The Market Ticker

To make the petition count.

Look what showed up tonight:

"October 31, 2007 -- THE Securities & Exchange Commission is looking into whether Goldman Sachs cheated its way to enormous profits - even as the rest of the financial industry was suffering through a massive downturn.

The central issue, as best I can determine, is whether Goldman had any insight that other firms didn't have during the May and June period when subprime mortgage securities were deteriorating in value."

This is called MOMENTUM BUILDING.

I know, some of you have said that you were looked at like a 3-eyed Gila Monster when you talked to friends about The Petition. Well, its time to either put up or shut up.

If the SEC is actually on the case, then the opportunity is NOW to get those signatures on the petition and in front of The President and your Congressional Reps and Senators.

NOW.

Not two weeks from now, NOW!

How badly do you want this shit fixed?

If the answer is "yes, I want it fixed", then you need to get on this immediately, and get at LEAST 10 people of your acquaintance to understand and sign The Petition within the next week.

We do that, we win.

Your choice.

Here's a video to go with it.....

Ok, ok, you get your weekend Ticker early.

Maybe I'll do another one....

Let's start with the entire concept of mortgages, debt obligations, and credit ratings.

We've all heard about how there are supposedly "AAA" credit mortgages and synthetics (CDOs, etc) made from them.

That is a lie.

There may well be AAA municipal bonds, or close to AAA. Let's not forget what "AAA" is - its credit that's as good as the United States Federal Government's (in terms of risk of default.)

Moody's, Fitch, and S&P all claim their opinions are "mere publishing", alleging that they have a First Amendment protection for them, and no liability for when they get it wrong.

But then these same guys demanded and got an exemption to "Reg-FD", so they have information on the deals they "rate" that nobody else has. Therefore, how does someone else take a look at the same data and come to their own conclusions, when the data is intentionally hidden from everyone but them?

In reality all of this boils down to one thing - intentional mispricing of risk, and the blame rests firmly on Wall Street.

"Intentional", you say?

Absolutely. Municipal governments who really do have "AAA" credit end up paying for credit "insurance" that they have no real need for, others pay for risk insurance they need but at artificially low prices, and in the end none of it is real but its all very profitable - until something goes wrong.

If you look at the default rates of allegedly "AAA" mortgage bonds, municipal bonds, and corporate bonds, you will find that "AAA" doesn't in fact mean the same thing! But when you have legal requirements on bond portfolio holders (e.g. pension funds), that's yet another layer of fraud. After all, if the legal requirement is "AAA", then "AAA" must mean "AAA". Anything else is just an organized arbitrage system set up so certain people can profit while everyone else (that's you and I!) loses.

Take a look at the credit insurers - the amount of money they have on their balance sheets .vs. how much they allegedly insured - then tell me how they pay if more than a minuscule amount of actual defaults occur.


Now add to this that there is in fact no such thing as a "AAA" mortgage written to an individual - unless you're Bill Gates - and you start to have the hair on the back of your head stand up a bit, no?

And now its going wrong.

The CDOs and CDO squareds will blow up. It cannot be helped no matter what The Fed does. They could cut rates to 0% and it wouldn't change a thing. These models were broken at their inception and they're still broken - they can't be put back together, as they were based on intentionally-bad data.

They had to be in order for the "deal" to be profitable for everyone in the chain.

Let's look at this from a simple pricing model.

Let's say you have some form of debt which, on a risk-adjusted basis, should "price" at 2% higher in interest rate than the 10 year treasury bond - both 10 year obligations.

Well, if it should price at 2% higher, then that's where it does price if its honestly rated, right?

But if I'm an investment banker, and the risk is really priced at 2% over the 10, then there's no money for me to make. The market insures this; if the price is too high (return too low) then nobody will buy, and if the price is too low (return too high) then the originator of the debt doesn't need me; they'll take the extra return directly from the market.

In point of fact, this is how banks for years made mortgages! They priced their risk according to your risk of not paying them back, and then held the loan on their own books. The risk of "getting it wrong" was theirs - the free market prevented them from raping you, because you could always shop around. If they overpriced your risk, you simply would not buy. If they under priced, they lost money. Thus the price of money tended to reasonably approximate the actual risk of you not making the payments.

All this has now changed, but the efficient market has not.

So how does Mr. Investment Banker make money, if the efficient market prohibits it?

He has to find a way to misprice the risk on purpose!

