The Market Ticker

You have undoubtedly heard that "the worst is behind us" or "the credit markets are returning to normal."

Really?

Where have you seen write-downs on CDOs from 06 and 07?

Uh, nowhere, right?

Yet Friday morning CNBC was reporting that thirty percent of the CDOs issued in 2007 are currently in default! That's not "downgraded", that's defaulted. As in "unable to make the payments as agreed."

The really bad news is that most of these deals are "wrapped" by the monoline insurers. When they go into default that insurer figures out how to best protect itself from losses (they get that right in exchange for issuing the "wrap"), which means that only the top classes of debt in the CDO get protected (theirs) and the rest get screwed. In some cases this is "just" a coupon loss but in many cases it is also a capital loss, especially for the mezzanine tranches, and equity (the lowest tranche) is almost always wiped out completely.

How big of a problem is this? Who knows - there's no accurate and honest reporting available on it thus far, but best guess is that its somewhere around (another) $100 billion - entirely unreported and accounted for thus far.

(As an aside, the bad deals are essentially all 2006 and 2007. See, as the market started to dry up the issuers of these fantastic mortgage products went from "a little" diligence to zero, and literally issued them to anyone who asked no matter whether they could pay or not - with predictable results. If this isn't raw fraud - intentionally issuing debt to people who you have every reason to believe can't pay - I don't know what is. Of course we're not interested in seeing those crooks prosecuted, are we?)

And don't go believing the heads of investment and commercial banks - the US Treasury doesn't:

"Steel called Citigroup Inc. Chief Executive Officer Vikram Pandit's statement that the global credit-market contraction is closer to the end than the beginning, 'a bit simplistic.'"

That's a nice way of saying "they're lying."

A few other commentators on CNBC Friday morning, including Nobel Winner Joseph Stiglitz, were more blunt, saying outright that these firm's CEOs are engaging in what amounts to disinformation for the explicit purpose of propping up their stock price.

That, of course, isn't supposed to happen and in fact is felonious (market manipulation!) and yet we know the SEC is only interested in manipulation that causes stock prices to go down, not up.

Now let's pay attention to another area for a minute I've talked about before - the bond market.

When PIMCO goes short the long end of Treasuries, you better pay attention. And they have - negative 18%, from their last disclosure. That means 18% of their position (in total!) is net short treasuries.

This is a bet on a massive crack-up in the bond market, with rates skying higher and prices falling through the floor. I've written about this before, but folks, believe me, if Bill Gross is on this, you better pay attention. If he's wrong he's going to get murdered, but if he's right the entire economy, especially housing, is going to get murdered.

Yes, murdered worse than it already has.

How?

Simple - right now 30 year fixed mortgages are about 6%. If we get a bond market crack-up and the 10 year goes up 200 basis points (2%), for example, Bill's short bet (assuming he's short the 10) is worth 2% x 10 (duration) or an instantaneous 20% profit.

But what happens to your house? Well, mortgage rates will probably rise by the same 200 basis points, or go from 6-8%. That's a 33% increase, which will result in a roughly 28% loss in buying power for home purchasers!

It will also hit other types of debt such as credit cards but the difference 200 basis points makes on a 20% credit card interest rate (10%) is far less than the impact on debt with less "spread", such as mortgages.

So this "crack up", should it occur and be mild, results in your house losing 28% of its value. Should that "crack up" be severe, say, a 500 basis point rise (not out of the realm of possibility; see the late 70s into 1980) the consequences would be catastrophic (a loss of 50% of value, essentially "all at once.")

And that's on top of what your home's value loses from bubble deflation - this change is additive but immediate, as the impact on money available happens now, not through the process of the bubble unwinding.

Now let's add to that the fact that we got housing numbers this week that showed that March actually registered declines in new home sales over February.

Let that sink for a minute, because March is supposed to be the "Spring Buying Season", remember? What buying? There is none going on, basically, with inventory on new homes now sitting at about 11 months of supply, or roughly double "normal" levels. Add to this decimation of purchasing power from a bond market crack-up and you may as well put a fork into what's left of the housing market - its done.

This effect, by the way, would not be limited to housing and credit cards. It would also hit auto loans, commercial and industrial loans, basically all sorts of debt issuance. If would have an absolutely catastrophic set of consequences for the real economy, likely knocking a solid 3-4% off GDP immediately, and blowing us down into what could only be characterized as a deep recession.

