Not-Durable Durable Goods, And More Bear Stearns

Well, there goes the "resilience" claim.

Durable Goods fell 2.6% ex-transportation, down 1.7% headline.

Inventories up, durables down, non-defense new orders down, shipments down, January revised up slightly.

Unfilled orders were up, which is the only good news in there.

Most ominously in the internals, machinery orders are down 10.3% on the month. This is a particularly nasty number because machinery is, of course, necessary to make "things", which turns into GDP, and these are the "900lb Gorilla" when it comes to durables - they are things like EDM machines, lathes, CNC mills, etc. They're big, very expensive, have a long life, and you buy them if you think you will have capacity demand in the future.

You stop buying them when you think you can fill your order book's need for the next six to 12 months without purchasing new. Most of this equipment has a ~10-15 year service life, so a 10% decline is basically a wipe-out on capacity addition.

Motor vehicles (cars, trucks, etc) and parts were also down significantly, 2.7-2.8% both for shipments and orders.

Semiconductor shipments were down a colossal 31% month-on-month. Thirty-one percent?! They were up big last month and that's normal as manufacturers rebuild stock after the Christmas season - if that demand has collapsed then it portends poorly for people in the Tech Sector. When you add JBL's warning last night to this.... Hmmmm....

No recession eh? Yeah, right. This is two durables reports in a row that show business wallets are snapping shut as are those of consumers.

What's a recession? A generalized contraction in economic activity.

What does this Durables Report show?

Not only a contraction in retrospect in the form of actual orders in the past month, but a contraction on a new orders basis - that is, a contraction looking FORWARD as well.

Tonight we get Oracle's numbers, which will be interesting not so much from a standpoint of the report itself but what sort of commentary we get on order trends. Their software is expensive both to buy and maintain (maintenance costs on products like this typically run 20% of purchase price annually); a lot of this maintenance expense is essentially mandatory.

Citibank agreed to settle claims related to the collapse of Enron and their involvement in same. Big bucks, but now over. Gee, think we might have a new round of that coming up when the dust settles on this mess? Hope springs eternal.

New Home Sales came in down 1.8%, slowest pace since 1995, and down from January which was also down 1.6%, both seasonally adjusted. Inventory not down at all. Prices down 2.7%, which is going to continue to hammer margins, and of course these price numbers are not including all the "hidden incentives" that builders are granting to buyers. The 900lb gorilla is the inventory numbers - until we see inventory come back to reasonable levels we're not going to anywhere.

Kudlow's show last night had a guest on who put things in the proper perspective - the market will clear when buyers and sellers find price equilibrium. That hasn't happened yet, and the claim that all these "auctions" will clear the backlog are false - nearly all of these auctions aren't really a price-discovery mechanism as they are not absolute auctions, and the banks are bidding on their own properties. Until that stops and properties sell for the highest bid price discovery has not taken place.

Further, as was pointed out last night on Kudlow (correctly), the wealth destruction is real and you can't ignore it. The same people who claim that "home price appreciation has fueled consumer spending" over the last six years are now arguing that home price declines won't translate into consumer behavior on the way down. This is outrageously duplicitous, but you rarely hear anyone get called on it - and never on Bubble Television.

There are an amazing number of people in the "investment community" who are making claims that the s&P 500 will rally by 20% before the end of the year. This is insanity; these people are, almost to an individual, admitting to a US recession but calling for a rally to all-time highs despite it!

1620?

This is the same sort of call that was made all through the 2000-2003 tech wreck - all the way down. At the start of it in 2000 as the indices began to crack these calls were literally incessant, and it continued through until about the middle of 2002 when even the most bullish threw in the towel.

LET'S BE CLEAR - IF YOU BOUGHT THE NASDAQ, SEVEN YEARS LATER, YOU ARE STILL MORE THAN FIFTY PERCENT IN THE HOLE FROM THE TOP, AND YOU ARE STILL IN THE HOLE FROM THE TOP IN THE S&P 500!

Remaining "fully invested" through thick-and-thin does not work if you add money into your account during ANY bubble period, because following these bubbles you typically see a decade or more of flat-to-down index behavior over an extended period of time, and this will murder your long-term performance.

Let's be straight here with people about the clear conflict of interest that is NEVER disclosed on bubble television - UBS' David Bianco is the latest to do this, and UBS only makes money from their retail clients if they buy stocks.

Their interest is in earning the commission from your buys, and whether or not you have a positive return is not material - they can claim a "win" even if you lose, so long as you beat the index straight up.

The key item here is that you still lose money versus sitting in cash!

I repeat - there is a simple timing signal that will not catch the "exact bottom" but it will keep you out of the worst Bear Markets and get you back into the market within a few percent of the bottom. It is the 20w/50w timing indicator that I have posted in The Ticker.
Today, I took that post, extracted out the timing piece, and posted it to Ticker Classics where its easily found by anyone who wants to make use of it.

I believe you are flatly out of your mind to buy equities for long term investment until that indicator goes positive.