If he can get someone to claim that the risk over the 10 is only 1%, when in fact it is 2%, he can pocket the extra 100 bips. Of course the people who make that happen want some of the "cheese", so perhaps he only gets 50 bips, with the rest spread around the other guys who help him out.

But unfortunately the risk-adjusted price really is 2% over Treasuries. The "bad results" don't come for months or even years later, but when they do, they are relentless - and punishing.

Once that happens we find out that in fact the risk was mispriced. The default rates are in fact higher than the claimed risk "grade" said they would be.

This is not an "unanticipated event" for those who priced the risk. In fact it is not only an expected event, it is the only way those who priced the risk could have made money from the process!

Now I ain't a lawyer, and I don't play one on the Internet, but I did run a business for more than 10 years.

When you intentionally misrepresent something in order to make a profit this nasty word that starts with "F" comes to mind.

Actually, a bunch of "F words" come to mind, depending on how genteel we're being today.

So why is it that we hear howls of outrage from Congress about how we "must protect homeowners"? Oh, we want to hang every mortgage broker int he nation from a noose, but in fact the brokers aren't the problem.

Brokers can't sell something that Wall Street doesn't provide. They're intermediaries; they don't have "money" to loan out!

One quick look at Wall Street's list of campaign contributions tells us why those folks aren't under federal - including Congressional - investigation. You get the best government in this nation you can buy, including law enforcement.

Some of us - myself included - think it sucks that 2 million homeowners will be forced into bankruptcy so that a handful of Wall Street "fat cats" can have their vacation home in The Hamptons.

But the real outrage doesn't lie there. The real outrage lies in the 10% real inflation that these "vacationers" have imposed on all of us. Of course they don't care - with a few billion in their pockets who cares if their grocery bill doubles.

You and I, on the other hand, are not so fortunate.

In fact this is nothing more than a tax that has been assessed BY WALL STREET on everyone else!

Heh Barak! Heh Hillary! Heh Dodd! Heh Edwards! Yeah, you Democrats who claim to be "for the little people." REALLY? You're lying - you take HUGE campaign contributions from these Wall Street firms and they're ripping off the entire American Population!

Those of you who are black or of some other minority, who are on fixed income, who are in the middle class or "poor", working or not. YOU ARE VOTING FOR YOUR OWN DESTRUCTION IF YOU SUPPORT THESE CLOWNS!

The fact of the matter is that the entire "Subprime" thing is a chimera. A diversion. A fraud. A lie. The truth is that money will always be available to "less than great credit risks" - at some price which appropriately reflects the risk of default.

The second truth is that the lower and middle classes have had the cross of this fraud put squarely upon their shoulders, and there it will remain until you wake the fuck up and stop voting for these clowns!

I watched the Democrat Debate on the 30th. One question was about high oil prices. Did I hear any of the candidates tell the truth about why oil is so expensive? Why real inflation is running north of 10%? Why the current housing disaster is upon us? Why we are likely to find ourselves with an inflationary spiral?

Absolutely NOT. What we heard instead was how "we need to find alternative energy sources." Yeah, we've heard that before guys.

Psst - when you get your heat bill this winter, its not because "we haven't done enough on alternative energy."

You are going to pay more to heat your house because Bernanke and Paulson have refused to regulate and call for prosecution of fraudulent conduct on Wall Street, and then have fed the fire further with dollar devaluation as a consequence of inappropriate monetary policy in an attempt to "paper over" the fraud.

So what's the prescription to fix this? Well, you could go sign the petition. Of course out of 30,000+ monthly readers here, we've garnered what - 1400 signatures? I'm not impressed, even though 10,000 of you did at least go read it.

The second-level fix will not come until after the elections, unless the market hands out some spankings first. But here's the script, if anyone cares to listen:

• If you want the exemption from Reg-FD, you can't have a First Amendment defense to liability. Pick one. Either you are legally responsible for your ratings, OR all the data must be released so that anyone can run their own independent analysis and make up their own mind. Pick a position and which you choose must be published along with your rating.


• All derivatives must be traded on an exchange with posted prices. Ditto for debt instruments. No more OTC swaps and contracts.


• Any "no bid" instrument must be carried on your book as having a value of zero. If that improves in the future, bully for you! But.... it might not, right?


• No more SIVs, Conduits, or other nonsense off-balance-sheet. That was one of the lessons of ENRON and we better stop ignoring it before we have a massive rash of bank failures!

