Irving Fisher famously proclaimed, "Stock prices have reached what looks like a permanently high plateau."[1] The euphoria and financial gains of the great bull market were shattered on Black Thursday, when share prices on the NYSE collapsed. Stock prices fell on that day and they continued to fall, at an unprecedented rate, for a full month.

In the days leading up to Black Thursday, the market was unstable. Periods of selling and high volumes of trading were interspersed with brief periods of rising prices and recovery. Economist and author Jude Wanniski later correlated these swings with the prospects for passage of the Smoot-Hawley Tariff Act, which was then being debated in Congress[2]. After the crash, the Dow Jones Industrial Average (DJIA) recovered early in 1930, only to reverse again, reaching a low point of the great bear market in 1932. The Dow did not return to pre-1929 levels until late 1954,[3] and was lower at its July 8, 1932 level than it had been since the 1800s.[4]

“ Anyone who bought stocks in mid-1929 and held onto them saw most of his adult life pass by before getting back to even. ”

—Richard M. Salsman[5]

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Peter Schiff has been ahead of the curve. He was mocked repeatedly, but has now proven to be correct. I'm afraid the same thing is likely to happen here as well...

http://tinyurl.com/54dzh7

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Maybe it's just the voices I give the various participants, but this once again made me laugh aloud.

http://tinyurl.com/48tzlg

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Longer, but KD at his best - hitting numerous topics.
http://tinyurl.com/3oljgd

Sign that petition.

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Want to know why the public is screwed, because this is how things worked:
http://tinyurl.com/32gpmr

A couple of key excerpts:

The two didn't say exactly how much money they made at their last jobs but Kent admitted they each had six-figure incomes.

Today, they're trying to get by on his unemployment benefits of about $450 a week, which covers only about an eighth of the basic payments they owe every month.

Only $1,800 to cover $10,000 in bills

Their home equity line, mortgage, health and life insurance premiums alone cost about $10,000 a month. Still, they are trying to hang onto what they call their dream home with a view of the Pacific Ocean where they live with Mysti's 11-year old son.

And...

Despite their financial problems, the Copes have worked hard to protect their credit rating, staying current on bills. And they've made cutbacks: trading in Kent's Corvette for a Suburban and getting rid of the gardener, for example.

When are people going to wake up?

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Jobs #'s are atrocious.
http://tinyurl.com/44n9vp

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6 airlines have declared bankruptcy in the last 2 weeks.

Rice now up 50% in 2 weeks. Do you know how much rice is eaten on a daily basis?

Notice what isn’t going up in price food-wise? Meat. Care to know why? Grain prices are SO out of control, that farmers can no longer afford to feed their animals. Instead they kill them. Meat supply surging. Unfortunately you can’t undo this down the road for obvious reasons. The impending shortage is when meat prices will surge. I don’t care, I don’t buy it anyway. Let’s see how the rest of the country likes it.

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Look up the comments Sallie Mae made about the future of student loans – hint, the used the phrase “train wreck”. Over a third of the top 100 student loan lenders have completely stopped. Next month is application time. Train wreck suddenly looks like an understatement. Keep it up Fed/Gov’t. Hide the sausage is going to destroy things even more than finally fessing up…

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Really – what is going to happen to California? This is getting ugly, and the “fun” hasn’t even begun.
http://tinyurl.com/3wga7s

But I’m sure there is plenty of spending going on in CA these days? Then again, the San Joaquin County building Department notes that 2200 swimming pool permits issued by this time last year- so far this year they've issued 2

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As a little birdie said:

Now with the new tax legislation, in order to recover 2004 taxes, every builder and bank is going to be liquidating land in 2008 as losses must be realized this year(impairments don't cut it in the tax world).

LAND VALUES WILL CRASH BY THE END OF THE YEAR AS EVERYONE IS SELLING AT THE SAME TIME. TAX PAYERS, GET YOUR CHECKBOOKS READY.....You are going to owe the builders and banks that put you into this mess billions.

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Lies from S&P - these are some more a** holes that need to be shut down.
http://tinyurl.com/4yw53j

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So they are allowed to go to the discount window (with the real banks) and thus get bailed out with taxpayer money -and this is what they do with the money? Raise your hand really f'ing high if you didn't see this coming....

WASHINGTON (Dow Jones)--Investment banks may be abusing the money they are borrowing from the Federal Reserve's discount window in order to issue dividends, a top House Democrat said Wednesday.

Rep. Paul Kanjorski, D-Penn., the chairman of the House subcommittee with oversight over the capital markets, raised the concern during a hearing Wednesday. He said a hedge fund manager suggested in a recent meeting that large banks may be borrowing billions of dollars in funds made available by the central bank in order to benefit their shareholders.

"I myself will be incensed if after going to the rescue of these institutions there are those types of abuses occurring," Kanjorski said. "Particularly I'll be incensed if the Federal Reserve hasn't marched up here with emergency sirens saying there's something happening that shouldn't happen."

Federal Reserve Gov. Randall Kroszner said he was unaware of any type of abuses, and that any such actions wouldn't be tolerated. He stressed that the funds have only been made available to a "limited number of institutions with which we have had a long-standing relationship."

Otherwise put:
Looks to me like they are creating these CLO for the sole purpose of sucking at the Fed teat. I can think of much better uses for tax dollars than keeping investment banks that pay their CEO $25m on life support. That's right taxpayers, tax money you could have spent on your children is being given to a company (Lehman) that pays it's CEO $25m.

