Saturday, October 30, 2010

Your Taxpayer Dollars at Work

I came across this today.  Look at the graph below if you want to see what happened to your taxpayer dollars that were used for the bank bailout.

Wall St has lined their pockets with obscene amounts of money in stock.  Keep in mind that without the TARP and other bank bailouts these shares would be worth nothing because all of these financial institutions would have gone bankrupt.

The bankers decided to use their earnings in 2009 to report fraudulent profits instead of doing the right thing and using the money to pay off the trillions of dollars in bad loans that still sit there rotting on their balance sheets.

By reporting huge fraudulent earnings they were able to boost their stock prices and pay themselves massive year end bonuses.  These spoils come at our expense of course because without the bailouts none of them would exist right now.

Meanwhile Rome continues to burn as the largest fraud ever seen in history continues as the bankers laugh all the way to the bank.

I hope one of these pigs chokes on a chicken bone this weekend.

Goldman Sachs:
Wells Fargo:
Bank of America:

Here is a barf bag in case any of you want to vomit after reading this:

Friday, October 29, 2010

QE2: Happy Days are Here Again!

Beginning next week we will enter the world of QE2.  This new world will be a wonderful place where all of your dreams come true.  QE2 will be like the sun.  It will rise everyday, make everyone warm, and put a smile on everyone's faces:

We will all dance and sing each day because QE2 will solve everything.  Are you jobless?  Penniless? Underwater on your mortgage?  Forget about it!

There is now need to worry about any of that stuff anymore because QE2 is here and it's going to save us! 

Take that frown off your face and replace it with a smile!  Happy days are here again.

OK, sarcasm off, if I continue this anymore I will be forced to vomit.

Here is what QE2 will really end up looking like(Please replace Larry's face with Bernanke in order to get the full effect):

My Take:

I saw that and I couldn't resist.  I hope it made a few of you chuckle.   The point I make here is the market has hyped QE as the panacea that will solve everything.

The reality is it does nothing the help Main St. 

QE2 is a fairy tale.  We are being told that QE to will lead to endless prosperity.  You hear the same buzz words out of Washington.  All you hear day after day is words like hope, change, prosperity and so on.  My answer to this garbage is "where's the beef?".

Selling "hope" gets old after awhile when you continuously fail to deliver.  One of my awesome readers reminded me that we have seen fairy tale dreams like this before:

Wouldn't you just love to find this women today and asker her how all those promises worked out?  I bet you would get a different answer.

QE2 will fail just like every other government promise has failed to date.  They should place QE at the top of the fail blog right now because if you look at the price of commodities since the announcement of this disaster you could technically say it's failed already.

QE2 will not help J6P, it actually hurts us because the one thing we can count on with more quantitative easing is higher inflation.  That's being reflected in gold prices again today which are up another $15.

We are also seeing more weakness in the dollar especially versus the Yen:

Take Continued:

This is a chart of the USD/Yen dating back to 2001 which was as far as TOS would let me go.  We are actually on the border of breaking the all time lows on the dollar versus Yen that were set way back in 1995.

This is really bad news.  Especially for the Japanese.  Japan Announced more easing plans last night as they lowered their growth expectations as a result of their stronger currency.

Folks, I am getting really concerned about Japan.  The reason a rising currency is crippling for them is because they are an export driven economy.  A rising currency is extremely destructive for them because it makes their exports more expensive.

Japan is at serious risk of seeing an economic collapse.  Their debt versus GDP is the worst of any developed country.  It's at around 200% which is double where we are right now.  They have already tried multiple QE's which have done NOTHING but make things worse....Are you listening Mr. Bernanke?

This of course threatens the stability of the financial world because Japan is the 3rd largest economy globally.  If they default, there will be destructive rippling effects that will be felt everywhere.

The Bottom Line

US GDP came in at 2% which was a tad below expectations.  The stock market is down slightly.  As I said earlier this week, I didn't expect much out of stocks until the FOMC announcement.

The credit and currency markets are however extremely active as they start trying to price in the Fed's QE2.  Bonds are up after a few down days but are still down for the week.