Second, let's tell the truth about home ownership. I understand that home ownership is considered part of "The American Dream", and with good cause. But we should not permit the fraudsters to push "ownership at any price", as if being a debt slave is some sort of badge of honor.

It is not.

Indeed, for those who claim to promote "home ownership", if there is no reasonable expectation that the mortgage will be paid on its original amortization schedule then it is not promoting "ownership." Those who claim something that is false must be prosecuted for consumer fraud.

30 years ago home ownership meant getting to the end of your original 30 year mortgage and having a "mortgage burning party." Really. They were neighborhood events; your friends all got invited over for a night around the fireplace, where your mortgage documents (minus the "paid in full" page, of course) were reduced to ash. Thus it must be once again.

Here's The Fed statement:

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/2 percent.

Economic growth was solid in the third quarter, and strains in financial markets have eased somewhat on balance. However, the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time.

Readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;
Timothy F. Geithner, Vice Chairman; Charles L. Evans; Donald L. Kohn; Randall S.
Kroszner; Frederic S. Mishkin; William Poole; Eric S. Rosengren; and Kevin M.
Warsh. Voting against was Thomas M. Hoenig, who preferred no change in the
federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 5 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Richmond, Atlanta, Chicago, St. Louis, and San Francisco. "

Yep.

Too bad Hoenig didn't carry the day, but heh, you can't have everything. Still a mistake, but a smaller mistake.

Oh, and note that "some of the adverse effects". Uh, does that mean they expect that adverse effects are indeed coming? It sure looks that way.... no kidding?

This statement pretty much says "don't expect further cuts" too. In other words, "quit acting like we're your bitch!"

Not that the market will do so.

Oh, the 10 spiked BIG, nearly 2%. Double bottom appears to be in - and holding. That ain't good.

Gold and Silver did not sell off, neither did oil. In fact, oil did the opposite.

Today was amusing; suddenly "reality" intruded back into the market. What was reality? Someone finally woke up and saw that Citibank wouldn't be able to hold it together without either a big asset sale, raising more capital in the equity or debt markets, or doing bad things to their dividend. That was all that had been holding up Citibank's stock price up until this point, then the floor dissappeared.</P>

Couple that with the fact that traders finally actually read the Fed statement, which pretty loudly proclaimed that there wasn't going to be a continuing "Bernanke PUT" under the market every meeting, and most specifically, there wouldn't be one in December - unless the economy goes straight in the crapper. Either way its not good news - you get a cut now its because the economy has gone in the toilet; if not, you don't get one.

Either way with slowing profits the market is radically overvalued.

CROX "momo players" got their heads handed to them last night when one of the "darlings" had nearly 25% of its market value lopped off in seconds when it announced earnings. See, their P/E suggested 100%+ profit growth over the next year, and oops - they forecast "only" 30%.

Again, the floor disappeared.

That's going to start happening with more and more regularity guys.

540 more signatures were faxed out to lawmakers this morning. If you've signed the petition but haven't canvassed your friends and neighbors - by hand if necessary - please do so. Realize this folks - some of these "boys" on Wall Street have gone so far with their hubris that they have, effectively, shorted your house! That'd be Goldman, who actually shorted subprime mortgage bonds (so they said) to make their quarter. The amazing part of this of course is that Goldman (along with all the other investment banks) are the very people who set up these structured finance vehicles in the first place.

That's kind of like repping out your company for an IPO and then shorting into the IPO!&nbsp; Oh, and it has another parallel - like an IPO underwriter they have more information than you do - CDOs and such are exempt from "Reg FD", or "Fair Disclosure." So if an investor wanted to buy a CDO, they'd not have access to the same information that the guys who put it together (and the guys who rated it) do - that'd be Goldman, Moody's, etc.

Isn't it nice that the guys who put this stuff together thought it was of such high quality that while they were selling it to you with one hand they were shorting it with the other?

Arrogance knows no boundaries on Wall Street, and I wouldn't have a problem with it (after all, I short stocks too you know!) if it wasn't for the fact that Goldman was doing it while in possession of information that nobody else in the marketplace had, except perhaps for other investment banks who had done similar deals and the ratings agencies.

This sort of thing smells and is why Reg-FD was passed after the 2000 tech wreck - of course it doesn't apply to this part of the market. Isn't it amazing how the "Wall Street Boyz" found a loophole in the rules and exploited it for a big fat wad of cash - at the expense of their customers?