********************************

Non-required:

Had to put this one in just because it made me laugh.
http://tinyurl.com/4yoscr

An interesting subsection of the final days of Bear Stearns:

Even as the firm frantically negotiated a rescue package, Bear executives continued to try to convince the world that everything was under control. That evening Schwartz contacted a well-known New York hedge fund manager (a longtime Bear prime brokerage client). He pleaded with the manager to appear on CNBC the next morning and express his confidence in Bear. The hedge fund manager declined politely but wondered why Bear needed a client to convince the world of its health. He wouldn't wonder long.
http://tinyurl.com/3cnor6

Terrified Fed
http://tinyurl.com/5bz6wo

Haven’t read it all yet but...
http://tinyurl.com/3vtyxw

If American people ever allow private banks to control the issue of their currency, first by inflation and then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. -- Thomas Jefferson

It IS happening RIGHT NOW.

Thursday Night update - Miss me?

2008-03-28T10:04:00.000-05:00

Ok, enough of a break. Lots here, but with the frequency down, you can read 1 or 2 a day and likely finish before you get another one of these.

So since this all started we have cut the Fed funds rate 3% to 2.25%! Europe has cut their rate exactly 0% in that time. Yet our markets have declined about the same amount. But now the dollar is becoming worthless, price inflation is getting worse, and moral hazard has gone through the roof. All to get the same stock market returns they so clearly seek. Idiots.

Let's start with a timely one - it's long but important, so I'll put it first.
http://market-ticker.denninger.net/2008/03/aa2-mayyyybe-oh-and-cds-explosion-part.html

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"The past 10 days will be remembered as the time the U.S. government discarded a half-century of rules to save American financial capitalism from collapse."
(When this is the front page article on Yahoo, it's probably too late) http://online.wsj.com/article/SB120657397294066915.html?mod=yhoofront

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Here's how it works. Yep, they were told to leave Lehman alone. I remember when I thought we had free press in this country – how naive. Thanks again London for sharing the truth. Unfortunately for our system and Lehman, it's exactly these kind of games that will probably accelerate their (potential) demise.
http://tinyurl.com/34dn3h

******************

So the Fed tells them to take it easy on each other. Which is a clear signal that they shouldn't trust each other. So they reduce their exposure while they tell the public everything is fine. Makes sense. Yet another thing that will end well.

*******************

People are starting to really call for the government to start buying mortgages now. This is getting dangerous. Normally it would take an act of congress to allow that - but clearly the Fed is now playing above the rules. What's it called again when the government of a country owns everything?

I wonder where they are going to fit the hammer and sickle on our flag? Feel free to send me your design ideas and I'll be sure to pass them along.

Regardless, putting a floor under the price of houses won’t help. Affordability is way out of whack and needs to reset.

************************

I usually don't post this stuff as it isn't fact-based or linked to some article somewhere. But you'd be shocked at how many like this I am seeing, so I'll let one slide. The greedy dumb-sh*ts at the top, and the lawlessness that went on (and continues to) is devastating the employees of the financial services companies. I.e., the ones that had virtually nothing to do with this mess.

"I spoke with a bunch of friends this evening trying to get some gossip - all employees of different I-banks. They are absolutely scared shitless. All of them. Nobody knows what is going to happen. My best friend who works for a large German bank that trades on their exchange was told that the bank has 20 days of liquidity remaining (don't ask me who, I'm not trading off the info and I won't pass the info) after which he left the office at noon and drank until 9pm. A mortgage, two car payments and a pregnant wife at home makes it hard to sleep. Two friends from Deutche were told that tomorrow will be their last day. A good friend from Lehman who was the head of the Archstone deal, top of his class at Wharton - out. A friend at Lehman who says nobody is getting any work done because they're losing their life savings every day as the stock drops. Two friends at UBS, one with 3 kids, sending out resumes in a panic - but nobody is hiring. These were all kids that were top of their MBA/law school classes. These guys aren't a**holes. These guys didn't do anything wrong or defraud people. None of these guys have ever seen an MBS or CDO. Guys that have worked their asses off, 3 to 4 thousand hours a year, to get to where they are. And it's all gone."

From the same guy last night: (IG = Investment Grade - and the rumor they are referring to is that Lehman's collateral was not accepted by the Fed yesterday)

Got off the phone with a friend of mine who is mid level there (8 years in). And if any of you want to bash him or laugh or say good riddance, don't bother and go f yourself. He's as good of a kid and as hard-working as anyone you have ever met. Came from a lower-middle class Boston suburb and took on $250k in debt to get through Harvard and HBS.

Anyway, the repeat of last week was in the office today. He said, at least in his department, nobody was working and everyone was freaking out. He was under strict orders not to talk about the rumors - what they were, if they were true, etc. Not even to me. I ran the auction thing by him and this is all he could say (in summary):

I asked him about Goldman coming to the rescue:

The interesting part is that I emailed another buddy at a German bank and independently this was his exact response to the auction rumor:

So there you go. Something's out there but nobody's talking or confirming. Everyone is pretty freaked out. The auction rumor seems a little fishy, however. My buddy at UBS responded:

<< I didn't see that news. been on the road doing healthcare deal.
stock's not doing much in after hours trading. I would think if there were serious liquidity concerns like that, the stock would be smashed at least 20%+ right now. let's hope it's OK, that would be a very bad thing for everyone.>>

The understatement of the year.