I think the Fed's move to ask the primary dealers about bond demand might have forced the bond market to slow down the treasury sell off.  They are concerned that the primary dealers might be able to talk the Fed into increasing the QE2 number.

This is all setting up for one hell of a week next week.  The markets will be a rockin as they digest all of the election and QE news.

For now, all is quiet before the storm. 

Disclosure:  No new positions taken at the time of publication.

Thursday, October 28, 2010

Professor Jeffrey Sachs Nails It

Awesome video here featuring Columbia University Professor Jeffrey Sachs. 

Our government's failure to look at the big picture is setting us up for a horrific downward spiral.

Your average Washington politician acts like a child with ADD as they obsess about whats happening 10 minutes from now instead of focusing on whats important. 

These people need to stop sweating the "small stuff" and start facing serious issues like the deficit that threaten our way of life. 

Remember this when you are at the polls next week folks.  Our current politicians have failed us on both sides of the aisle.

We need legislators who are willing to make tough unpopular decisions.  We need leaders who will do the right thing even if it puts them at risk of getting voted out of office.

The backroom dealings with special interest groups that Jeffrey describes below need to stop immediately because Rome is burning all around these clowns and for whatever reason they can't see it.

We need a major fiscal overhaul before we blow ourselves up.  It's going to hurt but it MUST be done:

Anyone else tired?

I sure am.  Feel free to share your own suggestions in the comments section. 

Here is my list:

I'm tired of turning on the TV and being lied to about the recovery by the media on a daily basis.

I'm tired of the mortgage fraud and everyone that's involved.

I'm tired of worrying about whether or not I will have a job a year from now.

I'm tired of of the way Wall St continues to hide their losses.

I'm tired of Wall St paying themselves huge bonuses based on fictitious profits.

I'm tired of listening to Jim Cramer telling me to buy stocks on a daily basis.

I'm tired of watching the stock market trade like a bipolar schizophrenic that hasn't taken their meds for 3 years.

I'm tired of Apple and Google.  Don't ask me why I'm just sick of both of them.

I'm tired of watching every politician promising the world and then delivering nothing.

I'm tired of the Democrats and the Republicans.  I don't know which side makes me more sick.

I'm tired of CNBC and their guest list of clowns.

I'm tired of trying to analyze a market that makes no fundamental sense.  Don't get me wrong I love blogging everyday!

Speaking of fundamentals:  I'm tired of the fact that they continue to be ignored.

I'm tired of watching people get famous for doing absolutely nothing.  Yeah, I am talking about you Mr. "The Situation".

I'm tired of housing being too expensive.

I'm tired of the cold and it's not even winter yet.

OK, that's enough.  Ahhh.....I feel better now after doing this.

Gold Soars as the Fed Contemplates More QE

It's obvious after looking at today's trade that the market is obsessed with the Fed's QE2.  The market violently responded to last night's news that the Fed was asking the primary dealers about what they feel the demand for treasuries will be moving forward.

The market responded to the news by crushing the dollar thinking that a larger QE2 is now on the table.

I read it the same way.  You know what the banks answer to the Fed's inquiry: "Umm...Mr. Bernanke, we don't think the demand is going to be very high at all.  We think you need to increase the QE."

Why would they say anything else?  The banks are all insolvent and dying for more QE because it fills up their empty coffers.

The market read it the same way.  The dollar got crushed following the news:

Gold then soared:

The 10 year bond then soared as the market speculates that the Fed may increase QE2:

What I find interesting is the market sold off on this news.  The consensus thinking has been that the larger the QE the better it will be for stocks. 

From the looks of things so far it's had the opposite effect.

Until later.

Wednesday, October 27, 2010

Fed Hedge?

QE2 just gets more amusing by the minute:

"The Federal Reserve asked bond dealers and investors for projections of central bank asset purchases over the next six months, along with the likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth.

The New York Fed survey, obtained by Bloomberg News, asks about expectations for the initial size of any new program of debt purchases and the time over which it would be completed. It also asks firms how often they anticipate the Fed will re- evaluate the program, and to estimate its ultimate size. "

Quick Take:

What a frickin mess!  "Possible impact of new efforts to spur growth".......Growth?  Give me a goddamn break.