Oh, and last night Cramer was out pimping stocks that were overvalued! The worst part of it is that he even had the balls to tell people to buy stocks that are overvalued because they're going to go up anyway!

"Investors should set aside negative economic news and concerns about overvalued stocks and just concentrate on buying stocks and making money, Jim Cramer told viewers of his "Mad Money" TV show Wednesday.

Right now there is one problem facing investors: "they are overthinking this stock market," he said.

The market is not working the way the professionals think it should and thus the people who know more about investing are making less and the people who know less are making more, he said.

"There is a huge wall of money rolling at us courtesy of the Fed and it doesn't pay to over think it," Cramer said. "In fact it pays to not to over-think it." When money comes in, it drives stocks higher and that's all people should be looking at."

For those who don't remember, Cramer has a history of calling tops like this - unfortunately he does so by sucking people into the market to buy just before the floor falls out! In fact, his call in 2000 was HISTORIC in terms of being very bad advice, with a huge percentage of those calls going out of business entirely within the next couple of years!

Never mind that in the closer-in term he got you positively murdered with his recent calls on CROX......

Consumer spending came in "in line with consensus" but on balance it was pretty anemic. This will continue. The consumer is hitting the wall, exactly as I have predicted. The rotation to credit cards started in the first quarter and was clearly visible in the earnings results; if you go back through The Ticker you will see that I was shouting about this after first quarter earnings.

Foreclosure numbers were horrifyingly bad. As in nearly 34% higher than in the second quarter, which itself was horrifyingly bad. Nevada, 1 filing for every 61 homes, California, 1 in 88, Florida, 1 in 95.

Oh, ISM was weak too. Barely hanging on to the neutral line.

Heh, the Mainstream Media is finally getting it on the credit fraud! Today we had Rick Santelli calling for the banking regulators to come in and examine all of the bullshit, mark it properly, and clean it up!

Its about damn time!

What have I been saying now for how long? Ever since first quarter earnings when I opined about WaMu's practice of paying dividends with money they didn't actually earn, since half of their "earnings" were in fact Negative Amortization "booked" money!

Well now that its become a REAL mess suddenly the media is interested in seeing it fixed.

Gee, that's nice.

This should have been done back in late spring or early summer, we'd have had a nasty selloff this summer, and by now we'd be looking for a bottom in the markets and likely be "ok" going forward. But no! We can't have transparent markets and true earnings releases!

At least its finally being talked about. Not that "the sheep" are going to find this amusing when their 401k accounts get SHREDDED over the next couple of months.

And.... here come the lawsuits! I'm not even going to try to name 'em all at this point - CountrySlide, something connected to WaMu (but not WaMu itself - yet), State Street and more. Is there a way to go long landsharks - that'd be the best trade of all!

The selloff today was big - sanity appears to be returning. We shall see....

Here's the technical!

Oh, and if you haven't signed The Petition - DO SO!

No fancy alliterations today.

This morning I woke to find that gold had retreated a bit as had oil, but both were sitting near "nosebleed" territory.

The dollar, which was pummelled overnight, had also retreated from the brink a bit.

The equity markets - indeed, all the markets - are acting like a junkie pounding on the door of the drug dealer and demanding another fix. That fix, of course, is more rate cuts - and not just one either.

One now, one in December, more more more. The "consensus" of market watchers is that "the market" needs - natch - demands - a FFR of 3.5% or less by early next year.

More than 100 bips down from here!

Have you noticed the instability in equities lately? Huge moves on silly rumors? You think? Why? Because the markets are now acting just like that jacked-up junkie, and therein lies the problem.

As a junkie goes from the first stages of dependence on drugs to death, the drug becomes less effective. What required one "dose" of heroin soon requires two, then four, then eight to get the same effect. The "buzz" doesn't come if you don't feed the veins with ever-more of the drug.

Drug addicts are known to have a "self-titrating" function that gets quickly wired into the brain. That is, they have a desired "high" that they wish to reach, and they will increase the dose of whatever their favorite drug is as tolerance builds to maintain the same "buzz".

Yet somewhere out there lurks systemic toxicity. See, the body can only process so much drug. At some point you reach a critical point and essential functions - heartbeat, brain function, breathing - get interfered with to the point that they shut down. And as you use drugs for a longer period of time, that corner lurks ever closer, as your body's systems are damaged and thus their ability to handle "shocks" of the drug decreases.

