Saturday, May 30, 2009

Max Strikes Again!

God I love this guy. Talk about telling it like it is.

I really have nothing to add other than saying I couldn't agree more!!!! Its a shame no one in our media has the balls to say this. You know millions in this country are thinking the exact same thing.

Here Here Max!

Black Swan Warning!

Enjoy the weekend. Its gorgeous out here in Baltimore.

Friday, May 29, 2009


Just some Commentary tonight folks.

I just wanted to discuss the total chaos that we are witnessing in equities today. Each day the market makes less and less sense than the day before. I highly advise people to stick on the sidelines in a market like this unless you have been trading for awhile.

Jeff Macke from CNBC's Fast Money said it best yesterday:

"The bottom line: Professional traders are confused and afraid of this market. Even the guys making money this year are grousing and moping. What you have left are sharks fighting each other and going into collective feeding frenzies selling moves like the in-one-week GM double. The unknowing in the pits are chum for the sharks. (As in bait, not pals.)"

If the best of the best can't make sense of this market, how can the little guy have a clue as to what to do? Today was a perfect example. We see sawed all day in and out of positive territory on light volume until we saw a parabolic move to the upside in the last 5 minutes of the day. The DOW literally moved higher 60 points in last minute or so of trading.

This type of instability is not healthy and its almost impossible to trade. An interesting trading note: We literally closed right at the 200 day moving average. Early next week should be interesting to watch and trader's are now asking themselves the following questions:

If we firmly break through the 200 day MA of S&P 925 do we then see another move higher? If we fail to break the 200 day, do we then roll over and start free falling back to the downside?

Only time will tell.

What I do know is this. Play small and stay diversified. Watch for confirmation in either direction around the 200 day MA if you want to make a quick trade.

The Fed's Vietnam

I wanted to talk a little more about the Fed and its quantitative easing policy. The Fed IMO is fighting a war that it can't win(see below). It appears that the Fed went on a spending binge in the credit markets today as bond yields collapsed. We saw massive buying in the MBS and the treasury market today.

The problem the Fed has here is all of this government buying comes at a price. The victim of this spending spree is the US dollar. The dollar collapsed today as the markets reacted to watching the USA digging itself even deeper into debt via QE.

The problem that this creates for the FED is the weak dollar suffocates the consumer with higher prices.

Take a look at an Oil ETF USO and gold(via ETF GLD) respectively today:


Bottom Line:

As you can see, there was a price to pay after spending money that we don't have. The Fed can't have its cake and eat it too. Prices on commodities soared as the dollar weakened.

We have seen both sides of the QE dilemma this week folks. The Fed is now facing their own financial version of the Vietnam War. I say this because its I war that I don't think the Fed can win because either way the economy crumbles.

Here is why:

If the Fed QE's and starts buying up the bond market the dollar gets killed as the world continues to lose confidence in the USA and our currency. The falling currency then results in huge spikes in prices which then suffocates the consumer with higher prices.

We all saw what happened to the consumer when we had $4 gas last year. They basically rolled over as the cost of everything skyrocketed. Hybrids and motorcycles popped up out of nowhere and SUV's were nowhere to be found.

Oil is now back up to around $66 dollars a barrel after bottoming in the 20's. This is a direct result of the weaker dollar. I say this because demand is NOT driving this. There are supertankers of oil that have nowhere to go because the world economies have collapsed thus killing demand. However, since oil is priced in US dollars, oil has spiked up as the dollar dropped.

The same thing goes for gold and many other commodities. Folk, if the Fed continues to spend like drunken sailors, no one is going to be able to afford to live let alone go out and consume as a result of crippling inflation. The economy will then collapse because the consumer drives 70% of our economy.

If the Fed decides not to QE:

Well, last week we saw a little of what will happen if the Fed stops their QE policy and the FCB's stops buying bonds. Yields will soar and our government will be forced to stop spending as their ability to finance their debt via selling treasuries will disappear.

This then decimates the housing market which then destroys the trillions of $$$ in assets on the bank's balance sheet. As these banks start to collapse again following further deterioration on their balance sheets, the Fed will not have the money to save them as a result of the treasury market blowing up.

Without the ability to continue the bailouts, the corporations that have survived only by sucking off the government tit would then implode and the Fed would be pretty much powerless to stop it. We would then see an unprecedented wave of corporate bankruptcies as their financial wells run dry.