Folks, let's get it straight:  There is no growth from QE2 because the money cannot be placed into the "real" economy unless there is a desire for someone to borrow it.

Let me repeat:

There is no growth from a GDP standpoint with QE unless the money that is given to the banks is borrowed by J6P.  If there is no demand for credit(which is obvious) then the money does nothing to help us!

All QE2 will do is create more asset bubbles because the banks will shift the cash into various assets versus lending it to J6P who is broke.

The Bottom Line

This insanity needs to be stopped before our currency is destroyed.

The fact that the Fed is sending out "feelers" for demand is frankly flat out frightening.

This is a total cluster**ck that must be  stopped immediately! 

It appears that the Fed is playing a game of chicken with the taxpayer as it tries to avoid a bus that inevitably is going to smack them right in the face.

In the immortal words of Susan Powter...STOP THE INSANITY!!!

The Bond Market Cranks up the heat on the Fed as Yields March Higher

I wanted to start today with some stock market analysis:

Quick Take:

Looks like the blue robot won today!  The red one should have been victorious because we saw a lot of red in the markets today.

I hate to make a joke of the markets but what else can you do at this point?  The market is acting absolutely absurd.  It trades with no conviction.  Should we be surprised at this when the average trade is held for just 11 seconds?

70% of the trades on Wall St are now made via high frequency trades.  None of these positions are taken with any conviction.  When you throw in the retail day traders and the hedge funds this percentage of "speculative betting" rises even higher.  I wouldn't be surprised if  90% of all trades on Wall St are held for only a matter of minutes.

Since this is the case, what is there really to analyze?   Unless you have a trading algorithm that matches the HFT's you really have no chance day trading stocks. 

Day after day all I see is chop chop chop.  Whenever a trend is established early on in the session it appears to break down by the end of the day. 

If the market rises or falls more than 100 points during the day it almost seems as if a circuit breaker goes off inside each of these trading algo's that tells them to "take profits" and then take the other side of the trade.

Essentially, the market has no substance or soul at this point.  Everyone is speculating.  No one is investing.  The market has morphed into another example of our "I want everything right now" culture.

I don't know how you can be a bear or a bull right now and feel very confident.  The market has clearly been taken out of the fundamental investors hands and given to the computers who have turned it into a high stakes casino that has no meaning.

Some advice:

Use a dart board if you wanna make some stock picks!


This is where the action is people!!!

Stocks tried to follow bonds today but they appeared to be kidnapped by the robots late in the day.

The 10 year however sent a clear message:

My Take:

Bonds continued yesterday's sell off after word got out that the QE2 will be much smaller than many anticipated.  Bill Gross's bearish bond call didn't help things today either. 

I am kinda torn on this price action.  The skeptic in me wants to say that the bond boys are trying to pressure the Fed into upping the QE2 ante. 

However, the fundemental side of me thinks that bond yields were way overdone to the downside and did not reflect the real risk of our deficits and the risks of inflation.  My fundemental side also believes that yields are rising as the bond market starts baking in the reality of a smaller QE.

The Bottom Line

After word got out about a smaller Fed easing last night I am now leaning more towards the fundementals when it comes to analyzing why treasuries are selling off.

Folks, if this trend continues it could mean real trouble for both housing and the USA's fiscal health.  Higher rates will be crippling for our government's balance sheet because it increases the cost of servicing our massive treasury debt issuances.

It's bad for housing because higher bond yields lead to higher rates which hurts housing prices.

The next few days are going to be interesting to watch because there is so much at stake.

I am sure there is a lot going on behind the scenes right now when it comes to the FOMC statement.  IMO, our economy hangs in the balance. Let's not forget:  The pressure on the Fed is increased by the fact we also get the mid term election results the same day as the FOMC.

Talk about a recipe for firworks!

If bond yields continue to move violently higher following the combination of a QE announcement and a huge Republican victory then Obama is going to have to face the music and cut spending sooner versus later.

Clinton faced the same dilemma in the early 1990's:

As you can see above, bond yields went from almost 5% to over 7.5% as the bond market opposed Clinton push for huge amounts of government spending...Hillary Care anyone?

