The Market Ticker ®

FLASH: Senators Dodd and Conrad are among the government officials who scored V.I.P. loans from C.E.O. Angelo Mozilo (these bastards all need to be impeached and indicted - not necessarily in that order!  There will be a weekend edition focusing on this story.)

So Lehman closed its transaction yesterday; they actually managed to get the money.  Of course this is not a huge surprise, given that once you hit the "buy" button (whether in the free market or not) there isn't much you can do about it.

Just ask the fools who bought Bear Stearns as it was sliding, and then ultimately wound up with $10 or less a share.

The number of chainsaw-jugglers in this market continues to amaze me.  Why would anyone in their right mind have bought into that deal?  What, you think you didn't have warning?  Let's look at it for a second:

• AHM goes down, and their business gets picked up by Wilbur Ross.  How much do you think he has lost - thus far?
• Countrywide did a big convertible offering last year.  Poof.
• NCC did an equity deal recently.  Bang.

And on and on and on. The financials keep managing to find suckers who literally are playing fire starter with $100 bills!  You have to be farm-animal stupid to be doing any of these deals at this point.  Buy Lehman's stock in a deal like this?  Why?  You can buy it for $5 less in the open market!  That's a huge and immediate loss and it doesn't matter if it "works out" later on or not - its still a real loss compared to what you could have bought the stock for in the open market yesterday or, for that matter, in any of the last few days.

Bottom line: You can't buy or own any financial firm's stock in this market.  They are all liars and until we see true and complete financials, with no "mark to fantasy" and no "wraps that are in fact worthless" absolutely nothing these firms tell you can be trusted.  As such if you've got your money in any of these firms and it is not covered by FDIC insurance you are a complete idiot and deserve what you get.  Ditto if you own or buy any of these stocks - your IQ is best approximated by a box of rocks if you claim to be doing anything other than pure gambling.

Retail sales were better than expected, but continuing claims for jobless benefits hit a 4-year high yesterday.  This was all spun as "good news" as the consumer didn't fall off a cliff.

Yet.

Never mind that $160 billion was thrown at them, and of course being "good Americans", they spent it all.

Plus more, in all probability, which is a small problem given that we have this little debt issue in the United States.

Nobody wants to talk about that, you see.  Nor does anyone want to take away the punch bowl, because doing so means that we will suffer a very deep and possibly quite-long recession.

But let's be straight here - we can choose a recession now or we are risking a full-on depression if we keep attempting to spend more than we make.

And make no mistake - this is as much about your view of enTITlements as anything else.

Yes, you, Dear Reader.

You, collectively, had better pull your heads out of your collective butts, and do it now.  Quite simply we are out of time to do the right thing, and the wrong thing done now will come crashing down upon us and our children.

Not that I expect many of you to care.  You will go turn on Hannity, Limbaugh, or for that matter "Air America" and hear the same thing.

• America's economy is fundamentally strong.
• We're talking ourselves into a recession that doesn't exist.
• The problem with oil is evil oil companies (or speculators), or alternatively, we can drill our way out of this.
• The rich don't pay their fair share of taxes.
• The Capital Markets are working well.
• Goldilocks lives.

Oh, and if you watch CNBC, your IQ will drop by 5 points for every hour you have it on.  Today they had a "response" from a viewer that said, basically, "ban speculators from commodities and force them back into stocks and bonds."

That person has an IQ smaller than my shoe size.

Why don't we ask why are the pension funds and indexers in commodities in the first place?

See, that would force us to ask why we have bond rates that are below the rate of inflation, creating a circumstance where there is a negative net rate of return. 

Want the answer to that question? 

Its you.

That's right, its you.

You who have put forward the idea (and supported it with your purchases) that its a good idea to offshore your jeans to Vietnam where they are sewn for 10 cents/hour.

You who have bought that $30 Chinese DVD player at WalMart.

You who have banned oil exploration off the Gulf Coast of the United States, California and in Alaska, but drive a pickup truck, SUV or worse, operate a powerboat that burns 60-100 gallons/hour.

You who have refused to allow the construction of hundreds of nuclear power plants, and now want to bleat about how "dirty" coal is when burned to fuel those very same power plants - after leaving us with that as the only available alternative.

What's the transmission mechanism here?

You buy crap from overseas.  The money goes there.  Those governments can't allow that cash flow imbalance into their economy lest it cause insane monetary inflation there, so they "recycle" into the bond market.  This in turn drives down yields and up prices, with the consequence that bond yields are below price inflation - net negative interest rates.  These governments are willing to take an intentional loss specifically to fuel your stupidity and bankrupt our country, but the blame is not theirs - its yours!

Now why would a pension fund manager (or anyone else) buy that except in a panic when they think anything else might go to zero?

Well, there isn't a reason, is there?

