The Market Ticker

I just received one of the famous "fundraising calls" from the RNC.

They were soliciting people to give them money (and tried for slightly over $3k!) to "stop Obama's Health Care plan that will cost $1 trillion."

Oh boy did that poor sap get an earful.

I "explained" that:

• $1 trillion is a lot of money.  $12 trillion is a lot more, and that's how much the RNC has allowed to be pissed away backstopping and rewarding people who have stolen from the American people through bailouts and handouts, all of which have gone to the very people doing the stealing!
• John McCain, to whom I gave a significant campaign donation, returned my favor by suspending his campaign to push through the EESA/TARP, a bill that by 300:1 margins the American People opposed.
• If the Republicans are the party of the people why is it that they are allowing these bankers to steal over $30 billion dollars by re-ordering transactions to generate the MAXIMUM in overdraft fees?  That's FRAUD and yet it was under a REPUBLICAN administration that this happened.
• The Republicans have for years presented themselves as "conservatives" and the party of "family values."  Why is it that "conservative" doesn't include calling for EACH AND EVERY ONE OF THESE SCAMMERS TO BE THROWN IN PRISON and WHY IS IT THAT I KEEP HEARING ABOUT SOME FLOOZY SCANDAL FROM THESE SO-CALLED "FAMILY VALUES" CHAMPIONS?
• The ONLY difference between the RNC and DNC is that the DNC tells me up front that the Democrats intend to gang-rape me at the outset.  The Republicans claim to intend to protect me, but then after I lower my guard I am violated from behind without warning.  This is unacceptable but if I am forced to choose between being warned first and being lied to I'll take the warning thank you very little.

I made clear to THE RNC that if they want one thin dime from me they can call again when every Republican Senator and Representative masses together on the steps of the Capitol and states in one loud, clear voice for all in America and every TV Network:

We will do no more work nor vote for any other action until each and every one of the banksters, scammers and frauds that destroyed our American economy is under indictment and facing charges for their criminal acts, and the improperly granted bailout funds - all of them - are CLAWED BACK from these frauds to the maximum possible extent.

We will do no more work until the banks are required to process transactions in the order they come in and are PROHIBITED BY LAW from charging "overdraft fees" under any other than an existing, voluntarily-subscribed and OPTED IN overdraft LINE OF CREDIT.

We will do no more work until the scammers currently dumping garbage into the FHA are STOPPED AND PROSECUTED and the FHA program is reworked to require 20% DOWN PAYMENTS, 36% DTI maximums and FULL UNDERWRITING with CRIMINAL PENALTIES for false submissions irrespective of who makes them.

We will pledge to shut our pie holes about "family values" until each and every one of us can keep our penis in our pants, except when used to urinate or have sexual congress with our WIFE or SIGNIFICANT OTHER, and the HYPOCRITES in this regard have RESIGNED - all of them -  forthwith.

I was a dyed-in-the-wool Republican since I first gained the franchise in 1981.  I voted for Ronald Reagan, both Bushes and straight-ticket in state and local races for nearly 30 years.

The Republican Party is supposed to be the party of fair dealing, capitalism, honesty and supporting the effort of individual Americans to get ahead through their own hard work, living within the rule of law.

It has instead become the party of kleptocracy, the party of jackbooted corporatism abusing its power to stomp on the neck of the lower-income American, the party of fraud, the party of hypocrisy and the party of theft-at-gunpoint from every American in support of all of the above. 

None of this is acceptable; the RNC's "core values" as practiced (as opposed to as-stated) read more like something out of Nazi Germany than anything I can reasonably associate with a legitimate political party in The United States.

If the Republican National Committee wants one dollar or more importantly, one vote from here on, those are my terms and conditions, and due to the blatant lies from their mouths over the last decade I will no longer accept promises of future action - instead, I demand that I see the action from the RNC and the Republican Caucus FIRST.

Gee, more truth-telling this morning!

In its latest assessment of the $700 billion financial system bailout, the Congressional Oversight Panel warns that banks still hold many risky loans of uncertain value. If unemployment rises sharply or the commercial real estate market collapses -- as many economists fear -- the banking system could again lose its footing, the panel says in a report to be released Tuesday.

"Uncertain value"?

Oh do come on.

Let's look at the actual information that the COP put out, minus the usual media spin job:

The Panel's report raises several questions about the program, including whether accounting rules that allow banks to carry assets at higher valuations will diminish their willingness to sell.

English: We still have banks that are engaged in what amounts to accounting fraud when looked at through any sort of objective lens, but its all "ok" because we have "accounting rules" that say you can claim something is worth more than it really is.

For smaller banks, those not among the 19 stress tested bank holding companies, troubled assets pose special challenges that have not been acknowledged. These banks' troubled assets are generally whole loans, which are not currently being addressed by Treasury's PPIP program. These banks also hold greater concentrations of commercial real estate loans, which pose a threat of high defaults.