As this "coffin corner" approaches the junkie has only two choices - detox or die.

Many junkies fail to realize this in time, take one too many shots, and expire.

Thus it will be with the markets. Gold. Oil, to a lesser extent. The Credit Markets. Equities. And not just here in the United States; China, India, Japan.

Yet nobody on CNBullShit, other than Rick Santelli, are telling the truth. All of the CNBullShit crew look like they're having an orgasm every time the DOW prints green - or is that, instead, the hop-up of someone mainlining cocaine?

How long before the response is a heart attack instead of a buzz?

Adding to the "mainline" rush is the Yen carry trade. Like a bunch of schizoid idiots the Yen/Dlr cross bounces these days in lockstep with the S&P - in fact, you pretty much don't need to watch the S&P during the trading day - just watch the Yen/Dlr cross and you've got your S&P chart. That's pathological - yet it is exactly what has been going on now for more than two months.

As if that all is not enough, we have CountrySlide (CFC) as our prime example from Friday. Announcing a loss twice what the street expected, the stock took off on a rocket ride of more than 30% - higher. Huh? The company put on a brave face claiming they had seen "the trough" and that they'd make money next quarter.

Does anyone remember that last quarter they said the same thing? That while they were missing expectations, 3Q would be better and they'd make more? DID THEY? No, they instead reported a horrendous loss!

But crack junkies have short memories, their brains being addled by drugs. So instead of remembering that last quarter Mozillo and Sanbol promised profits and prosperity, and instead delivered losses and ruin, they hit the buy - instead of the sell - button.

Anecdotes are that The Fed is concerned about the markets being "unstable".

Well, Ben, wake the fuck up, ok?

THE FED IS CONCERNED ABOUT THAT WHICH THEY CREATED OUT OF WHOLE CLOTH?

If so, why don't you DO SOMETHING Ben? Like, oh, you know, come out and say - in public - "no more drugs!"

I am simply amazed that anyone would be "shocked" at the results of their own actions, when they were (and are) so utterly predictable. Poole claims he's "puzzled" by the action of the DX? I'm not - in fact, did I not predict before the cutting began that the currency markets were warning The Fed not to cut rates by its reaction after the "August Surprise"? Indeed I did. Since I'm nowhere near arrogant enough to believe I'm "the smartest guy in the room" others - including those claimed PhDs at The Fed - had to see this too, no?

If you want to see how markets behave that can't be shorted, go see China. Well, what do you think you tried to do when you cut the discount rate while the index option guys were "pinned" and unable to hedge their exposure?

Feeding a junkie more dope? What do you think you did when you cut rates by 50 bips on the back of a bad job print - one which you admit you didn't believe!

What do you call granting every bank in the land who asks an exemption to the last vestige of banking regulations intended to prevent systemic damage, not to mention tacitly approving a plan to hide even more off balance sheet - instead of doing your job as a bank regulator and demanding that these institutions fully disclose and consolidate their SIVs and such before you give them any forbearance?

We have evidence that certain "favored sons" were tipped off to the discount rate cut ahead of time, yet nobody cares. The FedFunds cut in September? The futures moved before the release, suggesting that someone was told ahead of time of that move too.

And then The Fed "worries" about an unstable financial market?

THIS, AFTER THEY CAUSE THE INSTABILITY BY ENABLING LYING, CHEATING, AND PERHAPS EVEN OUTRIGHT FRAUD?

Why do I get the image of a "fireman" who is the very arsonist that the fire department is trying to hunt down?

Now if rate cuts would actually save the economy from recession I would support them. But they will not.

The problem in the markets and economy is not general softness - a natural business cycle playing out, and one that can be ameliorated to some extent with interest rate cuts.

It is fraud, avarice, speculative excess and cheating.

It is off-balance-sheet vehicles that are stuffed with tens or even hundreds of billions of now-worthless paper that is "marked" at 90, 95, even 100 cents on the dollar. None of it is worth wiping shit off your asshole, but its all priced as if it were pure sovereign debt.

It is false ratings, models that intentionally made up data not in evidence (e.g. "liar loans"), appraisal shopping and more.

It is speculative froth based on the cock and bull story that we can make something out of nothing; that we can take shit, spread it on bread, and sell it as a sandwich, duping people into believing it is ham and cheese so they'll pay good money for it.

