Debt Spreads Continue to Soar

Good Afternoon!

Things are pretty quiet on the news front so far this weekend. I wanted to hop on real quick and give you an update on the credit spreads this afternoon. As you can see they continue to soar:

AAA

AA

BBB

My Take:

Ignore CNBC when they tell you things are continuing to improve in the credit markets. As you can see, spreads are back on the rise again after dropping a few weeks ago when the worldwide bailout was announced. The moves on all of these charts are parabolic.

AAA debt is rated to be the safest debt available. The rising credit spreads tell you this is a bunch of hogwash. The spreads on the BBB debt tell you that its basically worthless at this point. All of this garbage debt is what is sitting in the banks books folks.

These charts show you no one wants to touch any of it. We are reaching new highs from a spread perspective day after day.

Bottom Line:

Things are not well in the credit markets folks. You won't see these charts on CNBC.

The only thing that's improving in the credit markets is the LIBOR rate is dropping. This is a lending rate set in London for banks. Keep in mind, this statistic is meaningless if no one wants to borrow! Mortgage applications were down 20% last week! The fact that the banks don't want to lend right now as they try to heal their balance sheets makes the LIBOR rate even more irrelevant.

As I said yesterday, ignore all of the "silver linings" on CNBC. They are blowing smoke up your ass when they tell you all is well in the credit markets.

Larry Kudlows new mantra is we are now planting "mustard seeds" for the next bull market. The problem Larry has is they will bloom 25 years from now! What happened to Goldilocks Larry? My guess is she now working as a hooker in order to pay her $3000/month mortgage payment on her 600k McMansion.

BUY BUY BUY THE BULL IS BACK! NOT!

Good evening folks!

Ahhhh....Today is one of those days where you just shake your head. The market rallied hard today in spite of a terrible jobs report and horrifying earnings from GM.

The economy lost 240,000 jobs as the unemployment rate rose to 6.5% from 6.1% the previous month. Here is the jobs report:

"Nov. 7 (Bloomberg) -- The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.

The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September. Revisions to the previous month added 125,000 more to the jobless lines than previously reported."

Quick Take:

What was more horrifying here was the revision to September's report. The number was revised up to 284,000 from 159,000. I gotta be honest, these revisions really piss me off. How are we supposed to believe any of the government data after you see these type of ridiculous revisions?

How did they miss 125,000 job losses in September? Did everyone in the labor department suddenly have a brain fart all at once when they were compiling Septembers data? Gee folks, Do you think we might see a revision to this months data? Whats the real job loss number number for this month 400,000?

Transparency in all areas of the market needs to come back immediately or there will be no investors left to buy stocks in this manipulated cesspool.

GM

I don't know where to start with this trainwreck. Here is the news:

"Nov. 7 (Bloomberg) -- General Motors Corp., seeking federal aid to avoid collapse, said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital.

The largest U.S. automaker reported a $4.2 billion third- quarter operating loss today and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended.

$73 Billion in Losses

Today's outlook was the bleakest yet from the automaker, which has lost almost $73 billion since the end of 2004. Using $6.9 billion in cash last quarter pushed GM closer to the $11 billion minimum it says is needed to pay bills.

A U.S. rescue package for GM, Ford and Chrysler is likely before President George W. Bush leaves office in January, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor."

My Take:

This story is unbelievable to me. How in the hell does any company lose $73 billion in 4 years? Even worse, why in the hell is the government even contemplating trying to save a company that's lost $73 billion in 4 years?

We might as well bring Enron back from the dead if we are going to bailout this monstrosity. Hell lets bring MCI-Worldcom back from the dead while were at it. Unlock Bernie Ebbers jail cell and hire him back as CEO! He would fit perfectly into this toxic fraud filled environment that now dominates Wall St.

While were at it, lets unlock former Tyco CEO Dennis Kozlowski's jail cell too. I am sure we can find him a job on the street. He would be a great investment bank CEO. Lets bring Lehman back from the dead and make Dennis CEO. It would be the perfect fit! Can you imagine what type of toxic CDO's this guy could put together? He might be able to take it to 100-1 leverage.

In my opinion, all of the pigmen on the street deserve longer jail terms than the CEO's I mentioned above.

I guess companies aren't allowed to fail anymore. Watching company after company run to the government looking for their TARP handout is almost comical to watch. The TARP(housing bailout) is down to about $400 billion. Yet Wall St thinks its an endless pile of gold that can save their companies. What fools!