If we see rate increases that look anything like this today then Obama is in a world of hurt and the spending will have to be stopped..

Let's see how this all plays out before we come to any conclusions.  If the vigilantes are back and rates begin to soar then we are in for some dark times ahead.

QE2 Temper Tantrum Pressures Stocks

"Waaahhh!...Waaaah!..Waaaaaah! I want a bigger QE2!!!"

What a bunch of Wall St cry babies. 

Bonds are selling off despite the big dump in equities as Wall St cries like a little bitch following the news that the Fed's QE may be less than spectacular.

Read Bill Gross's shocking piece today if you want to know why the Fed is reigning in QE2.  It doesn't take a brain scientist to figure out why QE won't work.  It may help the banks stay afloat for awhile longer, but it does nothing to help Main St.

I don't know about you but I think the banks have gotten enough help.

Here's Bill's piece in a nutshell:

"The Fed’s announcement of a renewed commitment to Quantitative Easing has been well telegraphed and the market’s reaction is likely to be subdued.

We are in a “liquidity trap,” where interest rates or trillions in asset purchases may not stimulate borrowing or lending because consumer demand is just not there.

The Fed’s announcement will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment."

My Take:
Week by week the Fed's policies and foreclosuregate are slowly being thrown under the bus by the people who matter on Wall St.
The rotten smell of fraud on the street has became so foul that it could no longer be ignored by the big players.  It's becoming clearly evident to Bill and others that it's time for them to bail on both the Fed and the TBTF banks.
This is clearly evident by Gross's scathing analysis of the Fed in the letter above.  More evidence of this rejection was seen last week as the NY Fed, Blackrock, and PIMCO sued Countrywide.

The Bottom Line

The bond vigilantes appear to be making a statement around the Fed's QE2.  The question is are they rejecting the idea all together or are they saying it's not enough?

We'll have a better idea as to what message they are sending when we get the FOMC statement later this week.

Back later for more later and hold on tight today.  Gobble Gobble Bill Gross!

Tuesday, October 26, 2010

Wall St Journal: Fed's QE2=Few Hundred Billion Dollars

If this is true Wall St isn't going to be happy:

"(Reuters) - The U.S. Federal Reserve is likely next week to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, the Wall Street Journal reported on Wednesday.

What the Journal report called a "measured approach" compares with investors' base-case scenario of an initial commitment to buy at least $500 billion in Treasury debt over five months, in an effort to spur lending and to support an economic recovery that is too weak to tame high unemployment.

The Journal gave no source for the report on its website and said that, although details remain to be sorted out internally, the broad outlines have taken shape.

The bond-buying program is likely to focus on Treasury bonds with maturities mostly between two years and 10 years, it said.

The Fed could buy even longer-term bonds, although some officials are reluctant to do that aggressively because it could expose them to long-term losses without much added benefit, it said."

Quick Take:

Wall St is expecting a Bazooka from the Fed next week and it appears like they are about to get a BB gun instead.

In today's world of trillion dollar deficits this is the equivalent a gnat on an elephants you know what.

What I find interesting is how the Fed purchases will include two year bonds which are having no problem selling right now. 

In fact, last week's 2 year auction sold at record low yields with a bid to cover at a strong 3.43.  Why are they pissing away money on this area of the bond curve? 

Sometimes I just want to start baging my head of my keyboard when I read articles like this.  It's so frustrating watching the Fed piss away hundreds of billions of dollars on something that will accomplish absolutely nothing.

The lack of attention to the long end(which I expected) combined with the small size of the easing in general could explain why this part of the bond curve sold off hard this afternoon. 

It's also possible that the bond boys also may have just simply had a temper tantrum this afternoon as the primary dealers come to terms with not totally getting their way with QE2(which is not something they are used to).

I find it humorous that they admitted that they want to avoid treasuries at the long end of the curve because it could expose them to long-term losses.


Well.....It sounds like we can now bank on a QE2.  In other words:  We are about to officially announce on November 3rd that we are financing ourselves.

Let the amusement begin!!!