Well, here you go. I have another friend there who is on the floor at LEH (not upstairs). He had a completely different take:

Appreciate the well wishing, but my honest assessment is that the stock getting beaten up is total BS (I'm biased, I know). People say that Lehman could face a run on it just like Bear did, but the liquidity situation here is so much different than Bear, so I don't see it. Bear depended on CP, repo market and credit balances from their client accounts to stay liquid. We've got less than $5B in CP, repo is still strong and we don't use client balances to fund ourselves. Perception of insolvency can beat up the stock, but I don't see how it eats up our $30B in cash that we hold (plus almost $60B in other free assets).

Didn't hear anything about the Fed denying our collateral today, and would've thought that would make Bloomberg news somewhere. The stock volatility is definitely nuts... but we seem to move $3 every day now. Don't know how all this shakes out, but the mood on the floor from senior management is pretty positive, not somber. Crazy times though, that's for sure

My comment: Take your pick as to who you think is right.

**************************

From a mish article, I'll spare you having to read it and just give you the punch line.

What To Do About The Liquidity Trap

Here's what to do about the liquidity trap: Nothing. The concept of liquidity traps is imaginary. Home prices are too high, they need to correct. There are too many houses and stores so we should not encourage more building. Savings should be encouraged, not discouraged. Overcapacity needs to be worked off not fueled. Bankruptcies are part of the solution not part of the problem.The real trap is doing something as opposed to nothing. Quantitative Easing and ZIRP (zero interest rate) did not help Japan and they will not help the US either.The central bank simply cannot force additional credit down the throats of prospective borrowers, nor should it try. Attempts to do so will only prolong the agony while punishing innocent savers, especially those on fixed incomes.

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Nice
http://tinyurl.com/38dgat

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If this doesn't annoy you then I've been bothering you with these emails past my welcome, let me know to take you off. Of course it's not written in this country.
http://tinyurl.com/2jj232

*********************

CNBC reporter after getting destroyed by an economist on air for their incessant pumping."for the record I tried to get him to say something positive"Didn't want his boss to think he took a minute off from the lies?

**********************

Consumer confidence has biggest drop in 20 years to levels not seen since 1973.1 in 10 people in Ohio receives food stamps. That is astounding. Wait, is it possible the rate cuts and bailouts aren't helping the public at all? I'm shocked.

Case/Shiller index shows home prices down 10.7% since last March. As if that isn't bad enough, the rate of decline is increasing. Cramer called house prices to soon bottom. He's done that many times in the past year. He laughed when the guy from the C/S index optimistically said we had another year of this. I would seriously punch him in the face if I met him.If you want to see a quick breakdown of the housing ugliness:
http://tinyurl.com/39bu73

*******************

As for the media front I just mentioned:"as a foreigner and a TV producer in Europe I’m just amazed at conic and their obvious reporting bias, calling a bottom and telling people to buy financials every 10 mins in this territory - it just baffles me. they should face criminal liability imho. it just adds to the growing impression in Europe of increasingly nationalized US TV network reporting, 'something' has gone fundamentally wrong in your media landscape during the bush era folks, not just in financials...! your conic and fox TV news producers would envy the relative press freedoms in the former USSR and in China, even there it didn't seem like everyone had been handed the same script in the morning. your average joe is getting seriously f*cked, poor folks."

****************************

The Fed instructing investment banks to not talk poorly about Lehman does not make the company any more solvent. Here is a good explanation why they may go away too. Accounting tricks still work?http://tinyurl.com/37c8o9

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Seriously???

"Rice prices jumped 30 per cent to an all-time high on Thursday, raising fears of fresh outbreaks of social unrest across Asia where the grain is a staple food for more than 2.5bn people."

http://www.ft.com/cms/s/0/d6f1cd74-fc29-11dc-9229-000077b07658.html?nclick_check=1

*********************

Luckily for the unsuspecting public, Herb Greenberg was grandfathered in on CNBC so they occasionally let him speak on the air. This was good. Eerie how familiar it all sounds.
http://blogs.marketwatch.com/greenberg/2008/03/memo-to-cramer-about-bear-raids/?mod=MWBlog

**********************

Ok, for those who follow the builders (and actually for those who don't as well) - this guy is the closest thing to inside information that you will ever find over the past year. Up to this point he has looked at it from the long perspective trying to find things to buy (which always baffled me), but last night his tune changed. For him to write a piece like this tells you how bad it is getting. Banks are in trouble.
http://tinyurl.com/3axqcc

***********************

Even the Fed knows what is about to happen to banks. I didn't post this the first time, but now that they are re-upping just a couple weeks later, it's worth noting - especially after you read that last link.
http://tinyurl.com/2oln7z

************************

Your guess is as good as mine as to where this chart bottoms. But the excess of the past 15 years is quite evident.
http://tinyurl.com/2u328z

*************************

Bear Stearns rant.
http://tinyurl.com/349oym

There is a petition link in there. I've avoided getting you involved in those things, but that was dumb on my part. All you have to do is put your name etc. and reply to the email you get and he takes care of the rest blast-faxing it to representatives/congress/etc. They are messing the system up, and we need as many people pointing it out as we can. There are already investigations on the Bear Stearns deal happening - what they did went above their power.

Congress is paying attention to grass-roots stuff like this, so I hope you'll look at it – extreme, but gets a point across.

******************************

The actions our government is going to have to take to avoid a complete financial meltdown will likely be shocking. As if they haven't been drastic enough already. We haven't seen nothing yet. But at what cost will it happen?