English: Intentionally-overstated valuations on paper is more important when you're smaller and have more concentration of trash, especially when that concentration is in the sector where almost no recognition of true value (commercial real estate) has yet taken place.  Bluntly: These banks are screwed (Guaranty, Corus and Colonial are just a few examples.)

Treasury and relevant government agencies should move toward greater disclosure of the terms and volume of troubled assets on banks' balance sheets. Because banks typically disclose few details about the toxic assets on their books, it is difficult to gauge the magnitude of the risk that these assets pose to the financial system.

English: Treasury, including the OTS and OCC, are willfully and intentionally allowing banks to issue overly-rosy statements and valuations, and are permitting the hiding of losses.  Oh, The Fed is too - let's not forget them.

The full report can be found here; a few choice tidbits:

For many years, banks were required to mark their assets to market, meaning they listed the value for many assets based on what those assets would fetch in the marketplace. In response to the crisis, banks have been allowed greater flexibility in the way they value these assets. In most cases we would expect the new rules to have permitted banks to value assets at a higher level than before. So long as they do not sell or write-down those assets, they are not forced to recognize losses on them.

English: In response to the crisis the government has made legal accounting fraud.  So long as this fraud is maintained and the cash flow does not choke off paying the light bill, these banks can pretend to have plenty of assets and capital when in fact they are bankrupt.

Unfortunately if they do run into cash-flow problems the taxpayer will take hideous losses, since when the FDIC finally comes in to seize them the true "value" of these assets will be exposed.  This has and will continue to result in losses of 40% or more of the asset base by the Deposit Insurance Fund, which is immediately passed on to the taxpayer.

One-sentence reduction: We legalized accounting fraud and have and are sending the taxpayer the bill to the tune of hundreds of billions of dollars.

If the economy worsens, especially if unemployment remains elevated or if the commercial real estate market collapses, then defaults will rise and the troubled assets will continue to deteriorate in value. Banks will incur further losses on their troubled assets. The financial system will remain vulnerable to the crisis conditions that TARP was meant to fix.

English: Unemployment will remain elevated, there is no evidence of actual slack coming out of the employment market (see my previous Tickers on the subject) and commercial real estate has no chance of being "ok" so long as consumers are not only being laid off but are in fact giving up and exiting the labor force! 

One-sentence reduction: The financial system is screwed.

This crisis was years in the making, and it won‘t be resolved overnight. But we are now ten months into TARP, and troubled assets remain a substantial danger to the financial system. Treasury has taken aggressive action to stabilize the banks, and the steps it has taken to address the problem of troubled assets, including capital infusions, stress-testing, continued monitoring of financial institutions‘ capital, and PPIP, have provided substantial protections against a repeat of 2008. These steps have also allowed the banks to take significant losses while building reserves. Nonetheless, financial stability remains at risk if the underlying problem of troubled assets remains unresolved.

English: Treasury has conspired with the banks to intentionally pump stock values which has led to them being able to sucker people into giving them more money for what will soon be proved to be worthless stock.  The bagholder is you.  No real progress can or will be made on "troubled assets" because doing so would force recognition of bankruptcy of these institutions; "waiting it out" depends on the fanciful belief that consumers will be able (and willing!) to borrow, but there is no more borrowing capacity in an amount sufficient to make this happen.

One-sentence reduction: We're screwed and a repeat of 2008, writ even larger, is now visible.  Be long guns, ammo, and food and short banks.

Credit derivatives on sub-investment grade assets create large amounts of unregulated exposure to potential defaults on lower quality loans, amplifying the effect of defaults. Similar to past due securitization assets, credit derivative exposure for subinvestment grade assets experienced a significant uptick in the same period. Sub-investment grade credit derivative exposure for the 19 largest BHCs grew from $1.6 trillion in year end 2007 to $8.9 trillion in the first quarter of 2009 as a result of downgrades. (Page 32, main report)

English: These banks thought they could "hedge" their risk with credit derivatives and as the risks became more apparent they radically increased their reliance on these instruments.  Unfortunately the counterparty almost certainly does not have the money to pay ($8.9 trillion?!) and as such these so-called "hedges' are probably worthless.

One-image reduction:

Given knowledge about the individual or entity that the loan was made to, and the value of its collateral, it is fairly simple to calculate default and recovery rates.71 For these reasons, the Panel focused its quantitative efforts on modeling losses in whole loans, assets which represent over $5.9 trillion in the 719 banks modeled by the Panel.72 The Panel also chose to model only whole loans because they are the only troubled asset for which sufficient information is available.

(The report goes on to talk about how it modeled potential losses, along with some other institutions that have run their own models, including RGE Monitor.  I note that RGE has a total write-down amount approaching $3 trillion, which is approximately where I placed total losses two years ago when this began, under completely-independent methodology.)