Treasuries Drop Sharply Ahead of the FOMC

Many are totally stumped by the bond market today.  Bonds sold off hard despite being only days away from Bernanke's apparent QE2 announcement.

I say "apparent" because if you listen to the markets, QE2 is an absolute lock.  When I looked at bonds today I must pull a Lee Corso and scream back "Not So Fast My Friend!".  Actually I believe them(more later)

Let's look at the bond action, and I will elaborate on my thoughts at the bottom:

Here is the 10 year:

Now Let's take a look at the 30 year:

My Take:

I'll start with a question:  If you are a bond holder then why on earth would you be selling bonds less than a week before the Fed is about to announce it's largest treasury spending binge?

Wouldn't you want to hold onto these bonds and sell them off at a higher price after treasuries likely surge on the FOMC announcement?

IMO, there is one of three things that are going on:

1)  If my hunch is correct, there is an old bond game that is being played here that my friend "the credit trader" taught me.

Wall St loves to sell off bonds a few days before an announcements that they believe will be bullish for bonds. 

The reason they sell them off a few days early is it sets up better price entry points.  The FOMC announcement would be a perfect scenario for this "old school" game.

2)  Wall St is not totally confident that the FOMC is ready to move with QE2 so they are dumping bonds as they head for the sidelines.

3)  Inflation fears are taking yields higher as the bond market reacts to the recent sharp declines in the US Dollar and the resulting rise in commodity prices.

My Take:

If I was a betting man I would go with scenario number one. Before I continue, let me emphasize that this is not investment advice. 

However, if you believe option 1 is the likely scenario then buying PUT's on TBT or going long TLT into the FOMC meeting could make for a nice trade.

There is a lot of risk involved here because there are some dangerous inflationary risks that have yet to be priced into bonds. 

Nonetheless, the bond game in scenario 1 has been played for a long time, and the market manipulation seems to be never ending so I wouldn't be the least surprised to see it play out this way.

If bonds do continue to sell off hard into the FOMC then the bond market is clearly sending a message to Ben and his helicopter full of money:  Knock this crap off!

I think the majority of trading action going into next week will be in the credit markets.  I wouldn't be surprised to see stocks move a little sideways heading into the FOMC announcement.

I personally can't wait for next week.  Watching treasuries following the FOMC statement on November 3rd is going to be a sight to behold.  The expectations and pressure on the Fed are enourmous, and they have to walk a very fine line in order successfully avoid any major market disruptions.

I am sure Ben's beard will be sweating no matter what he decides to do.  

Stay tuned.

Disclosure:  No new positions taken at the time of publication.

Sheila Bair Investigation?

Looks like the ShoreBank controversy is getting legs.  Sheila was supposed to be one of the good people in DC. 

So much for that I suppose:

Tuesday Morning Setup

We are off to an interesting start this morning. 

First of all it's important to note that today is another Fed POMO day.  Those auctions.  The funny money from the POMO effect usually hits the markets late in themorning around 11ish or so.

Market is off sharply at the start.  Down around 75 points.  Could POMO reverse this trend later this morning?  Time will tell.

What I found interesting this morning was the bond action.  The 10 year is down despite a selloff in stocks:

Ironically bonds were up on yesterday's rally.  This correlation between stocks and bonds is exactly the opposite from what we should be seeing.  The market continues to trade irrationally.  I guess we shouldn't be surprise at this point.

A few things contributed to this mornings selloff:

Case shiller came in weaker than expected and US Steel missed badly:

Futures slid further after a disappointing report on home prices. The Standard & Poor's/Case-Shiller home price index fell 0.2 percent in August. Fifteen of the 20 cities measured in the index saw price declines, indicating the housing market remains very weak.

US Steel actually lost money.  So much for the global recovery.  I had a friend in the steel biz and he always told me that he could tell how the economy was doing based on how his business was.

They also guided lower.

The Bottom Line:

Never underestimate the POMO effect.  Stocks have already cut their losses.  You just gotta love the Fed's "funny money".

How long can we depend on them to keep propping us up?  Money is running short unless they want to continue and pummel the currency and continue to print.

That being said, the dollar is actually up today which was another reason why stocks dropped at the open.