My off the record prediction - something monstrous blows up before the end of summer. Hopefully that "something" is just a company.

Sunday Night fun

2008-03-17T00:18:00.000-05:00

Once again gathered over the past week+. Might be the last update I get the chance to send out for a while, so at least read the first section.

You've obviously heard about what happened to Bear Stearns and how JP Morgan had to borrow from the Fed to save them. They were the weak link of the top-5 investment banks on Wall Street (much like subprime was to loans) - if you think it ends with them, you are wrong.

From $60 to $30 in a day (was around $175 last year if I recall?) - and more in sight. Late to the show as always was S&P who downgraded them later in the day. It's actually noteworthy though, Bear can't borrow now. They basically have to get a deal done to sell themselves before we wake up tomorrow or they'll go bankrupt. They go under, then Lehman will go under. Lehman goes under... Obviously you see why the Fed is changing the rules "on the fly."

Lehman, UBS, Morgan Stanley. Watch them, it's going to get ugly. Oh, and on Wednesday the Bear CEO was on CNBC - his response to their liquidity crisis "It's ridiculous, totally ridiculous." Two days later = done. This is how quick this can all unwind. I'm hearing they'll likely be bought tonight for under $20.

UPDATE: Wow. JPM buys bear for $2. Just wow. (I should've loaded up on those puts - 18 bagger in a week though.) This is not good at all - this will hurt the other investment banks bad. Fed did an emergency cut in the discount rate too by 25 bp. Ouch - Yen at 95.9. This was at 100 Friday. Moving 1 yen is trouble - but 4+?! Just what we need now, a carry-trade unwind causing margin calls. This is going to get violent. S&P futures down 33. Let's see what changes by morning. Look out Lehman/Morgan Stanley. Wait, why did the Fed only cut it 25bp? Does that imply they will only cut 25bp on Tuesday now? Oh my will that be a shock (100% chance of a 75 priced in, many expecting 100). There will be intervention.

Need some humor after that?

Cramer answers mail on Wednesday:

Q: Should I be worried about BSC, in terms of liquidity, and get my money out of there?JJC: No, no, no! BSC is fine! Do not take your money out... If there's one takeaway on a plus-400 day...

BSC is not in trouble. I mean, if anything, they're more likely to be taken over. Don't move your money from BSC! That's just being silly! Don't be silly!

Lost in the shuffle on Friday was this: 45% of all foreclosures are no longer subprime - they are on "prime paper" of various forms.

Also lost was the flat CPI. It said that last month Energy was down???Over the month gas up 10%, nat Gas up 12%, diesel up 17%. Surrrrre.

I've mentioned Ultra funds in the past as good hedges (TWM, SRS, SKF). I'm telling you to be VERY careful with these. These are done with swaps. The counterparties on these swaps are companies like Bear Stearns (it's pretty much kept secret, so nobody knows). It may actually turn out to be unsafe to hold these if things start to get ugly. I'm strongly debating whether to take mine off - and I know many who are. (If you really wanted to be tricky, just short the "long" funds that are the opposite of these - then if it defaults and goes to zero, you're fine. But you can't do that in a 401k/IRA anyway). I hate that nothing is becoming safe.

Over the next couple months I expect a serious unwinding. I'm urging safety. I'd be more than happy to look back at this message at year-end and laugh. In the meantime I have NO reason to believe that will be the case. Is there such a thing as one cockroach? No. These companies all did the same things (well not as badly as Bear), and it's on the verge of collapse - which obviously happens quickly. They can spend the entire weekend sorting out Bear Stearns now - but after a few of these pop up, they are not going to be able to bail them all out (much less make them non-recourse - meaning JP Morgan is not on the hook if this blows up, taxpayers are). Don't be surprise if the markets are closed for a period of time at some point. You WILL be able to buy back at lower prices.

This'll say it better than me.
http://market-ticker.denninger.net/2008/03/very-beary-future.html

Expect craziness this week - after tomorrow's nuttiness we have the Fed on Tuesday - 75bp's priced in, Citi calling for at least 100bp cut! Said it before - won't help. Bye-bye dollar.

Nobody knows what the market will do and when (the biggest rallies happen during bear markets), but as I've said before, the "experts" are not the ones you should be trusting - they laughed at those of us who thought these things might happen. You want the stock market in a nutshell - here you go:

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.The villagers seeing that there were many monkeys around, went out to the forest, and started catching them.The man bought thousands at $10 and as supply started to diminish, thevillagers stopped their effort. He further announced that he would now buy at $20.

This renewed the efforts of the villagers and they started catching monkeys again.Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!The man now announced that he would buy monkeys at $50!

However, since he had to go to the city on some business, his assistant would now buy on behalf of him.In the absence of the man, the assistant told the villagers. "Look at allthese monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!

Don't trust the "experts".

(But if you want to trust "little birdies", they think CTX and RYL will be done by year end.)

***************

"Bernanke clearly has some new innovations, but the name of the gameitself has not changed much: Banks are so capital impaired theycannot lend. They refuse to write down assets to reasonable levelsbecause to do so would bankrupt them.Thus with each passing day, the more asset values plunge, the morezombified our banking system becomes. Zombification of banks isexactly what happened in Japan. Bernanke could cut interest rates tozero tomorrow and it would not change matters much if at all.Academia is meeting a real world test, and Bernanke has met his match."