Much of this - including the inflated appraisal pressure - was complained about as early as 2001! In fact there is a signed petition from hundreds, if not thousands, of property appraisers that was sent to Congress before the bubble really got going! Was anything done about it, even though this conduct - influencing appraisals - is explicitly illegal?

Nope.

There's no future in a path of incessant theft, deception and fraud - only ruin for the American economy.

Debasing the currency instead of rooting out fraud and forcing crap into the clear where it can be seen kills everyone who buys fuel or food, and of course we all do, even though the "official inflation statistics" ignore such things.

Worse, it encourages even more fraud. The token prosecutions such as going after Martha Stewart are how we keep "the masses" from rioting in the streets. Would Goldman ever be subpoenaed, say much less indicted, over such a thing?

What do you think?

The cheap blue jeans and computers, made with sweatshop child labor in China are nice but they don't make up for the pain you take as a consumer - you can't eat your pants - or monitor.

Never mind the humanitarian factors.

We've all been turned into debt zombies by a consumerism-driven view that so long as your credit card has more room its all ok - and if it doesn't, just go steal your home's equity and spend that.

Never mind that the truth is that our government has done the same thing with our Social Security system's funds - spent 'em - and so the only possible redemption you had as an individual was to use your home - paid for with a clear deed - as your retirement income. But we've all spent that now, haven't we?

What happens when we're 65 and find out that Social inSecurity has no money? Benefits are cut, our 401ks and IRAs are taxed (despite promises not to), and home equity is gone?

Now what?

You keep working - until you die or are unable, at which point you have the ignobility of being shoved into a Medicare nursing home, where you can pound on the "call" button for hours before someone comes to find out that you pissed yourself.

Farfetched?

No.

In fact, quite likely.

All because the junkie needs another fix.

Because we, as a people, won't get off our fat asses and put a stop to this shit. Because we, instead of doing the right thing, mainlined our house!

There is absolutely no doubt that the "American Dream" is going to play out like this.

"We The People" have insured it.

The edge has been reached and exceeded.

We, collectively, have refused to call for the problems to be addressed and reversed. We have decided to vote for people who promise bread and circuses, when in fact they have no bread and the circus elephant has long since expired and rotted away. CNBullShit cheers the commission of a felony on national television because it produces a big stock-market rally.

We refuse to stop being pigs.

We're going to pay for that foolishness, and soon.

1,287 signatures on the petition.

That's all. Just 20 over the weekend since I told the system to send the last batch Friday around the noon hour.

While a very few of you who read this blog have signed, most have not.

And on balance, none of you have managed to get 10 of your friends to sign.

That's a fact guys and dolls. The numbers don't lie!

When - not if - the wheels come off - and it will be soon - I don't want to hear the crying, bitching, moaning and whining. I will not feed the hungry; I have given people the ability to catch fish, but they do not wish to pick up the rod, attach some bait, and stick it in the water, along with passing on the knowledge to others so they can fish too.

They want fish handed to them instead.

My answer to that request is simple - NO.

In 2005 (look at my other blog) I opined on the coming financial crash in America, driven by the wild-eyed Baby Boomer demands for ever more when we simply do not have the ability to pay. None of that is a surprise. What is somewhat of a surprise is that we ran into this wall first, although, in hindsight, I should have seen it coming.

This is what we face guys and gals, THEN we will get what I prognosticated in the above post in my other blog:

• Your house is going to go down in value by 30-50%. If you bought it after 2003, you will be underwater for certain. If you have more out in mortgage(s) and HELOC(s) than its 2003 value, you will be paying for an asset that is worth less than you owe. That's a fact. If you are forced to move in that situation, you will be rendered bankrupt. Congratulations.
• The stock market will collapse. The S&P will see 800 again. Believe it. It will come. Perhaps not tomorrow, but it will happen. It is inevitable. It could be far worse. We could see 500 on the S&P 500. If you don't get a crash, it will only be because your money will be worthless; a 1500 S&P with a 50% devaluation of your purchasing power is the same as a 750 S&P - and buys just as much. That's the game being run. It won't work - we'll get a devalued currency and a market crash - the worst of all worlds.
• We will get a deep, long recession. Believe it. It is coming. I know you don't want to hear it, but its true. It is inevitable. It could have been a deep, sharp but short recession, but Bernanke and the Federal Government will not make the right choices and you, collectively, have not put any material amount of pressure on them to do the right thing. Count on that. As a result, the next decade is going to suck.
• Foreigners will not come in and save our markets and assets. There are other parts of the world that haven't mortgaged their futures. Oh sure, China and India have problems - big ones - in their own asset bubbles. But they, along with the Japanese, at least save some of their incomes. They've got the base to build from. We do not. The "hot money" will go where it can earn a return and where there's something to build ON. That's not the United States any more. All we have are 6,000 nuclear weapons.
• Inflation will ramp. Severely. Our cheap Chinese goods days are over. You will be paying twice what you have for those "cheap imported items." Not tomorrow, but in the next couple of years. At the same time, you will also be paying $5/gallon for gasoline and double what you pay now for heating and air conditioning, and your food costs will double. Again (they've already doubled once over the last five years - both food and energy.)
• For the first time in modern history your children will have a lower standard of living than you have enjoyed. Materially so. In fact, it won't even be close. Your children's futures are fucked. Do you teach your children to be good little consumers? You pamper their every whim? Buy 'em $50 designer jeans? $100+ "Air Jordans"? $200 MP3 players? $500 iPhones? You - or your parents if they're boomers and you're younger - have insured their pain, both through your own actions and what you've taught them. The boomers are pigs; I know as my parents, who do not "need" the social "safety nets", nonetheless scream like stuck pigs that they're "entitled" to them. Proof? Medicare Part D. 'Nuff said. Bottom line - the Boomers don't care if they fuck their grandkids, so long as they "get theirs." That's the majority view. Welcome to America, land of the bought vote and the consumer pig. Woe be to your kids when the credit card limit is hit.

I will continue to comment on the markets from time to time. Right here. When I feel like it, and have time.

The daily writeups?

No more.

Maybe a technical every day or three. If I feel like it.

For now the forum stays.

For two hours+ of my time a day on The Ticker and videos, I asked for little - just that those of you who read this, and find it of value, put in the time and effort to "make me broke" with all the faxes I had to send to lawmakers.

An act that, if it is ever accomplished, will actually solve the problem.

I know it will work because I've done it before. It works. Been there, done that, have the T-shirt and know that its effective. And in any event - even if I'm totally full of crap about effectiveness - what am I asking for here? 60 seconds of your time?

There are those who have said I have no "right" to ask for such a thing. Ok, fair enough. But nobody else has a right to ask, say much less demand, that I provide this service. I don't charge for it, I in fact ask nothing.

Don't ask about a subscription newsletter. There won't be one. The "fee" for the last six months was one minute of your time. I'm not doing this for money; I'm doing this to try to solve a problem. Yours. Mine. My daughter's. Your son's. Personal profit from subscriptions never was and never will be the goal.

Either you are Citizens of this Republic or you are leaches. Being a leach has become institutionalized, inbred and popular. It is taught to you as a kid from your first day in Government School when your pencils and paper were confiscated by the teacher and put into a pile, to be doled out for "less fortunate."

I'm not providing any more free blood to be sucked, and I can't be paid to feed leaches.

You had your fix of morphine, now show me why there should be more forthcoming.

1,287 signatures.

Pathetic.

Over 31,000 unique people read The Ticker every month.

Out of that, only 4% of you could be bothered to take 60 seconds out of your day and click your mouse - in two weeks time.

http://financialpetition.org/

Facts are what they are.

Until I see commitment from those who have taken for six months - commitment to do something other than take, day after day - I am backing off.

60 seconds, it would appear, was too much to ask.

Enjoy the next few days or weeks in the markets kids.

Please, go long. All of you.

Its the "one true CNBC way." It may even pay off. For a while.

I know what's coming, and I'm going to watch with bemusement, just as I did in '99 and 2000.

What I won't do is provide analysis and commentary - at enormous cost in my personal time - to more than 30,000 who clearly think its worth reading, when only 4% of them will lift a finger to protect their children's future - and their own.

No technical tonight, or tomorrow - you're on your own going into The Fed meeting.

I wish you the best of luck.

I'm going diving.

Up front: Thanks to Pat over on the forum for the "heads up" on this one.

This is only half-way into the tinfoil range.

Last week some $75 million of "fed funds" (that is, interbank overnight credit) was transacted at a rate of 15%, and "a bunch" went through in the low to mid 7s.