Now let's talk about yet another kind of debt that hasn't been discussed at all, but its another ticking bomb - so-called "PIK Toggle" notes. These are bonds that are issued, typically for an acquisition (LBO money) that offer the issuer the option of paying the the interest with...... more debt! In other words, instead of you getting an interest payment (coupon) in cash, the company that you buy them from can give you even more debt instead (usually at a higher interest rate.)

The cascade failure potential for these ought to be obvious, in that in tough economic times the companies that issued them will of course pay in "more debt" and there's nothing you as a holder can do to stop it! Of course once this starts people will detect the distress and start discounting the underlying bonds in a big way, which sure as hell won't do anything good for the value of those notes either. The end result is that the holder gets screwed twice - they not only wind up holding a whole bunch of worthless paper but they don't even get coupon payments along the way!

There are a lot of market callers running around CNBC and elsewhere claiming that "the bottom is in" and "we're headed for a new bull market."

Before you listen to them, square that with your own experience.

Go to the mall. Is it as busy as it usually is?
Go out to eat, somewhere you know the traffic patterns. Do you have to wait as long as you usually do?
Go talk to some people in business in areas you know, and ask them - how's biz?
Look at truck freight tonnage - down 3.3% in one month - March alone.

The bottom line is this - you can't have a "new bull market" without the credit markets supporting it. That means lending and borrowing capacity must expand, not contract.

Until the over-leveraged consumer works off (or defaults) on that excessive debt he is carrying, that's not going to happen.

Invest, especially in financials, at your own peril.

Oh, and if you're tired of the games?

Head on over to http://financialpetition.org - yes, again - there's a new petition up there, complete with a White Paper behind it.

The White Paper is, as I post this, being faxed to all members of Congress.

Make my phone bill hurt me.

Please?

Many have said since this "housing crisis" erupted that commercial real estate would not be impacted - it would be "different this time."

I have argued consistently that in every other residential-led building problem we've seen commercial R/E follow by 12-18 months. Guess what?

"The Seattle project joins other projects in New York, Phoenix, Atlanta and Las Vegas that have been shelved, scaled back or beset by financial problems in recent months. Many city officials hoped they would provide jobs and economic activity that could help make up for a housing-market downturn that still hasn't reached bottom."

But I thought the market crooners said that Commercial R/E wouldn't take a hit? All would power on and be fine?

The "Mortgage Mess" has yet another change in policy announced - FHLB Chicago is no longer buying mortgage loans. One has to wonder, however, how much risk is out there on their balance sheet thus far. Specifically, I am more than a bit concerned whether the FHLB network is overexposed to bad mortgages and overpriced houses. It will likely be a few more years before we know exactly how bad this will get for the FHLB network, which is a network of "bankers banks" that were originally designed to serve smaller institutions but have, from many people's points of view, been abused horribly by the likes of Countrywide Financial (NYSE: CFC) as a "conduit" for mortgage money in the last year or so.

And then, this morning, we got this:

"NEW YORK, April 25 (Reuters) - The regulator of the Federal Home Loan Bank of Chicago has denied requests by shareholders that have terminated their memberships in the institution to redeem their stock, the FHLB said in a regulatory filing on Friday.

The Federal Housing Finance Board, which ensures the safety and soundness of the entire Federal Home Loan Bank system, in October reserved the right to approve stock redemptions based on capital adequacy, which has been under pressure."

"The weakening economy is hitting tax revenue in a number of ways: People's discretionary income is being gobbled up by higher food and fuel costs, while the tanking housing market means people are spending less on furniture and appliances associated with buying a house."

"Spring Valley, N.Y., approved a 9.7% increase in the property-tax rate to balance its budget. A number of fast-growing suburbs around Washington, D.C., have raised rates, while Memphis Mayor Willie Herenton has proposed a 17% increase in the property-tax rate to close a budget gap."

"Jeff Rubin, chief economist at CIBC World Markets says oil production will barely grow over the next five years, edging up barely more than 1-million barrels a day over the next three years, and only half a million barrels a day between 2010 and 2012.

The increases will fall far short of demand, forcing the price of crude oil to surge to US$150 a barrel by 2010, and over US$200 a barrel by 2012. The updated forecast is aggressively higher than Mr. Rubin's previous forecast of US$150 a barrel by 2010 and follows the recent record-breaking run in light crude prices, which fell just US10-cents short of US$120 a barrel on Tuesday."