The end result is pretty similar to scenario #1: Economic Collapse.

The best thing the Fed could do at this point is get the hell out of the bond market and stop all of the bailout spending.

I mean jeez: If they reduced the deficits by increased taxes and reduced spending there would be no need for QE! Would this be an extremely painful scenario ala the 1930's? Hell yes, but at least the economic system and our government would be kept in tact.

The game the Fed is playing is unsustainable and guaranteed to fail.

Its time to take our medicine before we lose the economic system that has allowed us to become the most powerful country on earth.

What's it gonna Ben? A depression followed by a recovery or Zimbabwe and social chaos?

Thursday, May 28, 2009

Is Prime the New Subprime?


The Fed dodged a bullet today as the 7 year bond auction saw solid demand. Stocks breathed a big sigh of relief and moved higher on the news. I expect the equity markets to start trading off of the bond market and its treasury auction's over the near term. This could create a very volatile market because the bond market appears to be very nervous right now.

Santelli on CNBC said the next thing to focus on are the long end June 10 and 30 year auctions. It will be interesting to see what the demand is for longer dated bonds after watching the FCB's pile into shorter term treasuries. Lets not forget that the PPIP also launches around the same time.

This should set the stage for some serious market fireworks over the next month.

Is Prime the Next Subprime?

If you look at today's foreclosure data I would say the answer is easy: YES! Bloomberg reported today that there are now more prime foreclosures than subprime for the first time. They also reported that a stunning 9% of all loans are now delinquent:

"May 28 (Bloomberg) -- Mortgage delinquencies and foreclosures rose to records in the first quarter and home-loan rates jumped to the highest since March this week as the government’s effort to fix the housing slump lost momentum.

The U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent from 7.88 percent, the biggest-ever increase, and the share of loans entering foreclosure rose to 1.37 percent, the Mortgage Bankers Association said today. Both figures are the highest in records going back to 1972. Fixed rates rose to 4.91 percent, Freddie Mac said, and an increase in bond yields earlier this week shows rates may continue rising.

Foreclosure Inventory

The inventory of new foreclosures and those already in the process of being foreclosed upon jumped to 3.85 percent, the MBA said. Half the loans now in foreclosure, adding the new and existing defaults, are held by prime borrowers, according to the trade group’s report. About 43 percent are subprime mortgages, and 7.1 percent are Federal Housing Administration loans. A year ago, subprime mortgages accounted for 54 percent of the U.S. foreclosure inventory. Prime fixed rate mortgages accounted for 19 percent of new foreclosures in the year earlier period."

My Take:

Folks, this is horrifying. Prime loans are never supposed to go bust. These borrowers are supposed to be "a lock" for the banks. They are the premier borrowers with the best credit scores. The fact that they are crumbling is extremely worrisome.

I mean hell, if a prime borrower isn't safe then who in the hell is?

Credit counseling companies are seeing a distinct change in callers as prime borrowers go belly up:

"Prime fixed-rate loans have finally leapfrogged those nasty sub primes to take the lead in the race to foreclosure. The foreclosure rate on primes has in fact doubled in the last year

"I got a call yesterday from Scott Scredon at the Consumer Credit Counseling Services in Atlanta. He says they’ve seen a distinct change in callers. “We’re getting calls from engineers and attorneys and post graduate students,” he says. “Many of these people run through their 401Ks and their savings and start living off credit cards and then they call a counseling agency for help. So it’s a new kind of person we’re seeing today, but it’s a sign of the times.”


This is nuts. Why are prime borrowers pissing away their retirements in an attempt to keep a bloated overvalued McMansion? These people are nuts! Walk away from the damn house! Why destroy yourself financially for the rest of your life in order to continue to live in one of these crapboxes?

Its not like your ever going to ever pay the loan off. I mean Christ: If you are behind on payments after just 3 years, How in the hell do you think you can continue to make the same payments for the next 27 years.

Your retirement is your nest egg. Don't piss it away by paying back a bunch of greedy bankers that fraudulently put you in a house that's worth half of what you actually paid.

How did this Happen???

Folks its simple, the prime borrower made the same mistake that the subprime borrower did only on a larger scale: They bought a house they couldn't afford!!!

