The Market Ticker

Give me a break.

Strong rally. All week, basically.

On the basis of what? Another 20, or even 50 bips of rate cuts?

How'd the last two rate cuts do in terms of stimulating the economy and unlocking the credit markets?

THEY HAVE DONE NOTHING BECAUSE THEY CAN'T!

Well, here's reality guys - which was not reported yesterday at all, even though it came out mid-morning - 3Q Preliminary profits were down 1.2%, .vs. previous +5.2%.

What are you buying when you buy a stock?

You're buying discounted future cash flow and profits, right?

What's that stock worth if profits are falling?

Who are these people trying to fool?

Psst - construction spending was down in October. That includes commercial. Guess what - commercial R/E is not exempt from the problems, and will follow residential down the toilet. Bet on it. I have (got IYR PUTs anyone?)

Let's talk about ETFC - E*Trade Financial. Yesterday Citidel took a big equity stake in them, unloading $3 billion worth of mortgage backed securities - for $800 million.

That's 26 cents on the dollar, as I mark it.

This is actually being cheered? I heard a "floor trader" saying so this morning on CNBS. That's ridiculous - or intentionally fraudulent. If E*Trade's "transaction" is in fact where these mortgages are marked, and represents their real value, every single bank that holds HELOCs and other loans like this is BANKRUPT.

BANKRUPT GUYS.

BROKE.

BUST.

KAPUT.

DEAD.

GONE.

DECAYED.

DECOMPOSED.

Don't believe me?

Ok.

Pick a bank. Oh, say, WaMu. Go pull their latest 10Q. Take their loans "held for investment". Mark 'em down 70% (I'll be nice and give you the extra five percent.)

In WaMu's case, this is $237,132,000,000, or $237 billion; a 70% haircut is $165 billion.

WaMu's "net assets" (assets minus liabilities) are $24 billion.

Think that might be a problem?

Now sure, not all of their portfolio is subject to that haircut. It'd be nice to know exactly what part of it is. But heh, when we're talking about eight times their net enterprise value, does it really matter much whether its half, one quarter, or even 1/8th of their total portfolio that is subject to that sort of decimation?

BANG. They're dead.

End of discussion.

Now we know why nobody wanted to "mark to market" these alleged "assets".

Unfortunately, Citidel just did the deed, and yet the people out in the market are actually BUYING THESE STOCKS!

WaMu opened up FIFTEEN PERCENT today.

Are you kidding me?

What the hell are people thinking?

The E*Trade news should have tanked the DOW by more than 1,000 points! It was the first CLEAR statement of what these loans are worth - the answer is that the ABX is actually overstating value by a huge margin, as these supposedly were "high quality" loans that were made to people who have significant net worth!

This is NOT "subprime" but the market says they're worth TWENTY SIX CENTS ON THE DOLLAR!

There IS a small amount of "mainstream press" attention being paid to this. VERY LITTLE.

Gee, I wonder why this isn't front page on the WSJ and CNBS hasn't mentioned it at all?

Let me guess - most of the large banks of this nation being functionally insolvent isn't news?

Now let's consider that $6.5 trillion of "wealth" has been taken out of houses by consumers over the last four years and spent. This is where "Goldilocks" got her money. But that door has slammed shut - the Case-Schiller home price index marked, just this week, yet another huge decline.

How "real" is this? Well, according to "Zillow", my home has gone down in value by 8.9% in the last 30 days!

Good thing I didn't spend any of that phantom "wealth" eh?

Yesterday it was disclosed that the Florida SBA - a fund that hold funds on a short-term basis for schools and other municipal organizations - has locked up. Why? They were sold commercial paper issued by SIVs - which now can't roll over. Huge and very real losses are being taken and the districts, figuring it out, did what you'd expect - "he who panics first panics best".

Facing potential insolvency, the fund locked redemptions.

Doesn't that sound familiar? I think some Hedge Funds have done this before, no?

But wait - that's supposed to be 100% safe money - effectively, a money market!

How's YOUR money market fund doing?

More importantly, if you call and ask about such things - are you being lied to?

YES YOU ARE, IF RECENT HISTORY IS ANY GUIDE!

Are you going to panic best, or panic last (and truly panic!)

But it gets better, as they say!

Today Treasury is working a deal to "freeze" some subprime resets, allegedly to try to prevent more defaults. I find it nearly impossible to believe I'm seeing this from Treasury, and here's why:

The entire "securitized structure" - the ABX and everything behind it - depends on the credit enhancement from the interest rate spread, and the reset process as loans age. This is where they get the protection that allows them to rate big parts of these tranches as "AAA".

If you remove that the entire collateral structure collapses. The result of this sort of thing, if it really is what people are claiming it will be, is going to be the following:

1. The ABX will collapse. All of it. Those who hold these pieces will see their actual realized losses go parabolic. This isn't a matter of models and what people think they're worth any more - now the last piece of rug left, the credit enhancement component, is being ripped out from under them.