When will they all realize this is a $400 billion answer to a $1.5-2 trillion problem. The math doesn't work folks. Many are going to go home empty handed and will be forced to close up shop.

Bottom Line:

What can I say folks, there is no way to analyze this insanity. The buzz on the street was before the jobs report, there was a whisper number going around the trading floors that the jobs number might be 300,000. A 240k print was considered a relief to the street and the buying then ensued.

You would expect that a logical trader in a strong fundementally sound market would sell equities after seeing a month where we lost 240,000 jobs followed by a huge upward jump in September revisions. Not these knuckleheads. Buy buy buy, stocks are cheap is the only thing they know how to do. They will live and then die with this mentality.

There is going to be a come to Jesus moment here folks. The economy appears to have run right into a wall. When will this reality hit the street? Its difficult to tell. We all know how stubborn the bulls can be. They have always been able to "keep the music going" for a lot longer than I anticipated.

One day traders are going to wake up and realize that earnings are falling off a cliff and they will run for their lives. Until this happens, we have not seen the bottom. You gotta remember that "buying the dips" has worked for over 20 years. This psychological habit is one that will be very hard to break.

One thing I do know for sure, the "buy the dips" habit will be broken during this downturn. When no one wants stocks is the time that we all need to be buying them. This is a consumer led recession, and most traders on the floor have never seen one. IMO, they don't know how to react to what is happening. If you listen to CNBC for a full day you will quickly realize that most of them don't have a clue. The good ones like Art Cashin were scratching their heads today as they watched traders buy the jobs number.

These short term bounces do nothing but extend the pain. If these horrific earnings reports continue, we should see a short term capitulation very soon IMO. We have retail earnings next week. I am sure they will be great! Yeah, right.

From a trading perspective I held onto all of my positions. Stocks are not a buy when company after company continues to come out to lower guidance. Stay focused on the fundementals and continueto ignore all of the "bubble" noise on CNBC.

Remember:

Buying a frog and hoping it turns into a prince is not a very intelligent way to invest. The sooner the bulls realize this and let the market find a bottom, the better it will be for all involved.

Retail Sales Hit a 30 Year Low as the Recession Deepens

Good Evening Folks!

Stocks were beaten senseless once again today as earnings reports and concerns over the economy continue to worsen. This was the worse two day drop in the markets since the famed 1987 crash.

The retail sales data for October was horrifying. Retailers reported the worst October sales in over 30 years:

" NEW YORK (Reuters) - Retail chains posted the worst October sales results in more than three decades as consumers cut spending sharply, stunned by a financial crisis that has derailed the U.S. economy.

The International Council of Shopping Centers called the retail sales environment "simply awful" and said the October results were the worst it had seen for that month in 35 years.

The ICSC said it pared its forecast for what were already expected to be dismal holiday season sales. It now expect sales in November and December to rise 1 percent, down from its prior view for a gain of 1.7 percent.

"The great unknown is just how much lower can consumer spending go?" said Piper Jaffray analyst Jeff Klinefelter. "With savings rates at historic lows and constraints on the availability of consumer credit, I just think there's concern that the perfect storm is brewing."

Quick Take:

What can I say? The consumer is tapped folks. We all knew this was coming. It looks like Christmas is going to be an absolute disaster this year. This data offers us more proof that the economy came to a standstill in October.

Disney's earnings miss also provided more proof that the consumer is toast :

"Nov. 6 (Bloomberg) -- Walt Disney Co., the world's biggest theme-park operator, said fourth-quarter profit fell 13 percent, as a slowdown in U.S. consumer spending caused earnings to decline at four of its five business units. The shares dropped.

Net income declined to $760 million, or 40 cents a share, from $877 million, or 44 cents, a year earlier, Burbank, California-based Disney said today in a statement. Excluding one-time items such as bad debt from Lehman Brothers Holdings Inc.'s bankruptcy, profit of 43 cents missed the 49-cent average estimate of 19 analysts compiled by Bloomberg.

Profit fell at Disney's television and radio business, theme parks, film division and the merchandise unit. Park bookings have ``slowed meaningfully,'' Chief Executive Officer Robert Iger said on a conference call, as he announced discounts to attract visitors. Media competitors News Corp., CBS Corp. and Viacom Inc. have also lowered forecasts.