****************

"The median household earned $48,201 in 2006, down from $49,244 in1999, according to the Census Bureau. It now looks as if a fulldecade may pass before most Americans receive a raise."Has the price of anything people buy gone up since 1999?

You want to know when this ends, when people can afford stuff. Which means when house prices are back to about 3X income. In the meantime, there will be pain felt from the top down.

*****************

Now Countrywide has the FBI investigating (along with nearly every other agency out there).
As pointed out by calculated risk, the quote of the day comes from this article:"Getting the FBI to do your due diligence doesn't seem like a particularly great business strategy."
http://www.marketwatch.com/News/Story/Story.aspx?guid={0D8468B0-B2DF-44AD-8531-D4F516F080D4}&siteid=nbs

Seriously, why does BAC continue to say they are doing this deal after this? What gun is being held to their head?

****************

Carlyle from the London Times. If I recall they had about 600M incapital, but they controlled about 20B in assets. That makes sense -32 to 1. Triple A rated, and highly respected - a good read.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3549632.ece

By the way, Carlyle went public last July. Now they are worthless.

The new TAF increase last week that everyone loved will destroy these little guys. It made it so the big boys will cannibalization them for their mortgage backed securities, so they can use them as collateral at the Discount window. This is going to destroy hedge funds, just you watch.

***************

Yen breaks 100 vs the dollar. This thing looks to be heading muchlower. Japan isn't going to be happy when all their electronicexports over here are suddenly 25% more expensive forus. Ugly. Keep cutting Ben.

****************

Chrylser shutting down for two weeks to save money. Interesting(well not for the employees).

******************

2 fed interventions in 3 days - your nuts if you don't think something is very wrong. if I had to place a wager, I'd say thatbear stearns was on the edge of the abyss. that will be ugly.

Update: Guess I should've sent this out sooner???

***************

S&P says the end is in sight for writedowns and the market shoots up 300points. Why does ANYONE bother to report was S&P says?

Update: The very NEXT day Bear Stearns almost had to write down their ENTIRE company.

**************

Gold over 1000 for the first time. Oil hitting continual new highs. Watch for $130+ in the not too distant future. Also watch for it to crash at some point, as I'm guessing this is being fueled by speculators who simply have NO other place they trust to put their money.

*****************

We may never get the full story, but the scoop behind the Sptizer stuff is apparently MUCH more interesting. Note the phone call he got from the President cutting short his cut-throat presentation to congress - which just happens to be the day after his meeting with "Kristen"...

******************

Why Fannie, Freddie and a whole lot of other stuff will eventually bedone. The interactive graph it links to is very cool - and shows theamazing joke that is the ratings agencies - wow.
http://market-ticker.denninger.net/2008/03/ratings-fraud-and-structured-credit.html

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This does continue to get more and more strange.
http://globaleconomicanalysis.blogspot.com/2008/03/amazing-action-in-ambac-mbia.html

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"Stephen Joynt, the chief executive of Fitch Ratings, told MBIA Inc. on Monday it seemed "disingenuous at best" that the bond insurer asked the rating agency by email to destroy non-public information while telling the public it would work with Fitch to keep a AAA rating."

That sounds pretty illegal to me.

**************

Very cool interactive chart!
http://bigpicture.typepad.com/comments/2008/03/world-clock.html

Thursday Update

2008-03-07T09:47:00.000-06:00

Disjoint, likely out of order after the first few paragraphs, likely to be thought insane at parts, with some much needed comedy at the end. Time will tell.

Foreclosures hit another record.5.82% of all mortgages in delinquency. Subprime problem? More than 1 out of every 20 mortgages in this country is delinquent. Contained.For the first time today in history, American home equity in their houses fell below 50%. Add that to our great list of firsts.Dollar getting absolutely destroyed. Europe/GB didn't cut rates today. Australia actually raised them again last week.Yesterday: 5.8% for a 790 FICO 20% down mortgage, today it suddenly jumped to 6.3%. Rate cuts working like a charm.

For those who care about technicals....I've been waiting to say this for a while. We are sitting on the cusp, and any sort of a down day tomorrow basically triggers a "short the phonebook". The key spots have been 1310 on the S&P and 12100 on the Dow - both were breached today. A rate cut or some other sort of serious intervention would not surprise me tomorrow and that's why I'm waiting for slightly lower still to make the full call. Otherwise a series of cascading "head and shoulders" are about to take us much lower. Here are the targets to watch for if we don't break back above the above listed levels: Dow 11,400. If we crack that, Dow 9000 is in play. (Dow 10,700 will likely provide a bounce for a while though.) All that happens and you'll also be looking at S&P 1000, Nas 1200 and Russell 450's.It was just a few months ago that I told you that cracking 800 on the Russell was the sign that the bull market was done, seems like forever ago.Are we there yet, no. Do things go in a straight line, no. Scary numbers, yes. More likely than not, yes.Unemployment numbers in the morning will be make or break. Unless the Fed steps in.

UPDATE: Fed steps in 10 minutes before the jobs number and increases the TAF auction amounts as well as what they'll accept as collateral. Which tells you what happened next. Jobs expected to come in flat, were down 63k. January and December were also revised downward. How so many people still think we will avoid a recession baffles me. Expect the markets to try to pull rabbits out of every hat today - otherwise just type random letters into the keyboard, and sell it.

*****

I won't get too deep into the numerous rumors I'm hearing, but massive liquidation is happening left and right. Hedge funds are in a world of hurt. When I say world of hurt, I mean good bye fund.