I wouldn't be suprised to see another green day given the POMO effect.

Go Fed go!  Keep distorting the markets!

Monday, October 25, 2010

Jobless Recovery Turns "Green Shoots" into Tumbleweeds

I thought I would share another does of reality tonight.  I thought the most recent data from the Fed nicely summed up how bleak the jobs picture really is. 

Here is the latest mean duration of unemployment data from the Federal Reserve in St Louis:

As you can see below, the most recent numbers remain stubbornly high:

Date   2010-05   2010-06   2010-07   2010-08  2010-09

Value    34.4          35.2         34.2          33.6         33.3

My Take:

We are in uncharted waters when you compare mean duration of unemployment versus any other time in history since World War II.  As bad as things got in the 1970's and early '80's the unemployment duration was only half of what we are seeing now.

If we really were seeing a legitimate recovery the duration should be rapidly dropping off like it did in previous recessions(as seen above).

When you really take a hard look above you realize that we really never fully recovered from the tech bubble.  During the peak of the housing bubble unemployment duration remained high versus historical norms.

Today, it's a complete unmitigated disaster.  It takes the average person 8 months to find work after being let go.  In good times that number should be 2-3 months. 

Sadly, in all likelyhood, the people who did find work jobs are not making the money they did before.  Salaries drop when business is slower and you have several candidates from which to choose from.

Folks, without jobs housing cannot recover, and without housing the economy is in deep trouble. 

If this was a war we would find ourselves facing gunfire from all directions:

We are stuck in homes we cannot afford, we are losing our jobs when our mortgage is higher than it ever was in the past, and when we lose our jobs it's taking forever to find another one.

If things weren't bad enough we now have helicopter Ben and the Fed flushing the currency down the toilet which is forcing us to spend what little discretionary income(if there is any) we have left on essentials like food and oil.

If this were a war I would call it "Shock and Awe".  For once I think I know how the Iraqi army must have felt as they were overwhelmed from all angles. 

Bill Black: Fire Bernanke and Geithner

Former banking regulator Bill Black was on fire today on Dylan Ratigan's show.  Kudos for Dylan for providing a platform for people who speak the truth.

In case you are not familiar with Bill Black, he was one of the stiff regulators that ripped apart the last housing bubble back(Savings and Loan Crisis) in the early 1990's.

Over 1000 bankers were prosecuted during this investigation as the regulators cleaned up Wall St. 

Some op the data points Bill shares below are shocking(His interview starts at the 5:30 mark on the video if you are short on time).  Liar loans are reported to have around a 80% failure rate, and 97% of Countrywide's loans contained some form of fraud.

Here is the Barofsky report that Mr. Black brings up below which revealed more shocking alegations around the Fed's shenanigans.

It's time to take out the trash once again, and we should start with Geithner and Bernanke.

This is must watch stuff:

A Warning To The Day Traders

Just a heads up to all you daily grinders out there from Joe Saluzzi who is one of the best out there when it comes to discussing trading and market making.

Towards the end of the video he sends a clear message to any retail investors that are daytrading and competing with the HFT's:  "You cannot beat these guys".  Food for thought.

Today's erratic tape supports these thoughts IMO.  As I said earlier today:  Nothing makes sense, and I believe a lot of it has to do with the robot trading that Joe describes below.

He also does a nice job explaining why we all should be concerned that the HFT's are now the ones creating today's market liquidity versus the specialists in the past.

The HFT's have no mandate that forces them to stay involved if the market crashes.  They can legally run for the hills like they did during the infamous May "Flash Crash".

In the older days there was a "code" among the specialists where they would try and prevent crashes by supplying liquidity(to a point of course) in an attempt to make the markets trade orderly. 

Joe explains that since the HFT's have no obligations to remain there, it makes today's market liquidity much more risky.  He also adds that because of this, it's just a matter of time before we see Flash Crash Part 2:

Be careful when swimming with the sharks!

TIPS Auction Sells at a Negative Yield

As Ben continues to remain infatuated with deflation, the bond market is taking the other side of the trade.