See what "excess liquidity" gets you? Speculative bubbles. Like, oh, in food:

BENTONVILLE, Ark. - The two biggest U.S. warehouse retail chains are limiting how much rice customers can buy because of what Sam's Club, a division of Wal-Mart Stores Inc., called on Wednesday 'recent supply and demand trends.'"

Thanks Ben.

You know, this would be amusing except it isn't in significant parts of the world. Like those where there are a lot of truly poor people (that, by the way, does not describe the US. If you want to see "poor" - truly poor - you are going to have to travel internationally.)

One of the major reasons we had a Depression in the 30s was that the government tried to step in and prevent the recession that was bound to occur as the overly-easy credit of the 20s was unwound.

They (world governments) produced a Depression instead through their combined machinations.

We may be headed for something that would arguably be even worse - major outbreaks of famine - that could ultimately be traced to The Fed trying to meddle with what should have been a swift and violent unwind to the credit bubble that destroyed the money for speculating.

I didn't think it was possible to have a worse place for that "hot money" to go than into housing.

I was wrong.

Food is a far more destructive place to have a speculative bubble, because instead of foreclosures and bankruptcies people actually die from that one.

No, not in the US - in places like Haiti.

The only good news is that this sort of game doesn't last long at all because the pitchforks and torches tend to come out real fast when you're starving.

Then there's this:

"April 23 (Bloomberg) -- Canadian Finance Minister Jim Flaherty said currency markets appear to have ignored a Group of Seven statement expressing concern about the decline in the U.S. dollar."

That's because the fix for this problem is to drain about $150 billion in excess liquidity (return the slosh to "normal" levels around $50 billion) and, as a consequence, let interest rates rise.

Materially.

Absent that The Dollar is not going significantly higher unless some other nation collapses first.

Given that the ECB seems to "get it", as rhetoric coming from there is attempting to demonstrate, I wouldn't take the bet on them self-immolating to try to "save the USA" (at the expense of their own hides.)

And oh by the way, the longer BenDover Bernanke waits, the longer and deeper the recession we are in now will be. The more games he plays, the bigger and deeper the hole.

The first rule when you find yourself in a hole is to stop digging!

If that's not enough stupidity, we have this from Chris Cox:

"The SEC is focused on 'requirements that will increase resiliency' when investment banks can't easily secure funding, Cox said. Any change may crimp Wall Street profits, because firms would have to hold more cash and low-yielding securities instead of lending money or making investments."

Gee Chris, where the hell were you for the last year and change? You know, like back in August when this first started? You don't read The Ticker do you - I predicted at least one major investment bank going under, and gee, do you think some supervision of Bear might have been appropriate given their fantastic hedge fund disclosure and resulting lawsuits alleging various forms of nefarious conduct?

Never mind that what I don't hear is a proposal to bar this off-exchange CDS garbage in the first place, which would have left you free to let Bear Stearns fail.

There was much crooning originally over Apple's earnings announcement, but one ought to read the whole thing. Margins are compressing which is never good, and while sales exceeded forecasts for their Macs one has to wonder if that can continue. They're more expensive and the majority of their market is the consumer.

Does Chucky have any money?

Amazon's numbers were a solid beat but the market didn't think it was very positive. Neither do I, to be frank - the issue there is margins, and to be blunt - they suck.

Think that LBOs from last year and before were a good investment? Maybe not:

"Rather than receiving the historical average recovery of 42 cents on the dollar in a default, owners of a third of high- yield, high-risk bonds rated B+ or lower may get no more than 10 cents, according to New York-based Fitch Ratings. About 22 percent are likely to get 11 cents to 30 cents."

That's gonna leave a mark (on your account balance.)

Oh, and does anyone remember me talking about fraud being the 900lb gorilla that would void some of these mortgage "deals" (both in CDOs and otherwise) in April of last year?

Well guess what the cat dragged in....

"Some of the factors the company will examine include loan-level document review and a review of legal documents "focusing on representations and warranties," Wallis said. "Hypotheses are being built which involve fraudulent activity in various guises.""

Did 'ya falsify your income on that "Stated" product? Didja? Hoh Hoh Hoh..... bet this isn't the last time you hear about this particular line of attack.