English: Under conservative valuation models and assumptions we are about half way down with the write-downs and losses. "Rosy" estimates suggest that we are 2/3rds of the way done.  No estimate at the present time suggests that the banks have sufficient capital, are sufficiently reserved, or have been honest with their forward exposure.

One-image reduction:

The future, according to the COP:

The nation‘s banks continue to hold on their books billions of dollars in assets about whose proper valuation there is a dispute and that are very difficult to sell without banks experiencing substantial write-downs that can trigger a return to financial instability.

English: The banks are and have been lying about the valuation of these securities.  Telling the truth, whether "voluntarily", by regulatory demand or by sale of these assets will trigger further instability in the market as the lies will be exposed.

The green shoots are in fact marijuana plants and the media has been smoking them.

Month/over/month inventories down 1.7%, annual y/o/y down 10.8%.

Durables down 1.5%, annual down 10.4%.

I am especially interested in the internals of this report, particularly, paper goods as these are a good indicator of packaging demand, along with metals (industrial demand.)

Those numbers are just plain nasty: Paper was down 2.7% m/o/m while metals were down 6.2% m/o/m.

The sales numbers weren't any better:

Sales. The U.S. Census Bureau announced today that June 2009 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $313.1 billion, up 0.4 percent (+/-0.7%)* from the revised May level, but were down 21.0 percent (+/-1.4%) from the June 2008 level.

Yowza.

Note the sampling error on the monthlies - we're inside the uncertainty, which means that basically the number was flat.  But the annual change is just plain nasty, given that we were well into the recession (according to the NBER) last summer, and as such were well down the demand curve.

There's nothing in this report to indicate that "the recession is easing."

From Bloomberg:

Aug. 10 (Bloomberg) -- Two years after credit markets seized up and caused the worst financial crisis since the Great Depression, companies are hoarding the most cash in at least a decade.

......

Even as government reports show that the first global recession since World War II may be easing, corporate treasurers are raising cash as fast as they can, wary of losing access to capital. Corporate defaults reached 10.7 percent worldwide in July, the highest since 1991, according to Moody’s Investors Service. Credit markets that started to freeze in August 2007, have now triggered more than $1.5 trillion in writedowns and losses at the world’s biggest financial institutions.

Do you really think the crooners on CNBC and in other parts of the media are smarter than the CEOs and CFOs that run our largest corporations?

But never mind Bloomberg, they'll try to plant "green shoots" through misleading reporting:

The recession may have ended in July, said Jeffrey Frankel, a member of the committee at the National Bureau of Economic Research that dates business cycles. The median estimate of 60 economists surveyed by Bloomberg is for growth of 2.10 percent in 2010, after a contraction of 2.50 percent this year.

A member?  This is what NBER's Hall had to say yesterday at 2:30 this afternoon:

National Bureau of Economic Research's (NBER) Hall: May wait until economy moves past prior high before deeming recession over; could take 18 months - Comments that the upturn could in fact be part of a larger decline.

How come that comment wasn't part of Bloomberg's story?  Oh wait - they have it in a different story!

Aug. 10 (Bloomberg) -- Declaring the U.S. recession over may take more than a year because of the risk that recent signs of stabilization will prove short-lived, according to the head of the group charged with making the call.

Ah.  And what have I said?

Complicating a recovery call is the possibility that renewed declines in financial markets or home prices will cause the economy to shrink again, Harvard University economist Martin Feldstein, former head of the NBER and a member of the committee, said in an interview this month.

“There is a risk that we will have a couple good quarters and then suffer a temporary setback at the end of 2009 or start of 2010,” said Feldstein.

Exactly.  Home prices are not done going down and the S&P 500 is currently priced at a P/E of 140 - a level never before seen in the index, ever, at any time in American history.

Never mind the latest from China:

Exports fell 23 percent from a year earlier, the customs bureau said. Industrial production gained 10.8 percent, the statistics bureau reported. New loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of June’s level, the central bank said.

But but but but.... I thought stimulus would fix everything?  That demand hadn't really fallen off a cliff?  That the economy was turning, and final demand was in fact bottoming and starting to re-accelerate?

Was that all a pack of lies?  Maybe.

Does the stock market reflect irrational exuberance?  Maybe. 

If not, however, the S&P is pricing in a nearly 5% GDP growth for each of the next four quarters.  Note that there is absolutely nobody in the economic community with any sort of credibility that is actually forecasting that sort of meteoric rise in production.  Nobody.  But that's what the stock market at today's price, never mind any advance from here, has "priced in" on a forward basis.

Follow what people who have their ear to the ground do, not what they say. 

What they're doing is raising cash, spending prudently if at all, and avoiding leverage.

Sounds like a good plan to me, and these are not the actions of a bunch of cowboys doubling their bets into the recent stock market euphoria.