Everyone that got involved in the housing bubble turned into debt whores. It didn't matter if you made $30,000 a month or $3,000 a month. The $30,000/month "prime" buyer bought a house for $1.8 million when they really could only afford $1 million while the subrime borrower paid $300,000 for a house when they could only afford $150,000.

Either way it doesn't make a difference. Neither one can afford the darn house.

How out of control did this mania and our debt loads get? Let's take a look at where we sit historically:

As you can see above, our debt loads are just flat out ridiculous. There is no other way to describe it. Housing and stock wealth have plummeted at a time where the average person holds more debt by far than any other time in our countries history. Meanwhile wages only mildly rose in comparison to the soaring debt loads over the same period. Umm...Can you say DEBT BUBBLE?

How on earth is anyone going to ever pay this debt back? Where is the money going to come from? Mars?

Answer: It won't be paid back. The problem we have here is our economy cannot grow until all of this debt is either paid off or defaulted on. Our consumer led economy simply cannot grow when the consumer doesn't have the ability to spend.

Bottom Line:

This will not end pretty. Whenever bubblevision talks about all of the "cash on the sidelines " come back here and take a look at this chart. Cash is on "the sidelines" because its being used to payoff record debt levels.

The now 9% deliquincy rate on mortgage payments combined with massive foreclosures, record invetories, and higher interest rates will only mean one thing: THE DEATH OF THE HOUSING MARKET AND OUR ECONOMY.

Every week all I hear about on CNBC is how they are signs of recovery. Housing supposedly is stabilizing and the banks balance sheets our now supposed to now be strong.

Gimme a break! How can they say this with a straight face?

If prime mortgages foreclosures continue this trend(and there is no reason to believe they won't) the banks are going to get slaughtered as their loan books become filled with millions of bad loans resulting in billions if not trillions of more $$$ in losses.

Green shoots? All I see is one giant housing weed.

Wednesday, May 27, 2009

It's Time To Stuff The Mattress!


What can I say folks. The TNX chart says it all in terms of what happened in the bond market today. Umm there is only one word I can think of: CHAOS!

My Take:

Bonds collapsed once again as the pressures in the credit market continue to mount. Demand at today's 5 year bond auction was strong as investor's continue to clamor for debt at the short end of the yield curve:

"The five-year notes auctioned today were sold at a yield of 2.31 percent, compared with an average forecast of 2.335 percent by eight bond-trading firms surveyed by Bloomberg News before the 1 p.m. bidding deadline.

Indirect bidders, the class of investors that includes foreign central banks, bought 44.2 percent of the five-year notes, compared with an average of 32.4 percent in the last 10 auctions."

The strong indirect bidder(FCB's) demand on these shorter dated bonds is actually creating a panic on the long end as investor's begin to fear that demand for longer dated treasuries will dramtically fall off as a result. Both the 10 and 30 year sold off hard today as the bond market watched the FCB's continue to pile into shorter dated treasuries.

Fixed income investor's are panicked by this strong demand because they see the freight train of unprecented supply of new bond issuances heading right straight for them. As this train approaches, they realize that there is only so much demand/money to finance these sales.

So now they now have to ask themselves: With all of this buying on the short end, will there be any money/demand left to buy the long end thats coming out next week?

The huge treasury auction's next week are all long end 10's and 30's. The bond market is obviously asking themselves: Who in the hell is going to buy all of this worthless crap?

As a result, You saw a virtual panic in the bond market today. What's even more concerning here is the fact that we saw equities sell off at the same time that treasuries did.

Nowhere to Hide?

Kudo's to Karl Denninger for this great chart. If this doesn't say it all I don't know what does:

My Take:

It doesn't get any uglier than this guys and girls. Where in the hell are you supposed to put your money as equities and bonds both sell off at the same time?


Sad but true. I would make sure that you hedge any treasury holding's that you have. You can do this by shorting TLT or by buying ticker TBT. If the long end treasury auctions blow up next week it could be lights out for the bond market. I wish I was kidding folks. Unfortunately, I am as serious as a heart attack.

The fact that the bond market is collapsing this early in the year is STUNNING to me. We still have trillions of $$$ in treasuries to sell throughout the rest of the year. Who in GOD'S NAME is going to buy it? I am starting to have doubts that we make it through the summer with out a bond dislocation/collapse.

What's also frightening was watching the MBS securities also sell off today. The spread between Fannie debt and treasuries has narrowed to razor thin margins. The bond sell off triggered a massive sell off in MBS because the spread got too narrowed.