``The quarter was uglier than anyone anticipated'' at Disney, Janna Sampson, co-chief investment officer at Oakbrook Investments LLC in Lisle, Illinois, said in an interview. ``Going forward, it becomes a question of how long and how deep this economic recession will last. And that's very, very difficult to predict.''

Jobless Claims

Total jobless rolls rose to a 25 year high as initial jobless claims came in higher than expected:

"Nov. 6 (Bloomberg) -- More Americans than anticipated filed first-time claims for unemployment benefits last week and total jobless rolls climbed to the highest level in 25 years, indicating further deterioration of the labor market.

Some 481,000 workers filed initial claims in the week ended Nov. 1, the Labor Department said today in Washington, exceeding the 477,000 projected by economists surveyed by Bloomberg News. The number of people staying on benefit rolls was the most since February 1983."

Bottom Line:

There are clear signs of deterioration in all areas of the economy. There was so much bad news today that I really didn't know where to start. I mean for example, the 10-year yield rose on a day when yields should have dropped. As I have explained before, investors usually flock to the safety of treasuries when the market tanks. The fact that they are avoiding the 10 year tells you there are concerns about our debt and the economy in the bond market.

Another thing that was announced today was the Fed's balance sheet is now over $2 trillion dollars. No wonder the 10 year doesn't look so safe anymore!

California announced that it wants to raise taxes by $4.4 billion dollars. This is what you gotta do when your state is about to go bankrupt. This will put further pressure on the consumer as their take home pay takes a hit. The housing market and anything consumer related will take another blow if these taxes are approved. Homebuyers will have less income from which to buy a house. The California dreamin is slowly turning into the California nightmare.

Folks, its getting hard to even watch the news right now its so depressing. I think I need to start popping a Prozac before I start blogging. I didn't even get a chance to mention the big 3 auto summit with Nancy Pelosi that's going on tonight. GM is hangin on by a thread and losing more than $1 billion a month. They are on their hands and knees begging the government for help.

CNBC reported today that 2.5 million jobs will be lost if there is a 50% reduction in the automotive industry. That would be catastrophic for the Midwest. I would guess you will see a bailout here but that doesn't mean you won't see a 50 percent reduction among the big 3.

If people aren't buying cars then they aren't going to make them. They can get bailed out all they want, the production lines ain't going to be moving if there are no orders. Expect major job losses in this area as a result.

I wish I had better news folks. Now that most of the October numbers are in, we can officially declare that this month was a total disaster for the economy. We are now staring into the abyss and the market hates uncertainty. Investors are now asking themselves one question:. Was October the beginning of a depression or a one month anomaly?

Put me in the "severe recession/depression" camp in terms of where we go from here.

As for trading, I held my shorts into the close. I didn't add to my positions. There are no good entry points at these levels.

Tomorrow is all about the jobs report. If its horrific, we could plunge for a third day in a row. I would also keep an eye out for any automotive summit news. Oh and don't forget, keep an eye on treasury yields. I have deep concerns about the bond market.

Stay tuned!

Market Tanks on Job/Earnings news

Good Evening Everyone!

Sorry I am a little late tonight. I had a busy day. The traders sold the news today as the Obama rally was pummeled by a string of negative reports on the economy. The DOW and NASDAQ both ended up down over 5%.

I knew I smelled a rat yesterday! I think the street kinda got distracted by the presidential election . There was absolutely no fundamental reason to push equities up 20% in the last week in a half.

Now that Obama has won the election, investors are now starting to focus back on earnings and the economy. The problem here is they both suck! Things are starting to unravel at lightning speed my friends.

Take a look at the ADP jobs report that was released today:

"Nov. 5 (Bloomberg) -- Companies in the U.S. cut an estimated 157,000 jobs in October, the most in almost six years, a private report based on payroll data showed today.

The drop was larger than forecast and followed a revised 26,000 decrease in September that was bigger than previously estimated, ADP Employer Services said. The decline in employment was the biggest since November 2002, when the U.S. was emerging from a recession.

Firings have spread from automakers, financial and housing- related companies to retailers and other services as the economic slump deepened. A government report in two days may show the economy lost jobs in October for a 10th consecutive month, according to a Bloomberg News survey of economists.

``We are starting to see more recession-like declines in employment,'' said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. ``The loss of jobs means consumers will continue to retrench in the next couple of quarters.''

