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*****ed 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.