Let me note that every investment bank and most of the big commercial banks have their nuts laying bare on the table on this issue, and the buyers and guarantors of that debt are wielding claw hammers.

If the banks are lucky they'll use the striking end and not the claw.

A year ago I wrote on this because I detected that it was THE 900lb Gorilla that would destroy the game.

I'm not a rocket scientist but I have run a business in one form or another for more than 20 years. Fraud is the one thing that strikes fear into the heart of all executives, irrespective of their field of work, because you can't negotiate it off in a contract.

You can try, but it won't hold up in court.

Ever.

It is the one "bad thing" that, if you do it, will come back to bite you - even if it takes years for the fraud to be discovered. It is the one thing that can operate to rescind any and all contracts, any and all payments, any and all protections you think you bought or sold. It is one of the very few things you can do that has no statute of limitations, and no "safe harbor."

Last April I predicted that this would be the element that would ultimately blow this entire mortgage game straight to Hell, and that when it struck and finally "got legs" it would ravage everyone involved.

This is such easy picking for the lawyers that they'd be nuts not to head straight here, once a few of them woke up.

I have sat back and wondered when it would start, because for a year, it hadn't. My opinion of the IQ of the legal community had been on a slow but relentless slide for the last year as a consequence.

Well, now it appears they have woken up, and like a bleeding swimmer in the water the landsharks now smell blood. Once the first suit is filed and the first criminal investigations are announced we're going to see the feeding frenzy really take hold, and from that point forward there will be no hiding - and no escape - for any of the "bad actors."

The list there, unfortunately, includes essentially all investment and commercial banks involved in the housing boom. It also includes virtually all of the independent mortgage shops, most of which are already gone (thus preventing the banks from trying to push the trouble through to them.) You can bet that the AEs and Brokers who were involved in this will get tagged to the extent they can be - if I was one of those folks, unemployed or not at this point, I would not be sleeping well at night and fearing the doorbell, lest it be a process server - huge numbers of these folks will get personally attacked, likely forcing nearly all who are into personal bankruptcy.

Go long lawyers.

You want the really bad news?

It appears that the bond market is reacting to this, and may be front-running it. The market is down materially yet the entire curve is shifting higher, a clear indication of flight out of Treasuries. I am particularly worried by the reaction in the TNX today, up 1.72% as I write this while the SPX is down almost 9 handles.

That's backwards - the curve should be shifting downward on a selloff, not upward.

If the bond market deduces that treasuries have been contaminated due to The Fed taking fraudulently-originated bonds onto its books then the risk of a bond market dislocation goes to the moon.

Down that road lies a re-run of the 1930s with certainty.

Not a "possibility" - a certainty.

Bull or Bear, this is not a scenario you want to play out.

If there is a time for Bernanke to "man up" and force all that MBS garbage off The Fed's balance sheet, "right now" would be that time. This is a risk that Ben cannot afford to take. He is far ahead of the game to torpedo all the players who are too heavily-geared in the MBS space than to risk a bond market implosion, because the latter, once it happens, can't be recovered from. It will have to work itself out, and will take a long time - many years - ending only when all of the inappropriate leverage has been removed from the system.

Just like the 1930s.

Got your tin cup ready for the soup line?

While I hate to be a purveyor or doom and gloom there is a real possibility you may need it, because I just don't see Bernanke having the 'nads to rescind MBS acceptance at The Fed.

Yet if I'm reading the tea leaves right, he has to, and very soon.

Durable Goods down 0.3%, which was a huge miss (expected +0.3%), jobless claims 342,000, down 30,000, but continuing claims near 3 million (which is the number that matters overall.)

Further, we keep looking at the jobless numbers through some rose-colored glasses, mostly because this last "recovery" from 2003 to 07 featured huge hiring of illegals (best estimate is 2 million) to build all those houses, and none of those people were counted as "employed."

They thus don't count as "unemployed" either. What works against you on one side of the curve works for you on the other.

Further, I've yet to see the layoffs in NY and other money centers hit the numbers yet, mostly because of the impact of severance payments, which keep people from filing unemployment for a while - typically 3-6 months - beyond their termination date. The problem for most of these people is that jobs in that field are basically gone, so finding a replacement job "in field" is unlikely.

This may keep them from registering as "unemployed" but it will show up in their income, which of course hits consumption 6-12 months down the road.