The TIPS auction today saw huge demand as bond traders pile into these bonds which are securities that are designed to reflect changes in the CPI order to protect you from inflation.

The bond market obviously is becoming increasingly concerned that Bennies upcoming QE2 will result in crippling inflation.

CNBC reported that this was the first TIPS auction that closed with a negative yield although I have not been able to confirm this.

Nevertheless, at a bid to cover of almost 3-1, there was plenty of demand.

As the dollar falls yet again today it appears that the risk of the US currency turning into piece of toilet paper is rapidly increasing.

Here were the TIPS results:

"October 25, 2010 202-504-3550


Term and Type of Security 4-Year 6-Month TIPS

CUSIP Number 912828MY3

Series K-2015

Interest Rate 0-1/2%

High Yield1 -0.550%

Allotted at High 57.82%

Adjusted Price 105.508607

Unadjusted Price2 104.749175

Adjusted Accrued Interest per $1,000 $0.19370

Unadjusted Accrued Interest per $1,0002 $0.19231

TIIN Conversion Factor per $1,0003 1.153603720

Median Yield4 -0.635%

Low Yield5 -0.750%

Issue Date October 29, 2010

Maturity Date April 15, 2015

Original Issue Date April 30, 2010

Dated Date October 15, 2010

Tendered Accepted

Competitive $28,356,500,000 $9,920,189,600

Noncompetitive $79,810,900 $79,810,900

FIMA (Noncompetitive) $0 $0

Subtotal6 $28,436,310,900 $10,000,000,5007

SOMA $0 $0

Total $28,436,310,900 $10,000,000,500

Tendered Accepted

Primary Dealer8 $19,980,000,000 $5,700,782,000

Direct Bidder9 $1,793,000,000 $313,500,000

Indirect Bidder10 $6,583,500,000 $3,905,907,600

Total Competitive $28,356,500,000 $9,920,189,600"
Keep it up Bernanke!  The bond market is calling your bluff:

Don't Believe the Hype!

Wall St's propaganda machine came out in full force this morning as Goldman came out with an upgrade on Citigroup.  This goosed the markets higher. 

CNBC meanwhile was pumping the 10% increase in existing home, sales which at 4.53 million, was the 3rd lowest on record.   Also note that this number stil includes tax credit sales which were extended until September 30th.  This number is essentially meaningless.

We continue to see unprecedented moves in the markets this morning.

The dollar is once again falling, and the Yen is soaring which is bad bad bad for Japan.  Their central bank must be in a panic as their export driven economy gets crushed by the soaring Yen.  Here is a chart of the dollar:

Gold, oil, and commodities all surged higher on the news which is bad news for prices down the road.

Treasuries also soared today as well despite the 100 point rally in stocks.  This of course makes no sense but let's be honest:  Does anything make sense at this point when it comes to the stock market?  Here is the 10 year yield:

Folks, none of this is good.  I see we have already given back half of the gains since I started this post. 

None of this makes any fundamental sense, and the Citigroup upgrade is a complete joke. 

Lot's of noise and zero substance.

Until later.

Sunday, October 24, 2010

Housing Prices Plunge in Sept/Oct.

This is ugly:

"Clear Capital issued a market alert Friday after identifying what the company called a “dramatic change” in U.S. home prices.

The valuation firm’s index is showing a 5.9 percent two-month drop in home prices through September and October, representing a magnitude and speed of decline not seen since March 2009, the height of the housing downturn.

“Clear Capital’s latest data through October 22 shows even more pronounced price declines than our most recent Home Data Index market report released two weeks ago,” said Dr. Alex Villacorta, senior statistician for Clear Capital. “At the national level, home prices are clearly experiencing a dramatic drop from the tax credit-induced/

With a falloff of nearly 6 percent in just two months, home prices are now at the same level as in mid-April 2010, two weeks prior to the expiration of the federal government’s homebuyer tax credit, according to Clear Capital.

The company says both its home price index and the S&P/Case-Shiller indices have displayed consistent market peak, trough, secondary trough, and tax credit run-ups."

My Take:

Should we be surprised?  No...Concerned?  Yes.

