The Market Ticker

Philly Fed came in -24.9. Much worse than expected. New orders, employment, prices paid and received - all going the wrong direction. I can't find anything good in that report.

LEIs came in +0.1, a bit better than expected. But - that was during one of the major market bounces, and stock market prices are one of the components. In general? Nothing to cheer about there either.



Notice anything about that LEI and Coincident Index, and how it corresponds with this thing that starts with an "R". Yep.

Yet the crooners keep talking about how "the worst is behind us."

Uh huh. The Check is in the mail, I won't get you pregnant, and I won't (censored - that one's obscene)

Reality folks is that the insane credit-market explosion - giving anyone a loan if they can fog a mirror, whether a homeowner, a car buyer or an LBO-wielding hedge fund - has now led to a circumstance where debt service requirements are uncomfortably close to cash flow.

Note that this is debt service - we're not talking about paying down the principle - just paying the interest.

There is no way to support this paradigm going forward and a small minority of this excess debt and credit has been "worked off" thus far.

The rest will be worked off, with disastrous results for those who are knife-catchers in the markets, whether it be credit or equity.

While hope springs eternal in our capital markets the fact remains that earnings are all that matters, and earnings have been hyperinflated in recent years due to the credit bubble.

Everyone, from homeowners to leveraged buyout shops have been gorging themselves on "stuff" they cannot pay for in cash.

Then McCain comes out this morning and says "The Fundamentals of the US Economy remain strong."

Liar.

The fundamentals of the US Economy have been intentionally trashed by McCain and his cronies in the administration and Congress, who have intentionally and with malice aforethought spawned the growth of a gigantic credit bubble in our housing and personal financial systems that has placed our households into debt to an unprecedented degree.

In addition McCain and the rest of Congress practiced that same sort of insane and irresponsible crap with Medicare Part D, Social Security and all other manner of government spending. The profligacy in this regard is beyond disgusting and reaches into the realm of the treasonously criminal.

Projections at this point are that we will run a one trillion dollar deficit against a $3 trillion budget this year, or net credit growth against spending of thirty three percent. Nearly $500 billion of that deficit is already booked.

The reason Congress doesn't "get it" is that they are just as married to the idea of unsupportable, criminally insane credit growth as are American households. Congress and the Executive refuse to stop this among American business and households because they are doing it themselves, and so far, until today, the world has gone along with the scam.

Those of you who believe that our markets will continue to levitate or even make new highs need to ask yourself - how will all these people who are in debt up to their eyeballs not just service the existing debt but continue to expand their debt at the previous rate or better? Not just American households, but America the nation.

Paying existing debt service doesn't buy anything. It causes no production. It results in no GDP contribution. At all.

To make the Bull Thesis work you need to figure out how we manage to continue to grow sales and profits and thus earnings. Where is the money going to come from when the American Consumer has levered up to the maximum degree and now his collateral (the house) is falling in value, not rising? How does America the nation continue to do this when the world sees what we're doing to our personal and national balance sheets and responds by discounting the dollar?

As long as this continues the value of the dollar will continue to fall and the price of all necessities linked to energy, from gasoline to food, will continue to rise at a rate that not only offsets this credit growth but also provides a measure of "risk premium".

In other words we will lose from this credit growth, not gain, as the rest of the world will simply not let us take on more and more credit without associating a risk premium that we will be unable to pay with those transactions. The higher the leverage goes, the higher the premium charged.

This premium has an exponential curve to it and once that inflection point is reached we are finished, as the premium will rise at a rate that exceeds the growth in available credit. This "knee" is a point of no return and the collapse of our both our currency and economy.

We are very close to that point now.

You are paying $4/gallon for gasoline - instead of $2 - because you sit on your butt and nod your head instead of insisting that both US Business and the US Government cut this crap out!

You think this is a zero-sum game? Nope. You lose Americans. Your food and fuel bill will continue to rise at an increasingly parabolic rate not due to inflation but due to the profligate abuse of credit both by YOU and by our Government (which you want to continue to abuse credit so you can "get yours", whether its a stimulus check, farm subsidies, prescription drugs or the EITC)

Reality, however is that all these "benefits" from the government are immediately offset by higher food and fuel prices, and what's worse, you get taxed on the money you buy that food and fuel with, while you get no tax benefit from the increased interest expense and debt service.

The "Medicare Part D" benefit, for example, might save the average Senior $2,000 a year. That's a lot of money. Guess what? That $2,000 came right out of your pocket anyway and went directly to the grocer and gas station. You cheer the government's action but in fact you saved exactly nothing. You've been played as a fool for votes and screwed at the same time.

