by Karl Denninger
Never, it would appear.
Kitchen sink? We were told that last quarter, and it produced a lot of bottom calls and buying.
Was it the Kitchen Sink? Perhaps you can explain why UBS wrote down $33 billion last night if the last quarter was the "kitchen sink"?
Is it over this time? Why would you believe that?
What the hell is going on here? We have a market with the futures up 16 from the close last night on the /ES, the Nasdaq up 25 overnight, and yet both were down fairly significantly last night.
The only news was, in fact, that UBS wrote down a tremendous amount of money, and yet the market thinks - once again - that this is "good news"?
Is the market on drugs? It appears so, and there's no shortage of help from Faux News and the media. Fox is out today talking about how "there's no recession."
"During the 2000 election, with Bill Clinton as president, the economy was viewed through rose-colored glasses. According to polls, voters didn't realize that the country was in a recession. Although the economy started shrinking in July 2000, most Americans through the entire year thought that the economy was fine."There should be a law that knowingly false statements made by media "pundits" expose one to financial penalties or perhaps a bubba stay. I'm not talking about accidents, I'm talking about intentionally-false statements - including this one.
Of course the claim here (although not stated) is that everyone loved Clinton, therefore the economy was fine even when it wasn't, and now everyone hates Bush, and therefore the economy is for crap even though its ok.
Uh huh. Fraud only counts when the guy doing it is someone you don't like. I do seem to recall that there was no squawking from Faux News during the Clinton Tech Wreck, which, I assure you, was both quite real (ask those who had their 401ks destroyed) and in addition, The Clinton Administration was well-aware of the book-cooking and, like The Bush Administration this time around, did nothing to stop or even publicly "out" it.
I've never understood this sort of blatantly nonsense and pumping, to be frank. During the entire housing bubble we were told how Americans had this big "wealth effect" as their houses went up in "value." Many engaged in what were questionable transactions HELOCing out the money and spending it (more on that in a bit) - frequently by paying down credit cards, which are then immediately charged back up.
What's worse, huge numbers of Americans did this and then deducted the interest on their taxes, which is only legal if the loan was taken out to buy or substantially improve a first or second home in which you personally live.
Note that if you did a "cash out" refinance you have an even bigger problem, because any money "cashed out" that wasn't spent on home improvement yet is rolled into the loan generates interest payments that are not deductible. Now try figuring out (accurately) what portion of the interest payments can actually be deducted off your taxes, and keep it up for the entire duration of the mortgage.
Yeah, right.
We know you (generically) didn't do that - you just deducted all of the interest, even though some part of it really wasn't deductible.
So far I've not heard of the IRS coming after people over this, but as government revenues start to get squeezed, you can bet they will start looking at it. Oh, and there's no statute of limitations on intentional false statements on a tax return - only on mistakes.
Yes, this means you could find yourself the recipient of a huge tax bill, including interest and penalties, if you HELOC'd out a bunch of money and then spent it on, for example, paying off your credit card that was charged up on vacation. And in the case of the IRS, you're guilty until proven innocent, which means you're going to likely be asked to prove that you spent that HELOC improving your house.
This, by the way, was one of the huge "tax cheats" that middle America used for years. I'd go so far as to argue that its rather likely that basically everyone who HELOC'd money out (1) spent some if not most or even all on non-home-improvement things and (2) deducted the interest.
Sweating yet?
You should be.
The government is rapacious when it is owed money, especially when you and a bunch of other "yous" in the housing and mortgage business conspired to rip it off. This is one of the easiest tax dodges to prove, and its also one that I suspect will have tremendous revenue benefits for the government if they "get legs" on it.
Middle America, meet Mr. Tax Man, and he's here to audit you. Get out your checkbook - this one is going to be expensive.
Fannie and Freddie are up huge today, +10%ish each. Huh? On what? Oh wait - a rumor that the government might guarantee loans via the FHA. Hmmm..... that's the "negative equity certificate" scam again. But how does this, exactly, help Fannie and Freddie? All of these proposals in fact require the lenders to take huge capital haircuts, and both Fannie and Freddie do not have the capital base to do so.
In fact such a proposal likely bankrupts both of these firms immediately, should it happen. Now I wouldn't expect the government to cause that bankruptcy, but should it happen anyway (and I believe it will) you might then see the government both step in to do this sort of thing and nationalize Fannie and Freddie at the same time. Of course if that happens equity - that is, stockholders - get zero!