When you take stimulus away gravity eventually hits.  Add a crisis like foreclosuregate on top of it and it's that much worse. 

Like any crack addict that hasn't had a hit of the crackpipe in awhile, you can expect the ensuing drop back to reality to be both fast and violent.

Clear Capital are usually the first ones out with the most recent housing data which means you can expect Case/Shiller to look the same in the following months.

The idea that housing prices are dropping this fast when interest rates are this low is really disturbing.  It tells me that people have all but given up on the housing market.  If this trend continues we are in deep trouble.

Moral Hazard is the biggest fear that I see as prishes start to crash:

As prices continue to fall, more and more loans end up being "underwater".  The ones that are already underwater then become completely hopeless.  The risk here of course is that borrowers start "walking away" in masses as they realize they were suckered into a Ponzi scam that leaves them worthless and jobless.

America is waking up folks.  If they were still clueless they wouldn't be slashing the prices on their homes like this.  They would also be buying new ones which they aren't. 

I said from the beginning that when the housing Ponzi crashes it's going to end with a mad rush to the exits all at once.

Gravity has shown us time and time again that what goes up must come down.


Tonights piece on 60 Minutes is more proof that people are getting angry and desperate as our own version of The Great Depression conitnues to intensify:

A Must Read

I came across this excellent piece that was written by Casey Report contributor James Quinn over the weekend.

James shares some excellent data points and explains how we have seen this economic picture before.  I will share a snippet below, but I suggest that you click over and read the whole piece:

"Today’s Keynesian economists have convinced boobus Americanus that the Great Depression was caused by the Federal Reserve being too tight with monetary policy and the Hoover administration not providing enough fiscal stimulus. Ben Bernanke and Barack Obama used this line of reasoning to ram through an $850 billion pork-laden stimulus package, as well as the purchase of $1.2 trillion of toxic mortgages by the Federal Reserve.

The only trouble is that this storyline is a complete sham.

The fact that colossal stimulus spending, zero interest rates, the purchase of over a trillion in toxic assets by the Fed, and the loosest monetary policy in history have done absolutely nothing to revitalize the economy, has proven that Keynesian policies have been a wretched failure. This is not a surprise to Austrian school economists.

Keynesian policies failed during the Great Depression, and they are failing today. An economic catastrophe caused by loose monetary policies, crushing levels of debt, and appalling lending practices cannot be solved by looser monetary policies, issuance of twice as much debt, and government commanding banks (or, in the case of Fannie and Freddie, “commandeering”) to make more bad loans.

Ludwig von Mises described what happened in the 1920s and 1930s. His explanation accurately illustrates the situation in America today.

"There is no means of avoiding the final collapse of a boom brought on by credit and fiat monetary expansion. The only question is whether the crisis should come sooner in the form of a recession or later as a final and total catastrophe of depression as the currency systems crumble.”

The Roaring Twenties

They don’t call the 1920s roaring because money wasn’t flowing freely and consumers were practicing frugality. The newly created Federal Reserve expanded credit by setting below-market interest rates and low reserve requirements that favored the big Wall Street banks. The Federal Reserve increased the money supply by 60% during the period following the recession of 1921. By the latter part of the decade, "buying on margin" entered the American vocabulary as more and more Americans overextended themselves to speculate on the soaring stock market.

The 1920s marked the beginning of mass production and the emergence of consumerism in America, with automobiles a prominent symbol of the latter. In 1919, there were just 6.7 million cars on American roads. By 1929, the number had grown to more than 27 million cars, or nearly one car for every household. During this period banks offered the country's first home mortgages and manufacturers of everything – from cars to irons – allowed consumers to pay "on time." Installment credit soared during the 1920s. About 60% of all furniture and 75% of all radios were purchased on installment plans. Thrift and saving were replaced in the new consumer society by spending and borrowing.

Encouraging the spending, the three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the rich got richer, millions of Americans lived below the household poverty line of $2,000 per year. The days of wine and roses came to an abrupt end in October 1929, with the Great Stock Market Crash.

Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but completely false. Between 1929 and 1933, when Roosevelt came to power, the Hoover administration increased real per-capita federal expenditures by 88%, not exactly austere."