Overall however the futures liked these numbers a lot, taking back their losses before the data release and then extending gains. Whether that will bleed through into the daily market action is another matter - how you can look past the durables number and reports from actual companies in the durables sector and trade the unemployment numbers is beyond me, but it is what it is.

Upcoming major earnings releases include Microsoft, which is widely expected to be a blowout. This, once again, sets up a potential disappointment in the market, but we shall see.

You want to see the real impact of the durables slowdown? Take a look at Whirlpool (NYSE: WHR):

"Whirlpool announced a 24% decline in first-quarter earnings from continuing operations to $94 million or $1.22 per share from $124 million, or $1.55 per share last year. Net earnings available to common shareholders came in at $94 million compared to $117 million in the prior year."

Oh, and they're buying back shares in a vain attempt to keep their stock from collapsing. Say, are you using debt to do that? One would hope not, but you can never count out the stupidity of executives.

SYSCO (the food company, not the router company of course) is seeing about 6% inflation over the last five quarters. Yeah, cost-push price inflation into an economic slowdown at restaurants is great for their earnings.

Irrational reaction in the futures this morning?

You be the judge - early action says "yep!"

Trade the tape you get.

New Home Sales down huge month/over/month, which is monster bad, with prices down 13% as well. Price drops didn't help and this is the spring selling season - where m/o/m comparisons should be rising, not falling.

The Bull Case is falling apart fast.

Give me a break.

Yahoo reports what look like "solid" results, but the truth is a bit less impressive.

Ok, let's be straight - Yahoo sucks.

"First-quarter net income rose to $542.2 million, or 37 cents a share, helped by a $401 million gain from the stock sale of Chinese Internet company Alibaba.com Ltd."

So let me see if I get this right. Without that stock sale they would have made ten cents, and you can only sell a stock once.

This makes their "guidance" a total crock of crap, which they raised dramatically. There is no actionable lie there (you can fudge "guidance" all you want) which means this is nothing other than an attempt to shove a stick in Ballmer's eye socket.

If you're reading this Steve (do 'ya remember me? We've met dude) I have a suggestion for you.

I think Microsoft should gouge out Yahoo's eyes and ocularly penetrate these clowns. My suggestion would be to issue a statement that you have detected the "spin" in the earnings and you don't believe the guidance - at 10 cents annualized or 40 cents at a very aggressive 20 P/E the stock is worth $8.

Since you're a generous guy you thus offer them twice "fair value" for a "growth stock" (and they ain't growing) which means your offer is revised to $16/share, effective immediately.

And by the way Steve, I know you have the brass nuts to do it.

C'mon, make my day.

One of the remaining pillars holding this market together has been the Transports. How in the Sam Hell do transports do well with oil well over $100/bbl? I couldn't figure it out either. Well, now the cracks are showing up - Canadian Pacific (NYSE: CP) cut guidance in a serious way yesterday and Foundation Coal (NYSE: FCL), one of the "bright sector) folks in coal production, missed badly.

And UPS was out this morning with a nasty report - hitting lowered estimates but saying this:

"ATLANTA--(BUSINESS WIRE)--UPS (NYSE:UPS - News) today reported increased revenue in all segments with double-digit gains in both international package and supply chain and freight operations. A sharp decline in U.S. economic activity, however, led to a 9.4% drop in diluted earnings per share to $0.87 compared to a prior-year adjusted $0.96.
....
'We see no signs of economic strengthening in the second quarter,' said Kurt Kuehn, UPS’s chief financial officer. 'As a result, the company expects earnings for the quarter in a range of $0.97 to $1.04 per diluted share compared to $1.04 for the second quarter of 2007.'"

Ouch - for everyone else. They seem to be weathering the mess reasonably well, but this is a bellweather for the economy. FedEx, by the way, said the same thing, so the idea that there was a "transfer trade" between shippers has now gone out the window.

Next up in the "massage" game we have Merrill Lynch (NYSE: MER) that is now issuing $7.3 billion of bonds and preferred stock:

"The firm today began offering $7 billion of senior unsecured notes in its biggest debt offering, luring investors with yields over Treasuries that would be as much as triple what it paid a year ago. Merrill is also selling at least $300 million of perpetual preferred shares that yield about 8.625 percent."

Why is this news? Specifically because their lying sack of dogsqueeze CEO Thain just said a short while back (April 8th - two weeks ago):

"Thain repeated that Merrill, which raised $12.2 billion from investors including Korea Investment Corp. and Mizuho Financial Group Inc., doesn't need additional capital. 'We deliberately raised more capital than we lost last year,' he said."