Buy? You're kidding, right?
PIMCO's Bill Gross' monthly update contains a particularly obscene quote:
"In my opinion, the private credit markets have forfeited their privileged right to operate relatively autonomously because of incompetence, excessive greed, and in minor instances, fraudulent activities. As a result, the deflating private market’s balance sheet is being re-nationalized in some cases with increased regulation, in others with outright guarantees and agency lending. Ultimately government programs which support private credit market assets may be required in order to prevent an asset deflation of significant proportions. Authorities must act quickly, with a shot of adrenalin straight to the heart of the problem: home prices. Since homes are the most highly levered and monetarily significant asset that American consumers own, if they decline much further they will drag the rest of the economy with them."
Can you spot the dripping hypocrisy and horsecrap in this one? I highlighted it for you.
Now here's reality for Bill Gross and others who have sung this song for months - you profited tremendously during the years of the housing bubble, knowingly extracting money from the markets for yourselves (and your investors) during the years of the bubble, profiting both corporately and personally during that time. Now that the bubble has popped Bill Gross and Pimco are going to Father Government demanding to be bailed out!
Therefore, I have a simple solution for Bill Gross and the others who are demanding house "price supports" to avoid decimation of their portfolios - you go straight to jail and get it up the butt from Bubba for 20 years, and your investors have their earnings over the last five years, which were created and supported by the FRAUD of the housing bubble, forcibly extracted from them and repatriated to those who were RIPPED OFF.
Then and only then will I support your premise, and I want pictures of the prison rapes committed upon your person for proof that "you got yours" before I support you.
Here is the reality that Bill Gross knows for a fact but refuses to admit in his newsletter, as it would expose the truth of his position: Over a long period of time home prices cannot rise faster than incomes. It is mathematically impossible for it to be otherwise, as at the end of the day someone has to buy those homes and you can't buy them without INCOME. As a consequence any such "bubble", like the one we have had over the last few years, is a market distortion that cannot be maintained AND BILL GROSS KNOWS IT.
Gee, does that graph (which I'm quite sure Bill Gross has seen) make it all clear? Yes, it doesn't account for the last few months of decline. Ok. Fair enough. But we are only about 30% of the way through the housing price declines necessary to get us back to historically-reasonable valuations!
Oh, and if you think its over, you'd be wrong. Americans, believe it or not, HELOC'd out nearly $300 billion last year, into the decline, in a vain attempt to continue their habit of spending more than they make!
It seems impossible that Americans would be so stupid as to continue this sort of behavior into an obvious and clear housing price correction, as such behavior is economically suicidal, and yet that is exactly what the statistics show.
Now the media, including Faux News and CNBC, both have a tremendous incentive to keep you spending all the way off the cliff. Why? Look at how they make their money - its all advertising by companies who depend on you forking out money for their products irrespective of whether you can afford them or not.
This is, by the way, one of the primary reasons I do not believe for a second that this is over, or that we are about to embark on a new "bull market" and a "healthy consumer rebound" in the second half of 2008.
We have not even begun to see the writedowns and chargeoffs in the general consumer lending space.
Oh yes, delinquency rates are up on credit cards, but consumers are still rabidly trying to prevent bankruptcy by rolling their credit card debt into their DECLINING home's value!
Banks are finally starting to wise up to the smoking hole that is about to be blown in their balance sheets and are pulling in unspent HELOC lines, but its too late to matter. Like a junkie who doesn't quit shooting up heroin until they get a serious blood-borne infection and come within an inch of death, banks have foolishly continued to make credit available to people who have no prayer in hell of actually paying the money back.
Of course when you're a bank and the only way you can make money is to lend, you will search for anything you think might be a "good risk."
Today we are also seeing what looks like a potential reversal in the dollar, as investors are finally getting the idea that this is not local to the United States, and in fact Britain and Europe are in the soup at least as badly, and likely worse, than we are. The tax structure in Europe and Britain makes it even tougher for their consumers to "shrug it off" when the personal balance sheet gets squeezed, and squeezed it is.
I won't call it until I see a higher high. So far we've had the higher low - now we need to post a closing high on the DX over about 73.5, at which point all the dollar shorties are going to get real nervous.