Everyone wants to pile into banks and other sectors of the market in the belief that "we'll be out of this in the 3rd quarter at the latest."

Really?

How are we going to pay off the debt? How are we going to be able to originate new debt? And how are we going to keep moving forward on new debt origination, which is absolutely necessary if we are going to see sales, earnings and profits continue to grow?

If you're buying stocks here, or if you're bullish on America in general, you need to be able to make that argument work.

I wish you the best of luck in doing so.

BASEL claims to have released "new regulations":

"The Basel Committee on Banking Supervision released new regulations Wednesday as part of the global fallout from the market-crippling credit crunch. The world's top bank regulator said it will patch up tears in the regulatory cloth, and will institute tougher consequences to stave off risky practices which led to the current financial turmoil."

Yeah, right. They will do no such thing - if Basel gave a good damn about the truth they would get rid of "Level 3" fiction entirely and force recognition of marks.

But no, we have banks that get back ninety-seven percent of the properties they send to "auction" as a consequence of reserves and bid-rigging (self-dealing) and thus their "reserve" (or is it their full loan value? We never do find out as the model is not disclosed) is then allowed to be used as "the mark" on that property's value, even though there was a bid for some amount by an arms-length buyer for a lesser amount.

The bank just didn't like the number, so they refused to sell.

They're within their right to refuse to sell.

But it is fraud to claim that the actual value of that property is above the highest bid placed by an arms-length buyer.

Nor is it limited to real estate. Emboldened by the absolute lack of prosecutorial sanction banks appear to be intentionally under reporting borrowing costs and, as a consequence, manipulating LIBOR.

LIBOR is a key indication of stress in the banking system and borrowing costs as expressed by LIBOR is one of the key inputs into the interest rate puzzle. It affects borrowing costs on virtually all commercial and much consumer credit, either directly or indirectly.

What's even worse is that Eurobor Futures are one of the most liquid swap contracts on the planet and are used by people to hedge interest rate risk. If the underlying is fraudulently manipulated then a LOT of people that are on both sides of those trades are going to get ocularly penetrated unjustly.

If you think this disconnect between "what I think its worth" and what the market says its worth is unusual, however, there is nothing unusual about it. What's "unusual" is allowing people to ignore those differences when they don't like it, and taking advantage when they do.

This difference in opinion is in fact exactly why we have a stock market! I buy a stock from you because I believe that the price is too low; that is, I'm buying for less than the stock's actual value. You sell to me because you think that the stock is worth less than what is sells for to me - that is, you think the "market price" is too high.

One of us is right and one of us is wrong, but today when the market closes I am forced by law to count the value of that stock I bought at what the market says its worth - whether I agree with that price or not.

There is exactly one way to know what something is worth, and that is to put it out for bid and find out what an arm's length buyer will pay for it. That is its value - whether you like it or not - for today.

I view other claims of value and flat-out manipulation of marks, whether in credit instruments, LIBOR, stocks or home prices to be nothing other than organized fraud - that is, racketeering on a grand international scale.

Wells Fargo (NYSE: WFC) reported an 11% drop in first-quarter net income, but in yet another example of the pernicious horsecrap - again fed by the utter lack of prosecutorial oversight - their credit reserves dropped from the 4th quarter. Their CEO said:

"Looking forward, Mr. Stumpf said "We may not have seen the last of the challenges for this cycle, but we're very excited about our opportunities to continue to gain market share prudently in our core businesses at a time when many of our competitors are struggling.""

I'm sure you are Mr. Stumpf, especially considering that The Cops have not forced you to take a reserve for all those HELOCs and 2nds that exceed the value of the house they are written on, and you're quite sure they never will either, as those cops are all bought and paid for. In California, that would be a lot of them right? In previous recessions those loans (not to mention complex securities based on them) have proven to be worth a big fat zero - nothing. Not a "little less", nothing. Zero.

Without cops to prosecute that fraud and send some bank executives off for 20 years of a good old-fashioned ass-pounding in prison this practice will never change.

This practice of blatant fraud is nothing new and neither is the flat-out refusal to enforce the law displayed by our so-called "securities regulators" and both the executive and judiciary.

Back in the 1990s the "meme" was to claim that Internet traffic was "doubling every three months." This was paraded out as justification for pulling enough fiber across the nation for the next five years worth of expansion at that claimed exponential growth rate by firms as large as Sprint, MCI and AT&T to those as small as upstart LDDS.

All of these firms took on hundreds of billions of dollars in debt that was gleefully provided by Wall Street, syndicated off to investors who were convinced by the near-universal claims of exponential growth that there was a decade or more of growth at these levels in the offing.