Now that announcement was trumpeted all over the media and CNBC and in fact was responsible for a 100-point rocketshot that day in the Dow.

Where are the cops? This sort of intentionally false statement (you're going to try to tell me that Merrill put this entire offering together in less than two weeks, including getting it rated, in that amount of time?) needs to be prosecuted as an act of intentional market manipulation, which is flatly felonious in the United States.

Not that I expect anyone will prosecute Thain. After all every other financial has played the same game lately. Why not Merrill? Honesty seems to be in rather short supply, no?

Speaking of which, do you think ratings weren't quite honest during the "housing boom"? Perhaps there were a few "massages" in there, ala "Client #9" style? Well the SEC is wondering too (gee, a cop! Now that's a first!)

"The U.S. Securities and Exchange Commission is probing whether credit-rating companies changed the way they graded debt as the market for products tied to subprime mortgages boomed earlier this decade, its chairman said."

Heh Barney (Fife)! The horses are all gone but the barn's open! Quick - bolt the door!

Oh, and now that the cops have showed up (unfortunately they knocked instead of just kicking the door in), look at what Moody's decided to do:

"Moody’s Investors Service has decided that it’s finally time to downgrade investment grade subprime RMBS — you know, the Aaa-rated stuff? Between Monday and Tuesday, calculations by Housing Wire show that the rating agency has slashed ratings on 1,923 tranches from 232 seperate subprime RMBS deals from 2005-2007 vintages.

That total includes hundreds of formerly Aaa-rated securities, as Moody’s embarked on its largest round of downgrades to investment grade subprime MBS since the credit crisis began."

"Heh Pedro! The damn cops are at the door! Quick - flush the drugs down the toilet!"

The list is truly unbelieveable in its scope and size. Check it out.

Now here's the ugly with that. Any of that used toilet paper, er, "AAA" subprime bonds now ain't "AAA". This means they're ineligible at the Fed Window, which means there may be a hellfire storm of "putbacks" coming out of the NYFed the next couple of days with demands for replacement of those instruments.

This could get quite amusing among the various banks that have undoubtably posted that trash against Treasury loans!

And it gets better! National City (NYSE: NCC), which yesterday announced a huge capital raise and monster dilution got hit yesterday with a "putback" notice on First Franklin:

"National City Corp. reported Monday it has received an indemnification claim notice alleging that the Midwestern bank breached the terms of a September 2006 pact selling its First Franklin home mortgage unit to Merrill Lynch & Co."

"Heh jagoff - that damn thing's ticking! Take it back!!!!!"

The open question is whether the "accredited and institutional investors" that bought that NCC offering knew about this up front. Wanna bet the answer is "no"? I'd be more than a bit pissed on this one, given that First Franklin was one of the "famous" subslime originators..... anyone wanna bet they're getting buried with loan putbacks due to fraud-at-origination?

Next up we have Target who seems to have a small problem with their credit-card portfolio....

"April 22 (Bloomberg) -- Target Corp., the second-largest U.S. discount chain, said it wrote off 8.1 percent of its credit-card loans in March as consumers grappled with job losses and the biggest housing slump in a quarter century."

Heh, that's great no? Psst - it was 6.8% in February, which is a 16% increase. In one month. Oi.

Ambac posted a loss roughly double its stock price, or $11.69/share. Is that good? More importantly their business has basically disappeared:

"Ambac, the second-largest bond insurer, was ``severely impacted'' by the plunging value of mortgage-related guarantees, interim Chief Executive Officer Michael Callen said in the statement. New business slumped 87 percent as states and municipalities shunned its insurance and the market for mortgage securities dried up. Ambac ratcheted up estimates for claims it will need to pay on home-loan debt by $2 billion."

How do you remain alive as a business when your business falls off 87%?

The lyin' is now so thick in our financial system that you literally can't go 24 continuous hours over the last two weeks without some CEO making some sort of statement that is proven to be false within the next couple of days!

Every one of these clowns needs to be taken in irons and marched through the floor of the NYSE in a monster chain-gain-style perp walk.

I wonder if CNBC would cover it?

Go long lawyers!

Speaking of lawyers, there's lots of work for them in Californicated. Dig this report out of LA:

"From DataQuick's report on California foreclosures in the first three months of 2008: "Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter. ... Last quarter's total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007."