The ADP report was forecast to show a decline of 102,000 jobs, after an originally reported drop of 8,000 in September, according to the median estimate of 28 economists in a Bloomberg News survey"

Quick Take:

This was the tenth month in a row that the economy lost jobs. This was by far the worst month. 157,000 is a HUGE number. Whats even scarier is the ADP report has been consistently light versus the government jobs report that comes out on Friday. I wouldn't be surprised to see a 200,000 loss print on Friday. Expect some serious pain in the market if I am right.

Cisco

I thought the jobs report would be the worst news of the day until CIsco dropped a bomb after hours:

"Nov. 5 (Bloomberg) -- Cisco Systems Inc., the world's largest maker of networking equipment, said first-quarter sales rose at the slowest pace in three years and revenue this quarter will drop as the slumping economy crimps customers' budgets.

Second-quarter sales will decline as much as 10 percent from a year earlier, Chief Executive Officer John Chambers said today on a conference call. The shares sank in late trading.

``It is the second most difficult time in my career in terms of the forecast,'' Chambers said. Cisco sales also slumped after the dot-com bubble burst in 2000.

The economic challenges faced by Cisco's U.S. financial customers have now expanded to Europe and Asia, said Chambers, who added that a ``pause in hiring'' will be implemented. Revenue in the period ended Oct. 25 climbed 8.1 percent to $10.3 billion, in line with analysts' estimates, as customers clamped down because of the credit crisis.

``The overall tone of business especially in October was so poor,'' said Chuck Heath, an analyst at UMB Investment Advisors in Kansas City, Missouri. UMB owns about 760,000 Cisco shares among $11 billion under management. ``They are clearly seeing that business is deteriorating in the current environment,'' said Heath, who recommends buying Cisco shares.

"Cisco, based in San Jose, California, fell 6.4 percent in extended trading to $16.34 after losing 94 cents to $17.39 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 36 percent this year.

Investors view Cisco as a technology industry barometer because it dominates the market for routers and switches, which direct and control the flow of data over networks."

Final Take:

Expect tech stocks to get routed on this news tomorrow. Cisco is one of those bellweather stocks that you use as a gauge for tech. The report above essentially tells you that sales fell off a cliff in October. A 10% drop in revenue is a huge drop for a company like Cisco.

Bottom Line:

It appears that the bear market bounce is over. Investors simply can't ignore horrific news stories like the two above. The volume was very low today. The financial networks explained that a lot of the drop was caused by a lack buyers versus panicked sellers.

Traders hate this type of "no bid" market. You tend to see a lot of days like this in recessionary environments. There were actually years in the 70's where stocks had "no bid". As a result they can't move higher. Its simple supply and demand folks. Without demand its hard to raise the price of anything including stocks!

The bulls are finding it hard to buy this market after seeing a 157k job loss in the past month. To make matters worse, the largest steelmaker came out after hours and said that demand for steel has been cut by 50%. That's not a typo folks, demand has been cut in half! If we continue to see things unravel at this pace we are soon going to find ourselves in a depression.

All of my sources in different areas of the economy have indicated to me that the economy came to a standstill in October as the market crashed. One of my sources in the steel industry told me that steel is selling for about half the price it was when oil peaked at $147 a barrel. He has seen demand fall off a cliff in the past couple months.

Demand destruction is now rampant in many areas of the economy. You see it everywhere: Cars, steel, retail, housing. How many stores do you see with sale signs out there? How much junk mail are you getting? I bet its a lot. I got a flyer today from Banana Republic announcing a 25% off everything sale. Seeing this less than two months before Christmas shows you how bad things are out there! As I have said before, this is turning into a classic deflationary spiral that was last seen in Japan.

I always remember what Dr. Shiller said about bubble. He explained that they are extremely psychological. When bubbles like housing are inflating, investors get euphoric and prices become completly distorted. They then turn tragic when they explode, and usually overshoot to the downside. Prices often end up below where they were when the bubble started inflating!

I believe the same theory can be used in the financial markets. October did a lot of damage in the psychology department. Its hard to spend like a good little American consumer when your 401k was sliced in half this year! Corporations have also lost confidence and thus reigned in spending. The Cisco numbers above validate this theory. I think the stock market needs a shrink versus a bunch of bailouts!

I continue to believe that the bottom of this market will be seen with one giant capitulation. The bottom callers last week were silly in my view. Investors must reach the point where they never want to own stocks again. I haven't seen this folks. The big bounce last week showed ne we aren't there yet. Until I see this type of fear, any bounce from here means nothing and will be temporary.