Once it does, long-term investors should, in my opinion, move to their normal equity position in their portfolios, but until it does, you are taking a terrible risk, and history is clear that absent outright CRASHES such as 1987 this indicator has NEVER LOST YOU A MATERIAL AMOUNT OF MONEY but it has SAVED YOU from the sort of hideous declines seen in 2000-2003!

Even in "disclocations" such as 1987, the loss you suffered by following it was modest - only a couple of percent. A quick look back using other charting tools shows that it appears to have performed admirably going back over even longer time frames - it produced good signals in the 50s, 60s, 70s and 80s prior to the "mega-run" in all the indices starting in the 1990s.

Bubble Television - including but not limited to Bloomberg and CNBC - will NEVER show you this timing indicator. Why not? Because if they do, once it goes negative there is no reason for them to show you anything else until it moves back to positive, and there is no reason for you to watch their incessant market pumps!

If you're a long-term investor and use basic timing signals like this you won't get sucked into the vortex and you won't lose 50% of your account in these sorts of nasty bear markets.

For long-term investors (e.g. retirement money), isn't that the point?

This is not to say you can't profitably trade the long side even in a Bear Market. You can. But for most people, those who are long-term investors, you simply do not want to be long the market until and unless this indicator turns. Once it does, you get long the market, and when its not, you go to cash. That's all. For the long-term investor turn the bubble TV off and stop listening to the idiots who are nearly-certain to have you buying at the top and selling at the bottom!

Oh, and "The Pigman Extrordinaire", Paulson, was dissembling again today.

"Still, he said that if homeowners who are "underwater" on their mortgages walk away from them, they are no more than speculators and don't deserve special help."

But you will make sure that your investment banking buddies and their enablers, which include the buyers of their debt, such as, for example, Bear Stearns, who are also nothing more than speculators, get special help, right?

This guy is the best argument for a Democrat President I've seen in a long time, and coming from someone who has voted Republican back to Ronald Reagan, that's saying something.

It may be time to change my party affiliation, sadly enough.

FGIC has "voluntarily" suspending writing new business. Uh huh. That's called "going into runoff" for an insurer, and while it doesn't portend instant insolvency, it ain't good.

Clear Channel's debt syndication/finalization (for their LBO) blew sky high last night, tanking their stock. Credit crunch over eh? Worst behind us? Uh uh. There are several hundred billion of these deals "in the pipe" and while banks have managed to get about half of their backlog sold most of it has happened at 90 cents - meaning they took an instant 10% haircut (that's called LOSS.)

There will be more of this - count on it.

IF YOU THINK THE CREDIT MESS IS OVER, OR THAT THE HOUSING MESS IS NOT GOING TO NAIL THE BANKS AND THUS THEY ARE "GREAT BUYS", you better take a look over here at Mish's Blog. This is an absolutely STUNNING look inside one of Washington Mutual's "packaged" mortgage bundles from last year and how it is performing.

Please note that 92.6% of this pool was rated "AAA" and yet 22.7% of that pool is 60 days delinquent while 3.5% of it is now actually foreclosed and held by the bank!

This is NOT being talked about nor is it being taken into consideration by the crooners like Dick Bove. This is where his analysis is wrong and the only conclusion I can come to is that he simply hasn't LOOKED! When he and I talked I asked him if he had a Bloomberg terminal (in other words, has he actually been looking at things like this - is he truly informed) and he admitted that he does not.

Well Dick? What say you to that delinquency data? Still think banks are a "Generational Buy"? This is a new (mid-summer) securitization and since these are all EPDs they're going to get "put back" on the issuer!

Here's the truth about housing bubbles - they always take YEARS to burst and then collapse, and frequently take A DECADE OR MORE. 18 months top to bottom? You're nuts.

Oh, in "Fedspeak" today Fisher has said the economy is in for a prolonged slowdown. Hmmm... reality slipping into The Fed? Gee, but Ben said on The Hill just a short while ago that "the economy remains strong"? What does this mean for equities? If we're in for a prolonged slowdown the last thing you want to be doing is buying stocks!

TRICHET (the head of the ECB) said today, in effect, that to lower rates now would be the same thing as taxing citizens to bail out the banks! He is not going to go along with what we're doing and his message is clear - eat your sandwiches boyz, no matter what's in them, because we're NOT going to bail you out!

BERNANKE, PAULSON, AND OUR CURRENCY have been thrown under the bus by the European Central Bank!

And let's be clear - The Fed has thrown roughly half of its balance sheet at this problem and now the European Central Bank has said "no mas!" to standing with us in the most clear terms possible!

Further, we're not done and real stress, as determined by the "higher risk" yield spreads, has not come in to any material degree, and in fact right now is way above the levels where it sat during the height of the August meltdown!

Ben and Hank are being forced to choose between destroying our currency and economy (and if the "Dollar Carry" gets legs, that's exactly what will happen) or abandoning their attempt to play "hide the sausage."