That translates into 517 foreclosures every day in the first quarter of 2008.

DataQuick president Marshall Prentice: "The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the 'loans-gone-wild' activity happened in late 2005 and 2006 and that's working its way through the system. The big 'if' right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans.""

Could?

More like "will, with certainty."

Can I double down on that "go long lawyers" wager?

By the way, if you think deflation can't happen here, well, you're wrong. I've talked about the why and where several times but Mish has recently published a long article on this as well. Check it out - its a good read. Nothing in there that I disagree with, and in fact its pretty much what I've been preaching on for a while, but its nice to see other people can actually add up the numbers (specifically the Level 2 and 3 "assets") and come to a reasonable conclusion on the odds of being able to "bail it out."

The math ain't that hard folks; even though the numbers are large, a calculator can handle it.

So can you.

The Euro hit $1.601 against the dollar yesterday as the ECB started making noises about raising interest rates:

"The euro traded within a cent of the record against the dollar after European Central Bank officials said they'll increase interest rates from a six-year high if inflation doesn't slow."

Well that's gonna leave a mark (on Ben); that "massage" was delivered with a baseball bat.

To the nose.

At full power.

See, now Bernanke has a nasty situation on his hands. He can continue to add liquidity and drive rates down further or hold them where they are, and we get $150 or even $200 oil while the Euro winds up towards 2.0:1

Or we can say "price inflation wins over the pigmen" and drain the swamp, exposing all the idiots who have been swimming with no suit.

The problem with doing #1 is that the economic outlook for the US goes straight in the tank if price inflation doesn't quit ramping, and he knows it. Ben also knows that the CPI print last month was artificially depressed, but people's wallets can't be fudged. You can say inflation is controlled but that doesn't make it so, and as gas prices head north of $4 and diesel heads north of $4.50 the calls for his head will increase dramatically in volume.

In short Ben no longer has any cover among the rest of the Central Bankers - the "thesis" that many "hyperinflationistas" and "metalheads" have had that we'd engage in "competitive devaluation" of our currencies has now been shown to be complete and utter horsecrap.

Instead reality is that both the Europeans and Chinese are decreasing liquidity and forcing interest rates (and in the case of China, reserve requirements!) higher, even if it means they might hurt their equity markets, because the price inflation genie is more feared.

With good reason, by the way. Been to the grocery store lately?

Ben is now stuck with the reality that the other Central Bankers and governments are going to save their own butts and leave him hanging by the rope. They have (correctly) deduced that it was his (and Greenspan's) lack of regulation that caused this mess and there's no reason why they should "eat" the consequences. "Sold ra roo Bendover!"

What's worse? 2 million wealthy Americans who get smacked in the stock market and 50 million more who take some damage in their 401ks (which can be avoided if you have a brain and read my Ticker on the long-term timing signal - quick - its still over at http://ticker-classics.denninger.net/ right near the top) or 300 million Americans who find out that hamburger is now $8/lb, cheese is $6, milk is $6/gallon, eggs are $3/dozen and gasoline is pushing $5?

Hmmmm.... one leads to irritated investors and people who thought they had a big 401k now relying on Social Security.

The other leads directly to the potential for pitchforks and torches - "They Only Come Out At Night" (yes, I like Edgar Winter ) stuff.

I wonder which is the better choice?

And before you nod in agreement with "our economy is fundamentally strong" from Bush (or Paulson), or worse, listen to the Democrats pontificate on how they're going to tax our way to prosperity (and then spend double what they tax), let me remind you that both Democrats and Republicans alike saw "ethanol" as a viable solution to our energy mess.

In just five years since Ethanol became a religious altar at which both political parties worship world food prices have increased by nearly 100%, with 83% of the increase coming in the last three years. Rice has gone from $100 a ton to $1,000 in five years, and potash, a critical fertilizer for enhancing yield, just quadrupled in price - literally.

What's worse is that now animal feed (made from those same grains) has gotten ridiculously expensive and as a consequence there's a lot of "early slaughter" going on. This has kept beef reasonable - for now - but cows take longer to grow up than to slaughter, and when the stuffing of the kill pens is complete I suspect you're going to see a very interesting price reaction in the beef markets.

Recessions, I note, are not evil things. They are in fact necessary as they cull the deadwood from our economy. The bad ideas literally go bankrupt in a recession and the good remains.