This, by the way, if it comes rapidly and unexpectedly (and I think it will) is going to cause some real problems for those "multinationals." See, they've been profiting tremendously from the dollar's decline, in many cases posting 30-50% of their profits due to currency effects on sales into the emerging market. As those markets contract due to their inherent reliance on our consumer's spending, their currencies will weaken relative to ours, which will tend to drive the dollar even higher. This in turn will kill those multinationals twice - once on their sales volume, and a second time as the FX effects reverse.
Now add to this that valuations are way overstretched - not if you look at the "current" P/Es, but if you look at the estimates. Earnings estimates are VASTLY too high given historical precedent during economic slowdowns in the past, and there is absolutely no reason to believe that this time will be any different. Analysts are always backward-looking, which begs the question - why do they have jobs?
How many times have you seen it? A company misses earnings and is then downgraded. How often do you see a firm downgraded before it misses earnings, or upgraded before it exceeds estimates? It is nearly always the other way around.
So in "boom times" the analysts are too late upgrading and during "busts" they are too late downgrading. It has always been thus and it will always be thus, because there has never been any penalty imposed on these analysts by the firms that employ them nor by market participants for getting it wrong.
Never.
Nor will there be, because you as the sheepie Joe Six Pack investor never - and I do mean never - hold these people's feet to the fire. There has never been an actual revolt by average people in the form of pressure to force reality in your 401k choices, nor have employees stood up and demanded that their employers stop patronizing these idiots. So long as you, Joe Investor, reward the bad behavior of The Street, you will continue to get that bad behavior.
I know, I know, its "not your fault." Uh huh. Go back to your Bubble TV and suck down a beer guys and dolls.
WE NO LONGER LIVE IN A CONSTITUTIONAL REPUBLIC, and I'm giving up on trying to help ANY OF YOU OUT in this regard.
Here is why I make that AUDACIOUS call:
Treasury has responded in part to The Senate (who is holding hearings on the 3rd of April) now saying that they worked closely on the Bear bailout, and further, they have confirmed that The Fed can bill Treasury for Bear's losses. For those who say that "The Fed is a private bank" and thus there is no public tit-sucking in that deal, you are now proven to be full of crap by the very words of our own Treasury department, which granted explicit permission to The Fed to bill Treasury for losses incurred.
I said at the time that the reason Treasury and George Bush signed off on this and were both "closely involved" was that The Fed knew they couldn't do this without the cover of SOMEONE authorizing it, and that what they were attempting was unconstitutional. The money quote is right here:
"Paulson acknowledged that this transaction could lead to losses at the NY Fed if those securities lose value, and agreed that in turn, this 'may reduce the net earnings transferred by the FRBNY to the Treasury general fund."I said your pocket has been picked by unelected officials of our government in a blatantly unconstitutional and unlawful confiscation of your wealth and yet you won't do anything about it.
Some of you didn't believe it.
Well, now we have a raw admission in black letters on paper by the very people involved.
The debate over whether the Taxpayer is on the hook for this improper and unlawful act is OVER.
The only government agency that can legally appropriate funds is The House of Representatives - under THE CONSTITUTION all spending bills must originate IN THE HOUSE.
If you failed to pass US Government in High School or were toking up in the parking lot instead of studying then go read that ******n piece of paper right now. It is the supreme law of the land and is NOT a suggestion when it comes to the limits placed on government power.
This wasn't even a bill or a law that was improperly rammed through Congress - it was instead blatantly unconstitutional THEFT from the Taxpayer - that is YOU.
Now get off your ass or you are CONSENTING to what happened and what will happen again and when it does, I don't want to hear you whine about it.
I and others have laid it all out for you but that hasn't been enough to get you off your ass. I have run FOUR petitions since fall asking for signatures, including the latest one right here. I have written tickers almost on a daily basis in a daily anthology of the fraud, abuse and utter financial rape of the middle class of this nation.
I have asked that you get off your ass and stop watching TV, either raising hell on the phone, fax, email or physically showing up in DC to bitch at your Rep and Senators.
This is only our nation so long as we will put forward the effort to keep the Representative Republic that the Founding Fathers gave us.