The problem is that the claim was only true for a very short period of time - literally a couple of quarters - in 1995. That time surrounded the introduction of Windows 95, which was the first "real" windows operating system for the PC, and the first "integrated" dialer that made getting on the Internet for consumers a reasonably-simple process.

That "unleashing" of pent-up demand, of course, resulted in an explosion of users (and traffic.)

As early as 1996 it became clear that while growth was continuing in a serious way the "spike" that introduction of Win/95 introduced was just that - a spike that was flattening out, not a trend that was going to continue on for the next ten years.

Yet quarter after quarter, the same claim was made. S1 after S1 issued with the same projection in "management discussion", along with the same quote in earnings release after earnings release, all showing a non-GAAP "gain". Buried in the disclosures of all those S1s and "Risk Factors" in the earnings releases was the one line statement "growth of traffic may not continue at projected levels."

May not?

It wasn't happening even at the time these S1s and Earnings Releases were printed. That's a fact. I know because I had access to the core Internet routing tables, being the guy with the "keys to the CISCOs" for AS 3365, owned by my company, MCSNet. The routing table was expanding, but it most certainly was not doubling at a quarterly rate, nor was traffic.

I also had full route table (and administrative) access to Net99's equipment and in fact was peered with them.

That sort of geometric growth projected out 10 years, by the way, would have led to the wiring of every home in the world within just a few years - a clear impossibility.

And by the way, there were a few people who was talking with various government officials who were saying this quite loudly - including me. Yet I can count on my nose the number of investigations that I saw initiated into these knowingly-false "forward looking statements."

How many people went to prison as a consequence of this, or were even prosecuted?

MCI's Ebbers and friends, right?

That's it.

There were literally thousands of firms that flim-flammed, robbed and raped investors for five full years from 1995 to 2000 when it all started to come apart. Jim Cramer pounded the table just a month before the explosion insisting that you must buy a passel of tech stocks which began imploding just a month later, as every one of their "growth plans" were in fact based on this little piece of fraud. Over 50 million Americans had their retirement portfolios shredded and turned into dust, and yet of the literal thousands of CEOs who participated knowingly in this fraud a grand total of ONE went prison for it?

The rest are still enjoying their yachts, while Cramer was rewarded with a TV show.

The same thing is happening right now.

As I write this I am seeing earnings releases that are simply false. They were false in the spring of 2007, where WaMu claimed "earnings" that in fact were more than half capitalized interest from "Option ARMs" - that is, negative amortization - and they still are.

The difference is that this time they're playing with the accounting rules to get their numbers.

Due to the fiction of fitting accounting "rules" to whatever executives would like in order to steal, this was claimed as "earnings" yet there was no reserve taken for the fact that it was easily foreseeable even then that home values would decline, rendering that interest uncollectable.

Was this reserved against? No. The stock traded at $30, and the Yahoo boards were full of people cheering that they were paying their 50 cent dividend, even though their cash income was insufficient to pay it - they were digging into their cash reserves since "capitalized interest" can't be spent.

What's WaMu's stock trading at now, a year later?

Now we have analyst after analyst showing up on CNBC saying that its "wrong" to force mark-to-market, in that it "doesn't fairly value" these assets. Yeah, right. The truth is, as usual, a bit more complex.

During the last few years we've seen firms "lever up" to insane degrees, trying to get yet more out of the market by increasing gearing rather than improving internal operating efficiency. But leverage is the great destroyer, in that when the market turns it changes what could be a middling and very survivable loss into a life-threatening event.

Buried in JP Morgan's results was the disclosure of huge increases in delinquencies against all consumer credit classifications - home equity, auto, credit card, along with yet more "Level 3" shifting.

The Investment (and many commercial) banks in the United States had "Level 3" claimed "assets" that, a couple of quarters ago, were in excess of their shareholder equity, with some in excess 2-3 times over.

Over the last two earnings reports these "assets" have gone parabolic - and yet we know for a fact that these banks are not doing deals and generating "new" assets. They are shifting assets for which they do not like the market price to the "Level 3" bin and keeping the marked "value" wherever they want, because what the market will pay for those assets is a number that they find "distasteful."

Well I find it distasteful when I buy a stock and then it gets cut in half, or I buy a PUT and then it goes to zero, but that doesn't entitle me to claim that the market price is wrong. I am in fact forced to take my mark, whether I like it or not, and whether it results in a realized loss or not.

But in the world of fraud, theft and scamming that is Wall Street - a world that has spanned both Democrat and Republican administrations and Congresses, the fiction of claiming that something is worth whatever a bank wants it to be worth is alive and well.