2. You can forget about getting an ARM loan that could potentially be securitized in the future. Ain't gonna happen. There are literally several trillion dollars out there in this stuff, and you can forget about a market for them in the future.

Yeah. Nice. Fixed income investors are going to eat this and then come back for a second bite? Oh yeah, right. You want to lock up the entire mortgage and housing industry?

Sounds good to me! Let's tank all of it and get it over with. That's where we're headed.

Christmas sales? What Christmas sales? Do you believe the claims of 8%+ increases? Been to the Mall in the last week? I have - several times. Guess what - you could walk in and spray an Uzi around without killing anyone. That's how dead it is. Restaurants in the area are singing the same song. They love me, since I'm still eating their food - but all this week, I've been pretty much the only one.

Oh, and "Black Friday" weekend? We drove home past a half-dozen malls Sunday. The parking lots were empty. Sunday night, well, you be the judge - here's one of a dozen pictures I snapped of local retailers on Sunday evening. Yes, there's a timestamp on it, and no, the store wasn't closed (duh):


Where are the customers? The only person in that store is the clerk behind the counter!

This is NOT an aberration. In fact, if you head over to the forum in this thread you can look at all of the pictures I snapped.

THE ENTIRE CITY WAS DEAD!

Guys and gals, I live in one of the "richy bitchy" areas of the country. If we're dead the rest of the country has to be in various states of decomposition!

Oh, and anecdotes related to auto sales say that showroom traffic is down 30% in the last month alone. I suspect the numbers early next week are going to suck severely.

The consumer is ok?

Look, the market pumpers want you to go buy stocks. That ought to be obvious. They own a lot of them - too damn many in fact, and need someone to unload them to.

They know what is coming! Did you see Kudlow last night? He, and the rest of his crowd, were clamoring not for a rate cut but for 100 to 150 bips of rate cut - right now!

Why?

Because they know what's coming. A massive recession. Bank failures - lots of them. Perhaps even a DEPRESSION.

But, you sputter, can't The Fed fix this? Save the day? Ride to the rescue?

No, it cannot.

What has to happen?

The Fed needs to step in right now and force all of their "bank customers" to take ALL of their off-balance sheet crap back onto their balance sheet and mark it to the market.

Right now.

Period.

If this forces some of them out of business, then so be it. The FDIC will not fail in this situation, contrary to some of the doomsayers. The FDIC's "formula" is to merge the insolvent organizations, using whatever value is left to make those with under $100,000 in deposits whole, while throwing under the bus the common equity holders, any preferred equity holders, and everyone else who happens to have a putative "claim" on the bank.

This is the only way to fix the problem, and whether Bernanke (and Paulson) like it or not, it is what is going to happen.

Lending will not return to normal until confidence returns and confidence requires transparency and truth. So long as market participants continue to lie and obfuscate, lending will remain locked up. PERIOD!

The only choice is to either force transparency now in a manner that is somewhat controlled or we will continue to spiral downward into the dirt, with the disclosure and cleaning out happening through bankruptcy as we reach the depths of a DEPRESSION.

Yes, I used the "D" word.

If The Fed doesn't quit screwing around and act NOW, we're headed for one.

1930s style.

Ben, wake the hell up. The answer isn't playing with system liquidity.

YOU ARE FIDDLING WHILE ROME BURNS.

The problem is that everyone involved in this mess on the banking and "investment" side has been lying through their teeth. E*Trade is just one example - not two weeks ago their CEO said "we could suffer $1 billion in writedowns and remain well-capitalized", strongly implying that the damage was less than that.

Well, guess what - less than two weeks later they sold $3 billion "worth" of loans for $800 million. That is $2.2 billion in direct losses, or more than double what they claimed their maximum exposure was just two weeks before!

IT IS ALL LIES!

Let's count a few of them:

• Treasury (and others) - "Subprime is contained"; "Housing will turn around this year"; "there's no impact on the rest of the economy." All lies.


• Bernanke - How many do I need to count? Testimony in front of Congress that is just flat false. How about a contempt citation guys?


• CEOs up and down the line. Too many bad press releases to count. AHM anyone? CFC? Projected profits for 4Q? All the investment banks taking writedown after writedown, one after another.


• E*Trade, as I noted - "We can absorb more than $1 billion and remain well capitalized", strongly implying that the damage was less than that. Now we find out its $2.2 billion - and we don't know if they're done. I moved my accounts; that proved to be false statement #2; you don't get to bullshit me more than once!

I'm tired of this crap, you should be tired of this crap, and those who are buying this "rally" when every institution that has made claims that they have their exposure under control ends up being shown to be a LIAR as soon as a week or two later, are just plain fooking stupid!

(Oh, and don't look but metals are getting SMASHED today. I told you so.)

Deflation is in our future - the worst-case scenario for anyone in debt. Why?

Because our government is refusing to do its damn job of regulation and has refused to get the handcuffs out and slap 'em on the CEOs and others who have made these insanely-rosy projections and statements, while at the same time encouraging and enabling the hiding of liabilities!