But what happens when we reach the limit on our credit cards?  When we can no longer HELOC out money from our house and blow it on IPODs and IPhones?  When all of this stupidity has driven gasoline to $4/gallon, squeezing us from both ends?

That buying ends, right?  And as you stop buying, so do foreign governments who no longer have a reason to take a negative real rate of return.

Rates rise.

Now consider that The Federal Government has promised you $100 trillion dollars of entitlement spending, and President Bush is responsible for about 30% of it with Medicare Part D, which he put in place to great cheers from the Democrats and YOU during his time in office.

You know what's coming?

Well, let me give you a hint.  The TNX, or 10 year bond rate, was up 3% on the day yesterday.  This should have produced a 500+ point rally in the Dow, but it didn't.  What it did and will do is increase the price of mortgage money, which causes an immediate hit on the value of your house.  The same house that has already seen somewhere between 5 and 30% of its value disappear over the last year got whacked for another percent or so yesterday. 

Foreclosure rates are out this morning and they're up fifty percent. 

Don't worry, we're nowhere near the top of that mountain yet; the bill for your demands for a "free lunch" over the last 20 years has just begun to be presented.

There are many crooners on CNBC and elsewhere saying that The Fed won't raise rates.

The Fed doesn't set rates.  It follows the market.  The Fed cannot do anything about this; they are handcuffed and attempting to hold rates below their natural levels requires ever-increasing amounts of "slosh" be injected into the markets which then travels into places like oil and causes us to have $4 gasoline!

The general trend upward in real interest rates will not and cannot change unless we have a depression or we stop spending more than we make, both individually and as a nation.

Why?

Because the Treasury is being forced to issue more and more bonds, driving down prices and up rates, irrespective of anything else!  You have demanded that the government spend money it does not have, which is driving up the cost of borrowing for everyone, including both the government and you.

You want "free" medical care when you get old, but there is no such thing as free medical care, free retirement payments or free anything else.

Bluntly: there is no such thing as a free lunch.  You cannot vote yourself a paycheck from the Treasury, although politicians want you to think you can and they thus promise you something that in fact is nothing more than a circle-jerk.

If you try to "vote for a living" the money in fact comes out of your pocket - either immediately or down the line.  Your "stimulus check" has already been charged back to you in the form of higher borrowing costs. You didn't get anything from the government - you just moved the money from one hand to another, and interest was added to it!

If you try to kick the can down the road it gets bigger and more full of cement with each kick. 

Sooner or later you kick and break your toe instead of moving it further along.

That day is now here.

We have a critical choice to make, here and now.

Medicare and Social Security are bankrupt folks.  They cannot be saved in their present form.  It is not possible.  This is mathematics, not what I or anyone else wants. We can either face this reality or it will consume our nation and economy.  Period.

House prices must come down to 2.5-3x incomes.  They must and will; if we attempt to prevent it from happening we will simply spread the ugly to everyone including those who did not speculate and those who did not profit from the bubble.  Down that road lies a potential nuclear detonation (to the tune of more than $2 trillion) on our Federal Government's balance sheet in immediate cash demands - we must not allow that to happen as the government - and we - do not have it.

Debt must be reduced dramatically, both personally and as a nation, and it must start now.  This means no more bullshit about stimulus checks or "housing bailouts."  It means the end of Fannie, Freddie and the FHA giving out unsustainable and mathematically unsound mortgages, which all of them are still doing.  It means no more hidden and fraudulent ratings on debt, and no more off-exchange, no-margin-supervision trading instruments for regulated entities in the market.

All of this has to happen right now.  We can either choose to do the right thing or we can be consumed by the consequences of doing the wrong thing, including sitting on our butts while others bleat about what they want.

Late yesterday Yahoo and Microsoft officially blew up on any potential combination.  Ichan, who everyone was shouting about as The Messiah, is screwed, stuck with a huge position he has no chance to unload at anything close to his purchase price.  Awwwwwwww, yet another chainsaw catcher gets his nuts cut off!  That's what you deserve - and get - when you start trying to play "LBO guy" when the "easy money" guys have all left the stage and the economy is deteriorating!

Headline CPI up 0.6% on the month, 0.2% on the Core, both adjusted.  Unadjusted it was up 0.8%, and 1.0% for urban workers.  That's a 7% headline CPI rate.  Yow. 

Believe it or not, the futures moved higher once this got digested a bit, up about 10 handles on the /ES and twenty handles on the Nasdaq!  Huh?  What are people smoking here?  A seven percent price inflation rate is considered "good news"?  CNBC says so.

My question to you is this: Did you fail math?  What are the odds you got a 7% increase in your earnings this year at your job?  "What is zero, Alex?"

Now tell me how consumer spending holds up when your rate of increase in spending power is 3% but prices rise at 7%.  That would be a 4% decline in consumption, and with consumption being 70% of GDP that translates directly into a -3% "contribution" to GDP going forward, inflation-adjusted.

Welcome to the recession.