These banks could take dogsqueeze, put it in a box and slap a $1 million price tag on it, and given the utter lack of prosecutorial supervision of the law - existing law - they'd get away with it literally forever.

They could then make loans against this "value" and yet what they actually hold is worth zero.

When they ran low on cash they'd then tender that dogcrap to The Fed for a TAF or PDCF loan, and that's ok too - our Congress simply doesn't give a damn as the hundred million dollars in bribes, er, "campaign contributions", insure that blatant violations of The Federal Reserve Act are not only tolerated but cheered whenever Wall Street needs more "slop" for its pigtrough - at your expense.

Nor is it confined to banks. Sallie Mae this evening said:

"SLM Corp. (SLM) swung to a first-quarter loss and warned it can't make profitable loans at this time, prompting the nation's largest student lender to assess its operation and call for a "system-wide liquidity solution."

The company, known as Sallie Mae, also said tightened credit markets have " dramatically" increased the cost of funds."

Wait a second! If you can't profitably operate you are bankrupt! Perhaps not this instant, but certainly down the road. In the real world when you come to this conclusion you put together a plan to wind up your business and close the doors.

Hello! Is anyone home?

Congress and Wall Street can't change the world's opinion of what this all means on the world stage, and here's the answer that has been given to us by the rest of the world's economies and governments:



This is what you, Joe Reader, get for sitting on your ass and thinking this isn't worth raising hell about.

The change in your real wealth - the squeeze you are feeling on your genitals as your disposable income disappears - is entirely due to your refusal to get off your fat ass and raise a stink about this.

That nice little triangle, by the way, will take us to 65 on the DX if it breaks as expected, likely all at once, which is another 15% devaluation of the dollar from where we are here, and that will immediately translate into oil, food, and all products (we import basically everything, as we've allowed corporations to send most of our industrial production overseas to Vietnam and China, with "customer disservice" going to India.)

Gas prices, for example, are not high because of "evil oil companies making record profits."

They are high because you have sat on your ass while Wall Street cooked up one fraud after another since the 1990s and you have refused to make a phone call, write a letter or fax, or send an email - at least one a week - to your lawmakers demanding that they cut this crap out.

Add into that a supply/demand imbalance and you get a rocketshot in prices - partially fueled by supply and demand and then multiplied in effect by currency imbalance.

If Congress wants to address this it can start with the refusal of all PAC money from Wall Street and then issue congressional subpoenas for the valuation models that these scam artists have been using, with that to be followed up by referrals to a special prosecutor for investigation of racketeering.

Real consumer earnings (you know, what you take home in your pocket?) are, in fact, down for the 5th straight month year over year, the media admits. But even that's a fraud - it understates the problem.

In reality, earnings for all but the top 1% of Americans have been down since 2000 and yet prices are up dramatically. Food has more than doubled in eight years, gasoline and heating oil are up 300% and medical costs have more than doubled. Education has more than doubled in cost.

Google, the "darling" of the tech sector, has had the monitoring folks at Comscore state that paid clicks - the metric of growth in Internet advertising and sales - have been flat as a board since Christmas. There has been a violent deceleration in this metric since the 3rd quarter - stats for 3Q07 were up 48%, yet only up 25% in Q407 and now we're in the low single digits - with March registering at 2.7%.

In short, growth of Internet Advertising (and thus, one should assume, sales) has basically gone to zero.

If those numbers are anywhere near accurate then pricing cannot possibly be maintained either which means Google is about to miss by a mile on both revenues and profits.

More importantly, it means that "The Internet Will Save Retailing" meme is, once again, false - just like it was false in 1999.

Once again, the fraudsters will escape with your money.

All of it will happen because of you.

Its not their fault, really. Bank robbers exist to rob banks. Its what they do.

Expecting anything different from a bank robber goes beyond the realm of stupid; those who believe that an entire industry that has made its money by systematically lying for the last 20 years is going to become "honorable" on their own are, to be blunt, insane.

The only check and balance against this behavior is lots of cops with open eyes. But now we not only have a dearth of cops, those that we do have are either bribed or sleeping - and in some cases both.

What do you think the outcome would be at your local bank if they hung out a big sign that said "our security guard has no bullets in his gun, and our cameras don't work"?

I hope you like your 401k being shredded - just don't come looking to me for help when it happens, you try to retire, and find that not only is your 401k gone but Washington DC has given your Social Security to Wall Street and The Builders to bail them out!

If you do, you'll find that I'm a quite-cantankerous old cuss and your request will not meet with a polite response.

Want it all in video format? Here 'ya go....