From a trading standpoint I took no positions today. I held my shorts into the close. I expect some follow through here tomorrow, and if the jobs report sucks on Friday, look out below!

We are in a trading range here folks. The only way to make money in this environment is to play the volatility.

Today's horrific news was an eye opener for me folks. Things are happening at a far faster pace than I imagined. Continue to play defense. Its ugly out there.

Obama Rally: I smell a Rat!

Good Afternoon Everyone!

I will be brief today. Stocks staged an election day rally today as the DOW surged over 300 points.

However, when you look a little deeper into the numbers, the rally was not all that impressive. First of all the volume continues to be extremely light at the NYSE. The market needs to confirm this move higher by having stocks rally higher on strong volume. We did see this today.

Another thing that I found interesting today was the big rise in demand for the 10-year (click here to see the chart) . Why would investors be piling into treasuries after such a bullish move? Investors should be flying out of treasuries and into stocks forcing the 10-year yields to rise. As you can see from the chart above, the 10-year yields fell off a cliff today.

This tells me that you are seeing a serious flight to safety by some of the boys in the bond market. I always follow their moves closely. They are a much more sophisticated group of investors than the "bubble boys" on Wall St. Perhaps they are sensing that the bottom is about to fall out of this rally?

They know that an Obama/Democratic landslide would be bad for equities. Even worse, a strong democratic sweep could eliminate the ability of a filibuster. Wall St. will most likely selloff equities on this news because Obama will then be able to get most of his aggressive spending legislation through Congress without opposition. Its usually never good for either the Democrats or the Republicans to have all three branches of the government. A system of checks and balances is almost always the healthiest form of government.

Commodities/US dollar collapse

Here is another reason why I smell a rat today:

"Nov. 4 (Bloomberg) -- Surging prices for oil, copper and gold sent commodities rallying as a U.S. Election Day plunge in the dollar boosted the appeal of raw materials as a hedge against inflation.
The Standard & Poor's GSCI Index of 24 commodities jumped 7.5 percent to 467.26 at 3:25 p.m. in New York, the biggest gain since August 1990. The Reuters/Jefferies CRB Index gained 5.3 percent, the second-biggest rally since 1956. Crude oil jumped as much as 12 percent, gold rose the most in six weeks and corn touched a three-week high.

The dollar fell the most against the euro since the 15- nation currency's 1999 debut. U.S. stocks advanced in the biggest rally on a presidential Election Day in 24 years. Speculation that Democratic candidate, Senator Barack Obama, who leads national polls, will win against Republican John McCain helped send the dollar lower and lift commodity and equity markets.

``With the Democrats, there's the assumption of the potential of more inflation, given their spending plans,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``There's general enthusiasm out there. It's happening in all the markets, including commodities and stocks. The dollar is a huge factor today and the idea of more inflation will send commodities higher.''

Final Take:

Gold also surged $40 today as the dollar tanked. The traders in Chicago aren't stupid. They understand that Obama is going to attempt to spend this country into oblivion. Clinton attempted to do the same thing when he got into office in the early '90's. What Obama(assuming he wins) will learn quickly is you cannot spend what you don't have. This lesson could cause a lot of pain in the stock market because it might take a bond market dislocation to get this through his head.

In his defense, Obama does seem like a pretty reasonable guy at least at face value. Lets hope he understands that he cannot spend like a homeowner with a giant home equity loan. We have $11 trillion in debt and if he raises taxes, Obama better realize that some of it needs to go towards reducing our deficit.

Bottom Line:

Lets see the results tonight before I get ahead of myself. I personally think today was just a "feelgood" rally as the country looks forward to likely change in leadership. The CME traders are well aware that Obama's higher taxing and spending programs are not a positive for the stock market. As a result, they decided to run and hide in commodities and treasuries awaiting the fallout of the election results.

Feel free to go long here, but I am not buying this rally folks. A weak dollar, stronger metals, and higher commodities tells me that investors are again beginning to pile into hard assets. This does not bode well for the stock market. Lets see if this trend continues.

The "Obama honeymoon" on Wall St. will be a short one once investors realize what a far left President means for the markets.

That is if he wins.

Stay Tuned!

Jim Rogers: The Zombie Banks Must Fail

Good Evening Folks!