You CANNOT sit on your ass and swill beer while at the same time expecting that this Representative Republic will actually continue forward as the founders intended. Representative Republics require the eternal vigilance of the people, because it is a proven fact that left to their own devices greed, unchecked by consequence for bad acts, will result in the growing usurpation of power until what is written in the law is blatantly ignored by those who are in positions of political influence.
Instead of acting to secure and protect that which The Founders gave us, however, you will sit and spin until your money all disappears just like you did the last time in the 2000 tech wreck, and just like the last time there will be no public outcry, no demonstrations, no mass marches on Wall Street or The Mall in DC.
EXCEPT THIS TIME, THE POWER TRANSFER YOU ARE AUTHORIZING BY YOUR SILENCE WILL INSURE THAT UNELECTED OFFICIALS CAN LITERALLY REWRITE THE FEDERAL BUDGET ANY TIME THEY WOULD LIKE AND STEAL AN UNLIMITED AMOUNT OF YOUR MONEY, GIVING IT TO ANYONE THEY CHOOSE!
THE REPUBLICAN PARTY JUST DECLARED THEMSELVES THE POLITBUREAU.
Say what you want about The Democrats and their opposition to the war.
They have respected The Constitution and all of their spending bills have gone through The US House as is mandated by same. They have confined their opposition and desires to the United States Constitution where The Republican Party has now decided that The Constitution is an irrelavent document when it is inconvenient or contrary to what they wish to do.
I have been a registered REPUBLICAN for more than 20 years. I voted for Ronald Reagan, George Bush, voted against Bill Clinton (twice) and voted for George W. Bush (twice.) I have a Gingrich Speaker's Gavel on my Credenza.
Today I am compelled to switch my voter registration to Democrat, because although I disagree with many Democrat policies, they have never attempted to rip up The Constitution wholesale, while The Republicans just did EXACTLY THAT.
I bet you won't get off your ass NOW just like you didn't about the fraud in the lending space, because that means you have to act, and that's asking too much.
You're accustomed to and DESERVE to be able to suck on the public tit, you DESERVE a great life without effort AND IT IS ALWAYS SOMEONE ELSE'S FAULT WHEN THINGS DON'T GO YOUR WAY.
You're going to bleed that for all its worth, voting for a living for as long as you're able and then sitting back and sucking down the beer in front of the boob tube, even if it means you allow our government to play "Stalin"!
I've heard it all. You won't sign peititons because "you'll end up on a government list." You probably don't vote because you're scared of those same "black helicopters" that are going to come take you away. Its all a giant conspiracy to "get you", but its not your responsibility to stop being "got". Nothing is ever your responsibility, or fault - its always "The Pigmen" or "The System" or "The Government." War is unjust but Muslims flying planes into buildings either didn't happen or did, but "The Government" blew up those building to insure they all came tumbling down, killing 3,000 of our citizens. The Pentagon was hit by a missile, not by an ******* terrorist hijacker in an aircraft full of your countrymen and women, who he murdered. The Pennsylvania smoking hole in the ground was fabricated, and all the people who were in those planes weren't really murdered by terrorists, they were either "re-educated" in some secret camp or exterminated by our government. We went into Iraq for oil (never mind that we haven't taken a single barrel from them), not to enforce international law which Saddam had wantonly ignored for more than a decade. Clinton had no obligation (or responsibility) for failure to blast Osama when he had the chance, even after Osama took responsibility for attacking the USS Cole.
Fine.
I'm cool with you believing all that even though I believe you need to see a psychiatrist if you actually DO believe any of it.
Just be aware that if, a year or two or ten from now, when you look back at this and other Tickers, and say "damn it, he was right" as you languish on the unemployment line or worse, in a soup line, I'm not going to help you. In fact, the only "dinner invitation" you will get from me under those circumstances is one that has you featured as the main course!
After all, you refused to help yourself - and the rest of society - when it would have made a difference.
WE NO LONGER LIVE IN A CONSTITUTIONAL REPUBLIC.
Now go get yourself another beer and celebrate what you sat back and allowed to happen, and pat yourself on the back.
CONGRATULATIONS AMERIKA; HERE IS OUR NEW FLAG THAT YOU, OUR CITIZENS, HAVE SPECIFICALLY AUTHORIZED TO BE PUT IN PLACE THROUGH YOUR EXPLICIT ACTIONS AND INACTIONS - MAY WE FLY IT WITH PRIDE