Speaking of which - The Ambac bailout that was saving the markets every time they were about to break - turns out they are doing a stock deal. Seriously????? Wow, they are screwed, and the muni-market with them. $1.5B - that will buy them time, and that's about it. Yep, they are AAA.

Ambac thud
https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/37m4ro

****
Buffet gets it:

"By any common sense definition, we are in a recession".

What does he think about the bailouts?

Q: Any of the intervention plans we've seen from the government strike you as being a good idea?

BUFFETT: Well, that--I haven't seen the details on many of them, but I think it's very hard to start interfering with markets without having a whole lot of unintended consequences.

************

Want a $100 house? Just move to Detroit.
http://tinyurl.com/2qaxyg

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So, the big news as far as I'm concerned is the lifting of the caps on the amount of mortgages Fannie Mae can take on. They just announced that they lost $3.6 BILLION last quarter - they managed to do that by buying the "good stuff" (the day after Freddie Mac reports a loss of $2.5B). Their CEO’s both said how challenging the future looks, and now they get to take on all sorts more of the same stuff that is bringing them down. Good plan. One that Bush and
Bernanke were extremely opposed to just a month ago. Since then the size of mortgage they can take went from $416k to over $700k, and now they can take more on. Which means an even larger bailout by the government. And laugh at how crazy it sounds now, but the steps towards socialism are slowly kicking in. It was a nice 200+ year run for this country trying capitalism, why not switch sides just as China decides to do the same to keep things balanced?Seriously - raising those caps could be one of the dumbest in a long series of bad moves.
http://tinyurl.com/2svhmj

Talk is already growing of a complete mortgage bailout by the government being needed. Welcome to the first steps of Communism. Am I saying that will happen, no - but it tells you how big the problem really is behind the scenes. Very drastic measures are about to become needed.

*******

Obviously priorities aren't at the forefront of our leaders minds. They'd rather waste their time asking who used steroids. And now the FBI is investigating Roger Clemens. There is a list of about 10 CEO's I could give them that did things to the people of this country that were considerably more illegal than anything he has done.

********

Hearing about 9 and 12 year car loans now just to get the financing to work. That's gonna be good. But if you choose to buy a new car, add 1.25% to the price as part of that gas tax increase from a couple days ago. Actually, if you need a car, just go to craigslist – just typing 2007 in gets page after page of results. Not all appear to be 2007 vehicles – but an unreal amount are!
http://tinyurl.com/3yn6d9

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New Monkey, same backs. Title alone made the article worth it.
http://tinyurl.com/2rq7ts

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Oil hits a new all-time high. Even breaks the inflation-adjusted record from a few decades ago. Gold at a new all-time high at just under $1000. 20-year high in the price of rice. Pork up 39% in the last 2 months. Not sure what triggered this food thing in the past year, but suddenly the word “shortage” is starting to lurk.

Remember when wheat had made that astounding run to $16 about a week ago. It's at $24 now. (that was last week, last I saw it was around $18.)

And to top it off – the local bakery this morning said business was so slow that they no longer make donuts with sprinkles. And WCCO isn't sending Rosen down to spring training to cover the Twins for the first time in 21 years due to budget constraints. And local company ADC Telecommunications had to take a $50M write-off due to subprime this quarter.

Telecommunications - now those companies have subprime worries????

Feel free to send me any similar observations as you come across them.

And Cramer says we need a rate cut over the weekend. Heroine is tough to kick when you need more to get the same affect…

***************

https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/2p4n8p
Getting worse and worse out there for the public

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https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/3cy7yv
71% of Countrywide’s $28B in option-arms are paying the minimum – i.e. just the interest, not the principal - i.e. the loans are growing. Only 20% of these people provided documentation of income when getting the loan. Payments 90+ days overdue is up nearly 10–fold since last year. Half of their $87B in loans is CA and FL. Yes, it makes complete sense for BAC to buy them. Like I said, making BAC one of the 30 DOW components will eventually prove to bring it down farther and faster than anyone was thinking.

**********************

I couldn’t agree more with everything said in here. When people do it, Paulson calls it speculation. When Goldman Sachs does it, it’s investing. F him and his “non”-bailouts.
https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/2u7fr6

********************

Unrelated stuff to inject some fun in here:

Jimmy K responded this week, but in case you are one of the few who hasn’t seen it yet, I think his wife’s first shot across the bow was better. (warning: you don’t want to play these out loud at work)
http://tinyurl.com/2adjwv

And the response:
https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/3akff8

60 minutes ray gun video – very interesting.
https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/2sbfn8

Tuesday Update

2008-02-26T20:31:00.000-06:00

Month over month PPI comes in at a horrid 1% increase (expected .4%). Do you think the producers will be keeping these extra costs to themselves or passing them on to the consumer? Case/Shiller home price index down 9% - ouch! Consumer confidence way below expectations, with the future index at it’s lowest point in 17 years. Oil at a new all-time high. Foreclosures up 57%. Home Depot, first ever annual sales decline. Our state raising the gas tax for the first time in 20 years. Little bit here, little bit there and it’s all adding up – with all the benefits going to big business and Wall Street while joe-6-pack gets kicked a little harder each day. The ONLY piece of good news to come out today was IBM doing a stock buy back. That’s it. Oh, and it’s being done with debt – sounds like *great* news to me. But the market rallies on. The complete disconnect becomes more and more clear.