Here is the latest from Jim Rogers today on Bloomberg. He has some great investing ideas. Rogers is basically long commodities, short long term treasuries and neutral on the stock market. I like a lot of his investment ideas here. I plan on picking up some TBT after the next drop in the stock market which will take treasuries higher.

I have a couple of thoughts after the videos.

Enjoy!




Part 2





Market Update:

It was a very quiet day in the stock market as the world awaits the election results tomorrow. The global recession is taking a serious toll on manufacturing. Manufacturing in the US contracted at the fastest pace in Octomber in 26 years:


"Nov. 3 (Bloomberg) -- Manufacturing in the U.S. contracted in October at the fastest pace in 26 years as a record share of banks made it tougher to get loans and faltering economies abroad eroded prospects for American exports.

The Institute for Supply Management's factory index fell to 38.9 from 43.5 in September; 50 is the dividing line between expansion and contraction. The Commerce Department said separately that construction spending fell for the eighth time in 10 months in September.
Today's report may add to pressure for further interest-rate cuts and an additional federal package of tax and spending measures. The figures also showed the weakest level for U.S. export orders in the two decades the ISM has kept the data, a sign of slowdowns in Europe and Asia.

``Manufacturing is definitely in a deep recession right now,'' John Lonski, chief economist at the Moody's Capital Markets Group in New York, said in an interview with Bloomberg Television. ``We're definitely going to have more rate cuts'' and possibly ``more in terms of fiscal stimulus"

Quick Take:

Manufacturing essentially fell off a cliff in October as the consumer continues dramatically pull back. I love the solution offered by economist John Lonski from Moody's. We need more rate cuts: Yeah! Like that's going going to help. When are these economists going to realize that the Greenspan easy money approach is no longer the answer. We are now at 1% and things continue to deteriorate. He also wants a stimulus. Great idea John! The last one worked so well!

This mentality among economists has to stop. What we need is a serious recession that wrings out the excesses of the economy. The cheap money "Greenspan approach" created the debt bubble that we now find ourselves in today. More liquidity is not the answer when consumers don't want to borrow and banks have no desire to lend!

Another stimulus will do nothing but dig us even deeper into debt and give us one quarter of growth like the last one did. Then it will be right back to our regularly scheduled recession/depression. It makes no sense to piss away another $150 billion when it does nothing to fix the problems in the economy.

Take that money and throw it into a infrastructure investment that creates jobs. Don't give it to J6P! He will just waste it paying down debt or buying another flat screen TV.

Lets take a look at the car biz:

"Nov. 3 (Bloomberg) -- U.S. auto sales plummeted 32 percent in October to the lowest monthly total since January 1991, led by General Motors Corp.'s 45 percent slide, as reduced access to loans and a weaker economy kept consumers off dealer lots.

Ford Motor Co. reported a 30 percent drop in car and light- truck sales from a year earlier and Toyota Motor Corp.'s declined 23 percent. Honda Motor Co.'s slid 25 percent, Nissan Motor Co.'s were down 33 percent and Chrysler LLC's fell 35 percent.

``If you adjust for population growth, it's the worst sales month in the post-World War II era'' for the industry, said Mike DiGiovanni, GM's chief sales analyst, on a conference call. ``Clearly we're in a dire situation.''

Final Take:

The last time car sales were this bad we had just defeated the Germans in WWII. Yikes! The more data I see, the more scared I get folks.

What frightens me the most is I don't see how we dig ourselves out of this. Could we have another lost decade similiar to Japan that Jim Rogers warns of above? The answer to this is looking more and more to be yes.

Bottom Line:

Well its election day tomorrow! It looks like Obama has it in the bag. In my opinion neither candidate has the goods to get us out of this mess. The next president is almost assuredly a one termer as our economy heads into the abyss. There will be little that either candidate can do in reaction to this mess. The war chest is empty and the economic hand has already been dealt.

It will be interesting how the markets respond tomorrow. I think the next trade is shorting treasuries. Its becoming pretty clear that the government is hell bent on attempting to bailout the economy no matter what the price. An Obama presidency will most assuredly take this government spending to an even higher level.

As a result, its highly likely that investors will start backing away from buying treasuries until we either learn to control our spending or we default on ourselves.

Make sure you get out and vote tomorrow. Every vote counts!

Mortgage Modification Plan Grows as Delinquencies Soar

Good Afternoon!

Folks, the numbers are ugly.