No, I didn't mistype that. You can find the actual data at this link.

Originally I, and everyone else, assumed that the "high" was an error. A bad print. That there was no chance this was "real".

It was.

Yes, "EFF" (effective fedfunds) was right where "it should be" according to The Fed - across all transactions.

Now let's think about this one for a minute here folks.

"Someone" transacted a $75 million overnight loan that they needed to meet reserve requirements at an absolutely outrageous interest rate - about what you pay for credit card money. A bunch of "someone else's" transacted a bunch at 7-7.5%.

They had the discount window available to them at 50 bips of penalty to EFF, which is a direct overnight loan from The Fed, but didn't use it.

Are you going to try to tell me that some banks actually paid nearly 10% more as an interest rate than they had to?

On what planet are we having this discussion?

There is only one possible explanation for this particular behavior - The Fed would not take the alleged "collateral" these institutions tried to put up, and the market didn't think it was worth much either, even on an overnight basis, and as such "the market" priced the interest rate similar to how Guido would for your "short-term" loan!

This raises the spectre of something truly terrifying in the credit markets -

The Fed may be inches away from losing control over the FF Rate entirely!

Indeed, for those transactions, they already have!

The implications of this, if it spreads, are truly terrifying. We are not talking about a three sigma event, a four sigma, or a five sigma.

We are talking about the equivalent of Financial Armageddon in the credit markets.

Sensing this possibility, a whole bunch of someones put on a bunch of options on the FF Futures contracts that are so far out of the "mainstream" of conventional thinking that they have zero chance of paying off unless a major dislocation event occurs.

These weren't just "idle speculators" either - they were risk management desks, repo desks and, of course, once they started to get bought hard, speculators who piled in behind them.

This sort of trade is so far out of the realm of "normal" that it deserves notice.

Unlike the options trades on the SPY (and other markets) - aka the "Bin Laden" trades that I wrote about - this is not some wild "unnamed" person putting these on.

These are the risk managers and repo desks that handle transactions in the credit markets every single day.

When they start freaking out like this, you goddamn well better sit up and take notice!

Note that back in August we didn't see shit like this. Yeah, that was bad. But even in the worst moments of August, nobody got such a wild hair up their ass that they thought The Fed would lose control of the overnight lending rate!

The little press that this did get put it out there as a "no ease" play. Uh uh.

That is a dislocation play guys and gals.

Think about this for a minute. If you think the Fed is going to cut rates, you wouldn't want to be on that side of the trade. It doesn't pay well enough. You want to be on the other side. So if the belief here is simply that someone is in big trouble and "Ben will ride to the rescue", you take the opposite position.

This bet is more akin to "The Fed loses control entirely and Effective Fed Funds trades radically higher irrespective of what Bernanke does, because nobody trusts anyone anymore - not even overnight."

In other words, this bet is one that the credit markets will go supercritical.

And it wasn't made by just one firm, one speculator, or one guy.

A few months ago I pointed out that every big equity market dump - every last one of them - has started in the credit markets. It always starts there, simply because of the volume of business transacted and the sensitivity to problems. In the equity markets one company can go "boom" and it doesn't mean much. But in the credit markets "systemic risk" - that is, a refusal to trust people as a foundational principle - once it takes hold is very, very difficult to tamp back down.

There is only one way to fix this in the credit world, and that is to force ALL of the off-balance sheet bullshit back ON balance sheets, to force ALL credit derivatives and structured credit to trade through public exchanges and to force ALL marks to be to market - anything less simply must be recorded as a "zero" until you can get an actual transaction to mark against!

That, by the way, is what I've been calling for - in the petition, in my letter to Bush, in my writings for months.

Unfortunately Hank Paulson, Ben Bernanke, The Fed as an institution and everyone else are going in exactly the opposite direction - more obfuscation, more mendacity, more myth.

We are at extreme risk here.

I do not have a way to assign a potential time, day, or event to an impending supercritical dislocation.

All I can do is note that there are market participants out there who are deathly afraid that it is going to happen and soon; they have placed their bets and spent a goodly amount of money doing it.

They smell it, and they're the ones that are close enough to the action to know about it.

What you do, with your own risk exposure, given the upcoming Fed Meeting, is up to you.

http://www.denninger.net/letters/president-financial.pdf

Will President Bush do the right thing?

I have no faith.... but I do have hope.

Something to think about over the weekend.....