Here is that Case Shiller price index in graphical form. Anyone still believe HOV's CEO who came on to CNBC for about the 8th straight month to call the housing bottom? Well anyone other than the market, that is. That is a flippin' steep slope.

http://tinyurl.com/2lg86z

As for those foreclosures - since it takes about 6 months from the time you stop paying for it to happen, so these are from last July. Subprime resets don't even *peak* until next month! Ohhhh boy have "they" set us up nicely.

On to the interesting stuff:

Washington Mutual, the biggest savings and loan in the country, has MAJOR issues. 93% of their July pool of loans were rated AAA. A mere 8 months later 15% of that pool is in foreclosure! $514M in loans – after 8 months there shouldn’t even be 15 *houses* in foreclosure, much less 15%!!! This is shockingly unreal. Open those wallets a little wider taxpayers.
http://tinyurl.com/2lwcr9

*********

Banks begging for a bailout – this is shockingly disgusting. But some of the comments are quite humorous:
http://tinyurl.com/ypofqc

**********

A chart of the supply of homes on the market – notice that December of past years was always the low point – guess what this chart will look like in about 6 months…
http://tinyurl.com/2eh6xx

**********

Just plain scary what will happen with these option ARM’s (after the subprime debacle I noted above)
http://tinyurl.com/3ygvpv

************

One of the dumbest quotes I’ve heard in a long time.
"We know they shouldn't be rated AAA, but just look at what will happen if they are downgraded, we should just leave them alone."

So that’s how the “ratings” agencies work?

And the monolines get their AAA ratings upheld yesterday. The ratings agencies now have zero credibility. You aren’t forced to borrow at 14% interest if you are AAA. You don’t have bailout rumors floated about you if you are AAA. Ah, to be corrupt and in charge, a lovely combination.

Mish’s view on it. The sub-paragraphs half-way in from Minyanville are absolutely top notch.
http://tinyurl.com/2thqaj

Oh, and after the market closes (after a run-up on that glorious MBIA news), MBIA cuts their dividend, says they will split up within 5 years (they won’t be around), and their CEO says he won’t sign off on 2007 results as he “questions” them. Nice.

Follow up: "Is there any other way to interpret the above ratings other than incompetence or corruption?"
http://tinyurl.com/2waftf

*****************

http://tinyurl.com/3626nv
Wow – I think I wrote this exact article in an email exchange with one of you after my stick-save comment on Friday. Its all about trust, people. It’s gone. Imagine when foreign countries stop feeding our addiction for their money because our entire system proves to be a sham.

*****************

"Is there a snowballs chance in hell Citigroup is solvent?" I've been saying no, but this guy always says it better.
http://tinyurl.com/2mruk2

****************

Ignore the market for a bit, and tell me how any or all of this gets resolved??? This is only two flippin' days worth of news!

*****************

Two articles of non-required reading, but I found them interesting, if you made it this far.

This article interested me as it touched on the disconnect between main street and those at the top. That will grow.
http://tinyurl.com/2kwpbd

Interesting to see how people are thinking. Borrow at 8.5% to earn 3%?
http://tinyurl.com/26wpbr

Weekend "Homework"

2008-02-22T11:11:00.000-06:00

CPI comes in high this week. Once again making things tougher on the Fed. What happens when a perfect storm crashes into another perfect storm anyway?

*****

The city of Vallejo is on the brink of becoming the first California city ever to declare bankruptcy, City Council members said Tuesday.Vallejo may run out of cash as early as March, council member Stephanie Gomes said."Not only that, but now we have 20 police and fire employees retiring because they are afraid of not getting their payouts," Gomes said. "That means we have another few million dollars in payouts that we had not expected. So the situation is quite dire."
http://tinyurl.com/ytf9pc

******

Oil closes over $100 for the first time – what a day as it moves nearly $5. This summer is going to be REAL interesting on the gas front – I don’t think people will be nearly as lax about $4 gas as they were about $2 and $3. And we’re not anywhere near driving season yet! Oh, and we've been hurricane-free for longer than most would've expected...

*****

The ten-year rates hit 3.9% today. Unreal, this thing was under 3.3% a couple weeks ago. Look up mortgage rates – a 30-year fixed has jumped from 5.4% last week to 5.8% now, that’s insane. Rate cuts helping? Technical analysis says that 10-year now has 4.2% in it’s sights. Want to see housing really go in the tank as the spring selling goes into complete bust mode – watch those mortgage rates. Ha ha, good one. Bust mode will happen regardless, this’ll just make it hard for the idiots in the mainstream media to do their spin – for gosh sakes they will actually have to think to pull this pump-job off.

Oh, when I said “now” above for the 5.8% mortgage rate, that was yesterday’s rate. Just saw today’s. The biggest one-day gain in recorded history – up 3/8 to 6 1/8 (that’s with 2 points upfront 6 5/8 with no points).

That’ll really help things…

Just to be clear, mortgage rates are *higher* now than they were a year ago - when the fed funds was in the 5%'s. Who exactly were all these rate cuts supposed to help?!?!?! If you answered anyone other than wall street you aren't paying attention. But that was said when this all began.

*****

No recession??? The Philly Fed Manufacturing index fell to -24 in February. The index had plunged to -20.9 in January from -1.6 in December. Readings below zero indicate contraction. The decline was unexpected. Economists were expecting the index to improve to -10.