Here is an expanded article from The Wall Street Journal on the loan modification program. It appears Bank of America is also involved:

" The plan comes amid intense national focus on a root cause of global financial turmoil: rising home foreclosures, and what the role of banks and government should be in helping struggling homeowners. The banking industry is under much political pressure address the foreclosure problem.

Rival Bank of America Corp. has two loan-modification pools in place, one hashed out with state attorneys general. At the government level, after other programs failed to halt the rise in foreclosures, the Federal Deposit Insurance Corp. recently floated a plan that could help three million troubled borrowers; it is being considered by the White House. The FDIC also is assisting strapped borrowers who had mortgages with IndyMac Bancorp, which the FDIC seized this summer. (Please see related article.)

"It doesn't make sense for us to wait" to tackle the problem, said a J.P. Morgan executive, Charles Scharf. "We've heard loud and clear and are listening to what some of the thought leaders around the country are saying." Mr. Scharf runs the retail division, which includes mortgages and branch banking, at J.P. Morgan, the largest U.S. bank in stock-market value.

The move also suggests that banks are realizing they can improve the value of their loan portfolios through mass modifications rather than foreclosures, which tend to produce larger losses. Until now, mortgage holders have been reluctant to renegotiate loans or have been doing so one-by-one, a time-consuming process. The bundling of loans into securities that are then sold to investors further complicates matters.

Nationwide, 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010, about triple the usual rate, according to Moody's Economy.com, a research firm. Some 4.3 million of those are expected to lose their homes.

J.P. Morgan unveiled the plan days after receiving $25 billion in federal capital from the Treasury's program to shore up financial institutions and get credit flowing. Mr. Scharf declined to comment on whether the bank would use any of those funds for the mortgage overhaul. "The stronger you are, the more willing you are to spend money and do a whole series of things," he said, noting that the government cash "certainly makes decisions easier."

Of the two loan-modification pools at rival Bank of America, one targets 265,000 borrowers with all types of mortgages. The other was hashed out with 14 state attorneys generals and involves 400,000 subprime and option-ARM customers serviced by the big lender Countrywide Financial Corp., which Bank of America purchased July 1."

My Take:

I think this is a disaster in the making as I said yesterday, but it may be the only move that the banks have left. One problem I see here is these loan modifications are only going to be able to be done by the banks that received money from the housing bailout. Notice that these programs weren't announced until the big banks got $25 billion apiece via capital injections from the Treasury.

This is where I see another big problem. The banks that didn't receive the money from the TARP aren't going to be able to afford to offer such a modification program. As these 7.3 million homes continue to get foreclosed on, the inability to modify will be the final nail in the coffin IMO for hundreds of banks that don't have access to the capital injections from the housing bailout.

Essentially folks, this article tells you the taxpayer are the ones paying for these modifications. The taxpayer now gets a chance to be bent over by greedy homebuyers. Are there any other ways that we can get screwed? I guess living within your means is turning out to be the wrong way to live. It appears committing fraud and lying about your income so you can qualify for a mortgage that you can't afford was the "right" thing to do in this twisted society.

Notice how JP Morgan had "no comment" when asked if the money they received from the TARP was going to be used for loan modifications. It doesn't take a brain scientist to read in between the lines on that answer. Remember these firms are all nearly insolvent. There is no way they could have done this without the government capital injections.

As I said yesterday, expect millions of homeowners that don't get modified to stop paying their mortgages. Taxpayers are going to get infuriated when this plan begins to be implemented. Wait until word gets out in a neighborhood that a neighbor's loan was modified by 100k which in turn drops the value of their own home by six digits. The guy who got modified better put a padlock on his door and buy a gun. God only knows what he might find on his lawn the next day!

This isn't going to end pretty folks. This could be the trigger that blows up the financial system. This is going to absolutely destroy the banks balance sheet. I predict you will see another massive injection of liquidity into the banks as more and more homebuyers walk away. This will put our government even deeper in debt as they continue to keep the banks alive. MBS debt will almost immediatly become almost worthless.

Perhaps this is why the cost buying a credit default swap(CDS) on the 10-year treasury has gone through the roof:

Think about this for a second folks. The cost to insure a piece of US government debt from defaulting via a CDS has risen 4 fold to 42 basis points in one year! Why would anyone pay to insure this? If this debt ever defaults the game is over because it means our government has defaulted on itself.

The soaring spreads tells you that Wall St increasingly thinks that a government default is a distinct possibility.