Friday, April 24, 2009

Wall St's Denial Continues

Gooooood Afternoooon Everyone!!!

Ahhh.... Its great to be back on my keyboard after being off for a week. I hope everyone is doing well!

As I catch up on the news I see nothing has changed! Wall St keeps buying stocks and waiting for those "green shoots" to start growing. Meanwhile, back here in reality, I sit here in amazement as I watch our economy literally fall off a cliff.

Stocks rose sharply today as the Fed announced the banking stress test methods for our nations top 19 banks. The intent here by the Fed was to create more transparency by explaining exactly how they planned on testing the banks and their ability to handle future losses.

After taking a look at the Fed's "stress test" I was extremely disappointed by how "wimpy" it was. Hell I took tougher tests in the 4th grade!

This process was a joke and the economic scenario's they used to gauge the strengths of our banks were a total cakewalk.

Lets take a look at the two economic scenarios that they used: The first one was the Fed's expected baseline economic outlook. The second scenario was the "more averse" or "really really bad" scenario(Really bad? Ha! Wait until you see the numbers). The two key measures used were GDP and unemployment.

Here are the two GDP scenario's that were used:

Now lets take a look at the two unemployment scenario's:

My Take:

Awwwwww!!!! The poor banks. They must be so stressed out after such a tough test. I advise each of you to walk outside and find a banker today and give them a big hug. They need one after having to go through such a difficult time. If there is a doctor among my readers could you please write each banker a script of Xanax? I am sure they need something to help them relax after having to go through something so so terrible.(sarcasm off)

I know I know...All of you would probably like to go out and punch a banker in the face versus giving them a hug!

Sigh.....What can I say here folks? Look at the charts. They are a complete joke. GDP growth by the 4th quarter? They actually expect to still see growth by Q4 in the "more dire" scenario? Good luck with that one.

Take a look at the peak unemployment rate of 10.3% in the "dire scenario". 10.3? Ha! Are you kidding me? They must have not included California and Michigan in their methods because both states are over 11% unemployment already! Michigan is already over 12%!

Whats funny is I am sure all 19 of the large banks have loans in each of these states. So the "dire" scenario used in the stress tests includes looking at banks that have loans in states were the unemployment rate is already higher than the Fed's "bad" case scenario. Ummmm...Behind the curve here guys?

Whats even funnier when you look at the Fed's expected baseline peak unemployment number of 8.8%. Uhhhh...Did anyone tell Ben that we are at 8.5% RIGHT NOW? Did anyone also explain to him that the jobless claims number continues to sit at over -600k each week? -400k is considered to be recessionary folks. The claims number tells you that unemployment continues to soar. These numbers are a joke.

Why on earth do they expect unemployment to level off here in the 8% range? What huge catalyst does the Fed see that makes them think that will prevent economy from continuing to shred more jobs? Are AAA securities gonna make a big comeback? Lets get those ratings agencies back up and running! We need some more fraud in order to get the GDP positive positive by the 4th quarter. We need to bring back the credit bubble so that we can level off unemployment!(scarcasm off again..sorry can't help it!)

The reality here from a jobs perspective here is its just flat out ugly: Companies are laying off thousands of people each week. When was the last time you heard of a company hiring thousands? GM announced this week that they plan on shutting down the majority of their plants for 9 weeks this summer. Yikes! Whats scary here is who knows if GM will still be alive when those workers are scheduled to come back? If they are it will most likely be after a BK filing. If thats the case expect many of these workers to not be back after the plant shutdown.

What I want to know is did the Fed include a Chrysler and GM bankruptcy when they were putting together their "baseline forecast" on unemployment?

This "stress" test was a goddamn joke. This does not lead to more transparency folks. Its nothing but a continuation of the "hide the sausage" policy that the politicians and Wall St continue to ram down our throats.

I sometimes ask myself: How do they get away with it? Why do they continue to try and pull the wool over our eyes? Do they not realize that millions of Americans are beginning to figure that they are being fed a big pile of shit in the news every morning? Do they think we are too stupid to understand the problem? Are they that f*cking arrogant?

In my opinion: YES!!!

Guess what you arrogant morons: We are on to you. Bloggers like Mish, Denninger, and other "credible" news sources see right through your tangled web of lies, fraud, and manipulation. Glenn Beck gets it. Others in the main stream are quickly getting caught up.

Bottom Line:

The market has turned into complete headcase as it tries to figure out where we are in this whole mess. We saw violent swings in each direction this week because no one can make sense of whats going on. When the government takes over the financial system its pretty much impossible to value stocks.

Any trading done here should be done with money that you can afford to lose. The 10 year continues to flirt with the 3% level:

As you can see above, we continue to bounce off of the 3% area. I think the bond traders get nervous to take yields above 3% because they are afraid the Fed might come in via QE and pull the rug out from underneath them. As a result they seem a bit paralyzed for now. Let me repeat: FOR NOW!.

The amount of treasury supply that hits the bond market next week is mind boggling. Focus on the 10 year over the next few weeks! This is the most important piece of data IMO short term. We are sitting at CRITICAL levels, and the massive treasury auctions in the oncoming weeks will be critical to the Fed and their moves going forward.

This could have a huge effect on equities.

Stay Tuned!


Joey said...

Nice to have you back....What a week indeed. Numerous reports that SPYs are almost impossible to borrow (for shorts) and liquidity is a dead as this economy.

I keep laughing at the amount of control GS has on this market. This is getting seriously ridiculous. If is keeps up, I may find other sand boxes to play in.

Joey said...

Oh...another excellent (imo) read.

johndaniels said...

looks like inflation day today... gold up with the stock markets, dollar down across the board pretty much.

im NEVER going to buy stocks again after all the crooked manipulation we've seen. the intl community knows whats up; there was word venezuaela and the mid east was considering an oil based currency in 2010. china waiting on the sidelines, trading dollars for commodities.

you can create trillions of dollars of SDR's, but if noone accepts them for real assets; then where are ya? (that are just the same people behind the dollar; its the same Bullshit; dollar pound, euro, yen. allsoaked in debt).

Jeff said...



Its good to be back. Yeah I have been reading both of them as well.

Something fishy is going on. The Goldman info is really interesting. I just wish there was more hard data around it.

I think you are going to see all the big trading desks sell to the suckers when they realize the momo on this rally is dead.

The bond market is what scares the hell out of me. Ben has two choices if yields start to soar.

QE and piss away the rest of his balance sheet ot he bails. If he does this then he must pull back on the bailouts because he can't afford to flat out print. Who knows maybe it will come to this.

He could also just walk away from QE and let yields soar and then manage the wreckage that follows.

Watch 3.05% on the 10 year. If we break through there things will really get interesting.

Either way he is pretty much screwed long term. Its just a matter of how long this all takes to play out.

Jeff said...


I agree. Great points.

I am hoarding cash and contemplating other options including gold.

Once the liquidiy is pulled when people decide this rally is over there is going to be nothing left to prop up the market.

The government is a big piece of the liquidity. If they run out of financing via treasuries god help us all.

I am about as scared today as I was in October. I see no viable options for the Fed to get us out of this mess.

teddy bear said...

this is just bull in "super"market :D

Jeff said...


Teddy I love it. I don't know how you find this stuff.

Keep em comin