*****

From the outgoing chief of "calling things" for this country. You often hear "it's different this time" to explain why everything will be fine. Here's someone who really knows telling us why it's different this time. And he makes an excellent point.
http://tinyurl.com/2qa5xg

****

In what could be the most "catastrophic", Florida courts on the verge of shutting down. In a normal world, thus would be the top story in every paper, but this isn't a normal world.

http://tinyurl.com/yu62b9

****

So far we have proposed bailouts, stimulus packages, super-SIVs, term auction financing, mortgage rate freezes, foreclosure freezes and presidential working groups. There are a multitude of housing bailouts in the pipeline. I get upset just thinking about them all, and how stupid it is to make the people who were prudent pay the mortgages of the people who weren't - so I'll leave that topic alone.

*****

Goldman lays off 1500. Starbucks 600. Seem to hear one of these nearly every day. But unemployment barely budges. Where are these 10’s of thousands of people that are getting hired every month to offset this anyway? That industry must be absolutely booming! And a great investment, as nobody on the planet has obviously heard of it yet.
Speaking of the media, a CNBC pump-monkey admitted this morning that their revenues drop dramatically in down markets. Remember that next time you are forced to listen to one of their views on things – it explains a LOT.

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This quote from Mish pretty much sums it up:

"There is a stunning ability for the equity markets to shake off bad news after bad news. Meanwhile the underlying credit markets continue to deteriorate. Both cannot be correct. This divergence will end, we just do not know when. The odds are overwhelming that the credits markets have this correct."

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On the same note, the market action has been described to me as “very evil” right now. Even the cheerleaders on TV have wondered out loud why things aren't reacting differently. Strange things are afoot.

How can you not trust someone called Mr Practical? If nothing else, the folks at Minyanville are pretty smart. The article talks about the "evil" forces that seem to be at work in the market - it should be clear by now that something very strange is going on. The quote is something he also said today:

This morning, little beknownst to daily stock traders, CDX (asset-backed debt spreads) have widened a dramatic 20 basis points from 145 over treasuries to 165 over.
This is deflation at work, sucking liquidity out of the system. It is the result of banks once again (and again, and again) rejiggering their correlation default assumptions. In order for this to happen, many single name credits have to widen by 70 basis points or more.
This is the normal process of debt contraction. Equities are still asleep at the switch as to the implications: contracting credit equals lower liquidity equals lower asset prices as the debt bubble continues to unwind.

We are still very early in the process despite what government officials and market pundits tell us on TV.

Risk is high.

Strange market happenings in the futures:
https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/3dzgw9

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There is so much trouble brewing in states it's unreal. Every state seems to simultaneously need to cut taxes to help it's citizens, and raise them to stay afloat. It's becoming surreal. Here are a few clips from 3 different states - trust me it's a small sample of what I'm reading.

Welcome to California
State lawmakers Friday approved a series of budget cuts and payment deferrals for the current fiscal year as part of an effort to slash the looming $14.5 billion budget deficit by half.The plan includes taking billions of dollars from public schools by suspending education funding guarantees set by Proposition 98, shutting down four dozen state parks and releasing tens of thousands of prisoners.With at least $7 billion of deficit left to close, those draconian cuts will likely be part of the negotiations for next year's budget, along with raising taxes.Many at the Capitol fear the state's deteriorating housing market and slowing economy will make matters worse.

One day after reading that story, word is now that the deficit has jumped to $16B!!

Drivers on the Massachusetts Turnpike face higher tolls because the state is unable to sellbonds insured by a unit of troubled Ambac Financial Group Inc. The Massachusetts Turnpike Authority, which oversees Boston's `Big Dig' highway tunnels, is spending an additional$300,000 a month on its bonds because investors won't buy $126.7 million in auction-rate securities backed by Ambac, state officials revealed today. Rising debt costs threaten to derail agency efforts to avoid raising tolls this year, officials said.

"That is a very significant financial obligation, probably our biggest short-term problem,''

New York state taxpayers' weekly borrowing costs increased $2.3 million after banks failed toattract bidders to auction-rate bonds and stopped buying unwanted securities.Interest rates on Dormitory Authority bonds sold for the City University of New York rose to as high as 6.26 percent last week from 3.42 percent on Feb. 6, according to data compiled byBloomberg. Buffalo's rate on water system revenue bonds soared to 11 percent from 3.30 percent. Bonds issued by the Museum of Modern Art climbed to 4.47 percent on Feb. 13 from 3 percent atthe end of January.

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“It turns out that massive interest rate spikes aren't the problem -- many borrowers couldn't afford these mortgages even at the low, introductory interest rates.” Yep. Still unreal nonetheless.

http://tinyurl.com/2jse3p

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$10 an hour. $417k loan. Bought a 2nd house that she didn’t even know about.
http://tinyurl.com/2tde8p

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Signs point to the credit crisis getting much worse: “Every sign, and that is every sign, points to bank and brokerage write-downs in 2008 which will make 2007 seem like a picnic.”
http://tinyurl.com/34eyx5

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Yes, close the bookmobile, that will help. California = Screwed. SO screwed.
http://tinyurl.com/247ft2

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Bankruptcy boom - "I've never seen anything like this before," Jaroslovsky said before the hearing. "I've never seen so many people care so little about losing their homes.
http://tinyurl.com/ypxf3f

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401k debit cards. Yep, this will also end well....
http://tinyurl.com/2jac6a

In a completely unrelated, but sure to be related story, 401k particents can now sue over bad fund management. Can open, worms everywhere…
https://mail.us.benfieldgroup.com/exchweb/bin/redir.asp?URL=http://tinyurl.com/2rvkdu