By attempting to deny this we blew a hideous housing bubble, we looked the other way while fraud and manipulation of our markets - across the board - became the rule rather than the exception, and we killed the middle class family's ability to prosper. Our "investment banks" are stuffed full of used toilet paper marked as "worth" billions, which they dutifully claim as part of their "capital", never mind that nobody will give them a dime on the dollar for it. Our community and commercial banks are in even worse shape with hundreds of billions of HELOC debt on their books (marked at "100%" of course) with a good part of it - perhaps as much as half - being utterly uncollectable. Downey is just one example - a 1300% (!) increase in delinquency rates in just one year.

That, obviously won't go on for long - either it stops or they go bust. Period.

At the same time the PPI is up 7% but we pretend that "Core" consumer inflation is 2%. Why? Simple - Social Security payments are indexed to CPI. If the government reports true inflation numbers they have to add to Granny's check. Instead they bend Granny over the table and take turns at her - a 5% annual deficiency in her purchasing power, due to the negative impact of compounding, cuts her purchasing power in half in about 10 years.

The politicians, of course, hope she dies (or at least becomes too infirm to act) before she figures it out and grabs for the pitchfork and torch.

Is there a way out other than into the Belly of The Beast, who will "process" us first?

Maybe.

If we act soon.

We can as Americans demand that The Fed and Congress drain the swamp.

No more lying.

No more SIVs, Level 3, or "held for sale" assets marked at cost of acquisition instead of what the market says they're worth. Even if it hurts.

No "excess" liquidity.

Drain the $200 billion in slosh down to a more-normal $50 billion, and where interest rates go as a consequence, they go (yes, they will go higher - significantly higher.)

Pay down that debt which can be paid down, and default that which cannot.

Sell off the seized collateral for whatever it brings, no matter how good - or bad - that might be.

America's obsession with 30-second sound bites means that these last paragraphs will be read by only hundreds, instead of millions.

Had we bothered to pay attention in math class in Elementary School, say much less High School, we would realize that this sort of intentional understatement of inflation, along with all the crooked inflating of assets and "earnings" simply siphons money out of our wallets, and we would rise up and stop it.

We would not sit here and listen blithely to Barack Obama and Hillary Clinton this evening pontificating about everything that is broken in the world except what's really broken - the fact that he, just like all the other politicians, are the reason we're in this mess and staring down Lucifer's maw. Both their speeches this evening were great pablum but neither stood at the podium and said "No more lying, no more fraud, everyone who pulls this sort of stunt goes to prison under my administration whether it be the CPI that is manipulated or a bank CEO lying under oath on The Hill. Our nation's businesses and our government will report only the truth without trick or scheme, and those who fail to do so will be held accountable to the fullest extent of the law."

But we are, collectively, more obsessed with American Idol, and therefore sit in the pot while the water temperature slowly rises, inexorably boiling us to death.

Let me know when (if?) you (and your neighbors) wake up and reach for the (verbal, at least) pitchfork.

Today, I hear America snoring.

Here is an announcement from some fine folks at Tickerforum:

What: “Clean The Street” Event

Where: New York City at Bear Stearns Headquarters (that’s located at 383 Madison Avenue in East Manhattan)

When: April 25th at 7:30am

Attire: Business Suits (but if you don’t have one then just come as you are)

Why: On April 25th concerned Americans will gather at Bear Stearns Headquarters in the heart of Wall Street to protest federal financial irresponsibility and the UNCONSTITUTIONAL taxpayer-backed bribe to JP Morgan to acquire Bear Stearns.

We have chosen this as the starting point for our protest because it represents ground zero in the Federal Reserve and Administration's efforts to continually cover up financial losses and encourage and reward unwise risk-taking in our financial markets.

Please join us on April 25th and show your commitment to a sound and stable financial system that will benefit ALL Americans.

ToDo: Check out our website at http://fedupusa.org/

Then show up on April 25th at 7:30 am at BSC headquarters

Donate: Even if you can’t make it to New York, you can still help out by donating to the cause. Your donations will be used to send others to New York (who couldn’t afford to go otherwise). Any leftover donations will be used to cover expenses like printing of flyers and petitions. If you want to make a donation the "PayPal" address to send to is no-wave@sbcglobal.net

See the web site for more info.

These are good people doing the right thing.

Support them.