This was the one area of the bond market that was still performing.

All in all folks, everyone sold everything today: STOCKS AND BONDS. Scary stuff.

Bottom Line:

Buy yourself an extra thick SEALY and tuck some money away. As for for the rest of your wealth thats in "digital dollars" via CD's/treasuries, stocks, and 401k accounts? Just hold onto them and pray that you can liquidate them into cash down the road if TSHTF.

The rise in mortgage/treasury yields are going to absolutely decimate whats left of the housing market because interest rates are going to SOAR.

We could very well see mortgage rates hit 6% by next week and no that's not a misprint. That's how bad treasuries have sold off.

How is anyone holding a $500-$750,000 McMansion going sell now as rates soar? They couldn't sell the damn thing with 4% rates. There is now a 40 month inventory for houses in this price range and this was BEFORE we saw the bond blowup this week!

Higher rates will be the final nail in the coffin for anyone selling in this price range. Housing in general is simply going to be destroyed by higher mortgage rates.

Obama, its time to IMMEDIATELY put the breaks on your spending binge or you risk destroying this nation economically.


Tuesday, May 26, 2009

Bond Panic!!!!

Good Evening Folks

If you only looked at the stock market today you would think that everything was just Hunky Dory out there. Ahh...Not so fast my friends. Bonds collapsed once again today and sold off hard into the close. The 10 year futures are now trading at a 3.55%!

The move in TNX today was PARABOLIC:

My Take:

Basically all hell is breaking loose in the bond market. Here is the problem boys and girls: The bond auctions went well today because they were 2 year auctions meaning that the bonds were on the short end of the curve. This is where everyone wants to be because they mature quickly. This quick ROI makes them one of the safest places to be in the treasury market. As a result, the auctions went well.

Where investors don't want to be is stuck in the long end holding 30 year bonds! The rest of the auctions this week are 5 and 7 year treasuries. There will be not be as much demand for these bonds because they begin to lean closer the longer end of the yield curve in the treasury market. Across the curve is suggesting tonight that a long tail on the 5 or 7 year bond auctions later this week could mark the beginning of the end for treasuries.

The fact that the our bailout obsessed president just dumped another $30 billion into GM wasn't exactly soothing for the bond market. The Fed must be in a panic after seeing what happened in the credit markets today.

Bottom Line

The gates of hell could open wide if the 5 and 7 year auctions don't sell well. The panic sell off in treasuries late today should be considered to be extremely ominous.

This rally today was based on consumer sentiment which came in way above expectations. Hell, even I was impressed. However, remember, sentiment is just sentiment. Sentiment doesn't buy a car or a house. It just means people are feeling more optimistic.

Meanwhile, back here on earth, our economy continues to collapse. The March Case/shiller report was a pefect example of this:

"May 26 (Bloomberg) -- Home prices in 20 major metropolitan areas fell more than forecast in March as foreclosures surged, threatening to extend the housing slump.

The S&P/Case-Shiller home-price index decreased 18.7 percent from March 2008, matching the drop in the year ended in February. The measure declined 19 percent in January, the most since data began in 2001.

Record foreclosures are depressing the value of other properties, contributing to a slump in household wealth that is hurting consumer spending and the economy. Still, falling prices and mortgage rates have made homes more affordable, helping to stem the slide in sales, which will eventually help prices stabilize.

“The housing market still has somewhat of a ways to go before it completely bottoms,” Celia Chen, an economist at Moody’s in West Chester, Pennsylvania, said in an interview on Bloomberg Television. “Prices I think still will fall a little bit further.”

Bottom Line Continued

I thought housing was stabilizing? BB told us that the they were seeing signs of stabilization in the economy dammit! Gee, do you think perhaps he lied?

As you can see there are no signs of stabilization. The only sign I see here is one that reads: FREEFALL! Housing prices were down almost 19% down versus March of last year. Yuck.

Remember folks, the economic crisis cannot end until housing stabilizes. Most of the bad assets on the banks books are bloated McMansion mortgages. Dropping housing prices mean only one thing to the banks: MORE LOSSES!

What can I say folks? We are spending too much money that we don't have, and this house of cards is about to come tumbling down. The credit markets are trying to warn you that its coming. We have moved from 2.4% up to over 3.5% on the 10 year in less than 2 months. Whats amazing is this is happening at a time when the Fed buying treasuries via QE! This is a parabolic move that may be signalling that a bond dislocation could be right around the corner.