Here's the problem, in a nutshell:

We are no longer the center of the universe in the United States, despite the raw arrogance of those in our government and banking system who think we are.

Other Central Banks are now able to tell us to get stuffed, and we have no choice but to listen. We cut off our internal energy supply capability and as a consequence we have no defense to such a coordinated attack; we cannot "close up and run internally" any more, as we are required to import huge percentages of our energy supply.

The result of this is that Trichet (the ECB), Australia, Iceland and others can effectively tell Ben to get stuffed and stop with the crap and games or they will simply sit back and shove price inflation at us until we crack, while at the same time the carry folks show up and start treating us as a funding currency and evicerating our financial institutions at the same time, and there's not a damn thing the United States can do about it.

Tick.... tick..... tick......

Looks like The Bear Stearns Deal is starting to get a bit more in the way of ink - and legs.

"But the night that Bear signed the original bid, the Fed opened what's known as the discount window to companies like Goldman Sachs and Lehman Brothers - oh, yes, and to Bear, too. Except that the Fed didn't tell Bear that it planned to open the window when it was signing its deal with JPMorgan.

Had Bear known it might have access to the discount window - a crucial source of liquidity - it might have been able to hold out for a couple more days or at least had enough leverage to seek a higher bid. But the Fed clearly preferred the original bid."

No, really? We would never have a Federally-chartered instrumentality intentionally withhold critical information from a firm under stress so as to force a transaction to take place that, had the information been known, would not have taken place, would we?

Gee, is there a name for that too? Is that name felonious?

Inquiring minds want to know.

The sad part is that out of all of this while we have over 1,000 signatures (confirmed, signed, sealed and sent) on The Petition to ask Congress to investigate (and, should they find that there was willful involvement by The Executive, to impeach) one thousand signatures is about one hundredth of the number of signatures that should be present on that petition at this point in time.

I've had some "pushback" claiming that asking for impeachment is a "bridge too far."

Let me explain.

First, the petition doesn't ask for impeachment. It asks that Congress compel the unwinding of The Bear transaction, and calls for articles of impeachment only if The Fed and Treasury refuse to step in and force that to occur.

It is clear that Treasury and The Fed concealed the opening of the Discount Window until after the ink was dry (by a few minutes) on the "merger", yet the vote to open that facility was taken prior to the merger's execution, and that was a material piece of knowledge that would have instantly derailed the deal.

Second, emboldened by this act and the lack of immediate and loud response from our lawmakers The Fed has now taken an additional step of effectively buying mortgage-backed securities (which everyone clearly agrees is unlawful without an explicit act of Congress) and is now setting up its own off-balance sheet securitization facility in the form of the "LLC" that they've hired Blackrock to manage!

We have now allowed The Federal Reserve to Enron-ize itself, with the taxpayer on the hook for the consequences (good or bad), all without a vote in the Congress authorizing any of it!

We know how Enron ended; shouldn't our ELECTED representatives be the ones making these decisions, with full debate and consent, if indeed they are necessary?

From this gent's vantage point I can find no legal authority for any of what has happened here. I find violations of The Constitution's "takings" clause in the original act, with those violations extending to every Bear Shareholder who was literally screwed out of his or her investment. The exact amount of damage is difficult to determine because clearly Bear had problems, but that there was a "taking" is clear on its face.

That The Executive was explicitly involved in this mess and not only gave consent but was an active participant has been admitted - with some element of pride! In fact, Hank Paulson quite proudly supported - yet again - all of this just today in a speech!

It is a near certainty that Bear Stearns would have survived as an independent entity with access to The Discount Window, and the opening of same was both known by The Fed at the time this "transaction" was being negotiated with The Fed's active involvement.

The fact that The Window was to be opened the very next day to Investment Banks was intentionally concealed from Bear's management by that very same Fed.

A bridge too far?

I think I am being quite kind; in point of fact I believe there is a real possibility that indictments should issue against some of these participants, in that the shield afforded to government (or quasi-government) employees in the performance of their duties only extends as far as their statutory authority.

No person, not even in a government or quasi-government role, has unqualified immunity, and if we as a nation allow that sort of mentality to take hold, we lose the underpinning of our republic - that we are a nation of laws, not men.

Oh, and before you dismiss petitions, read this - all of these folks got copies of the signatures, and will get copies of any signatures posted from here on too..... make your voice heard!

"The top lawmakers on the Senate Finance Committee said they are reviewing the terms of the taxpayer-backed sale of Bear Stearns Cos. to JPMorgan Chase & Co.

Committee Chairman Max Baucus, a Montana Democrat, and Iowa Senator Charles Grassley, the panel's top Republican, sent a letter to the firms' chief executives, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben S. Bernanke, and New York Fed President Timothy Geithner seeking details on how the buyout was negotiated."

Yeah, petitions like this one are worthless and nobody in Congress listens to you.

The facts say otherwise - now what say you about taking that 1,000 signature count up by enough to add another zero?

C'mon guys, bankrupt me with phone bills.

I mean it.