The equity market told you the wrong story today folks. Moves in equities based on consumer sentiment telling you "happy days are here again" are moves that I ignore.

The real story happened in Chicago. I am amazed at how these pump monkeys can take the market higher in the face of such bad news.

I mean its amazing: GM is bleeding money and going BK, the bond market went berserk going into the close over concerns around our credit rating, and housing once again dropped to all time lows.

So what do stocks do in response to all of this? Move higher because consumer sentiment came in above expectations! These poor saps buying stocks have no clue that they are jumping into a pit filled with rattlesnakes.

Stay Tuned!

Monday, May 25, 2009

The Moment of Truth?

Its pretty quiet out there tonight boys and girls.

Enjoy it because it won't last long. The credit markets will be buzzing like a beehive as they attempt to sell $100 billion in treasuries this week. Is this week the moment of truth? Could we have a failed auction over the next two weeks as we attempt to sell $170 billion in treasuries?

I wanted to share one article tonight around this.

US Dollar is trading near a 5 month ow in Japan tonight:

"May 26 (Bloomberg) -- The dollar traded near the weakest level in more than five months against the euro on speculation bond sales this week may renew concerns that a record supply of Treasuries will jeopardize the U.S.’s AAA credit rating.

Record Borrowing

Ten-year Treasuries completed the biggest weekly loss since June 2008 as the U.S. prepared to resume debt sales after a two- week pause. The Treasury plans to sell $40 billion in two-year notes today, $35 billion in five-year notes May 27 and $26 billion in seven-year notes May 28. It will sell $61 billion in three-month and six-month bills in a weekly auction today.

The U.S. is boosting debt sales to $3.25 trillion in the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc., one of 16 primary dealers required to bid at Treasury auctions, as President Barack Obama borrows record amounts to try to snap the steepest recession in at least 50 years.

S&P lowered its outlook on the U.K.’s AAA credit rating May 21 to “negative” from “stable,” raising concern that the same may happen to the U.S.

“Given growing concerns about U.S. creditworthiness, capital outflow from the dollar-denominated assets may gain further momentum,” said Kengo Suzuki, manager of the foreign bond trading department at Mizuho Securities Co., a unit of Japan’s second-largest banking group."

My Take:

Hold on tight this week folks! We got a lotta debt to sell in the credit markets. Something to take note of: If there is weak demand for this debt as the world continues to worry about our solvency, the primary dealers like Goldman get affected. They must fill the gap with liquidity if the demand isn't there.

This leaves them with less liquidity to pump into the market. It appears to me that the primary dealers will be doing a hell of a lot of financial juggling over the next two weeks as we sell record amounts of debt.

So the question to ask here is this: Do the Fed and the primary dealers pull liquidity out of the stock market in order to increase treasury demand and keep the bond market moving?

The resulting sell off in equities as the liquidity is pulled would of course scare investors back over to the "safe haven" of treasuries. This would dramatically help them sell the $100 billion in debt that they need to dump this week.

I wouldn't at all be surprised if we saw a lot of red in equities over the next two weeks as these massive bond sales continue.

As always, keep an eye on the bond market.

Stay Tuned!

Sunday, May 24, 2009

The Greatest Depression?


I never thought I would see Gerald Celente in the mainstream media. Seeing him on Fox News was a pleasant surprise. I am glad to see that the "doom and gloom" crowd that discuss our economy are finally getting some airtime. The depression is coming folks. Its time to prepare for it.

IMO, Gloom and doomers are simply realists when it comes to the economy. If things suck they suck! It is what it is! I would much rather hear the TRUTH around how things really are in the economy versus some"green shoots" theory that has zero chance of happening right now.

Get prepared and please start listening to people like Mr. Celente. 5 years ago many of us would have thought Mr. Celente was insane for prediciting such horrors. In this new scary world that we live in, the labeled "insane" are now "sane" .

The MSM will tell you to listen to Timothy Geithner and Mr. Bernanke at the Fed when you have questions around the economy.

This is just about the worst advice that anyone could get. Look at how many times these two have been wrong. Wake up!

I will have a detailed post up tomorrow night. China appears to be very worried about buying treasuries.

Enjoy Gerald!