As such confidence has collapsed between parties in the market, and this WILL lead to a collapse in lending and credit - the destruction of money, which is the definition of deflation.

It has already started and is going to get MUCH worse.

If you're in debt and can't get out, you're finished. Sorry; that's how it is.

If you can get out of debt in the next few weeks and months, do so. If you have cash, conserve it. Save. Keep your powder dry. Do not be stupid and listen to people like Cramer who said last night that "cash will be the biggest losing asset class."

Those who believe him are going to suffer ocular penetration by a Stallion - and soon.

Beware.

Here's the technical!

Well that was exciting eh?

I warned people on the snapback......

So its over, and we should all buy stocks, right?

Uh, no.

These sorts of violent snapbacks don't happen in bull markets. They happen in BEAR markets.

This is why Bear markets are so hard to trade, and why most people are best off to sit it out.

If you didn't yet, you just got another opportunity. That opportunity might continue for a while, or it might not, but when it ends..... oh boy.

Key numbers today:

Unemployment continues to ramp, in at 352,000. Given that this is right into the seasonal part-time hiring period for the holidays, that is particularly ominous. Oh, and let's not forget - unemployment is a lagging indicator, which means that if we're seeing it ramp up now, we are almost certainly already in a recession!

3Q GDP came in at 4.9%, right in line. Personal consumption came in at 2.7 .vs. 2.9 expectations (a bit off)

Sears Holdings reported dogsqueeze earnings and were woodshedded immediately, dropping 12% premarket. Hello Grinchmas! Gee, a big retailer can't hit the numbers? I wonder what that means? (Hint: It starts with a "R" for those of you who ride the short bus)

E*Trade gets a Guido loan and marks to market their entire ABS paper - at a SEVENTY PERCENT DISCOUNT!

I don't think anyone is (yet) understanding the impact of this.

Most of E*Trade's portfolio was HELOCs; there were few purchase-money firsts in there.

Let's do a bit of math, ok? You know, the stuff they teach you in FOURTH GRADE - math that appears to be totally beyond the capabilities of the equity "cheerleaders" at CNBS!

In the last four years approximately $6.5 trillion has been MEW'd out and spent on plasma TVs, exotic vacations and other sorts of drivel. IT IS GONE; it did not go into something of value - it was CONSUMED.

Let's use a conservative assumption that 1/3rd - 33% - came from HELOCs, rather than cash-out purchase mortgages or refinances of existing mortgage paper. Probably reasonable.

E*Trade's paper is almost all comprised of this HELOC paper, essentially all of it written in the last three years, and most of it was written to people with significant assets; probably half to their brokerage customers.

That is, most of these HELOCs were written to allegedly "good" credit risks.

Now let's apply some conservative valuation discounts, given that E*Trade just marked the entire thing to market at 30% of face value.

$6.5 trillion X 33% = $2.14 trillion in HELOC paper.
30% of original value = a $1.5 trillion dollar DIRECT LOSS on HELOC paper ALONE.

Oh, this "subprime" problem is only "subprime" and is just a $100 billion problem eh?

This "mark to market" is a very strong indication that every bank and institution out there with this crap on their balance sheet is going to suffer ocular penetration by a stallion!

Guys, this is "The Real Deal."

Remember back a few months ago I said that this was a $1-2 trillion dollar problem in terms of direct losses? That the markets were totally ignoring the reality of this?

Well, guess what - you just got proof that I'm right.

The market is totally ignoring this. We should have tripped the circuit breakers this morning on the Dow, as the figures here are BLATANTLY OBVIOUS.

Those who allegedly know how to "invest" and "trade", APPEAR TO HAVE FAILED FOURTH GRADE MATH!

Now you know WHY the malls were empty Saturday and Sunday. Now you know WHY my local Target had nobody waiting to check out on Sunday evening.

The money flow has evaporated and what was MEWd out and spent is uncollectable!

$100 billion in losses? Ha!

That number - on HELOC's alone - is $1.5 TRILLION.

No, not in derivatives, swaps, etc - direct, hard, real losses.

Oh, and that's just the HELOCs; we haven't gotten to the ALT-A negative-am "purchase" loans yet.

If that's not bad enough, guess what - that money, once paid, is actual capital and can be fractionally lent out again. But what if it disappears? What's the impact on lending?

"Reflate" eh? Uh, no.

The Fed is irrelevant; it is simply impossible for them to change the outcome, and Ben knows it.

Not good.

Here's the technical!

Truth is intruding, not that the pump monkeys seem to care.

The S&P Case/Schiller Home Index shows that home prices fell 4.5% in the third quarter of this year on a national basis. This is the largest decline in home prices in the history of the index, and the first meaningful sequential set of declines since the Depression.

ICSC Chain Store Sales came in down 0.1% for last week. Yes, you read that right - chain store sales actually declined in the week that included "Black Friday." While Thursday had stores closed for the holiday (and these numbers are not adjusted for that) this is a horrible print for what is supposed to be the busiest three shopping days of the year.

Redbook came in +0.4%, again, for a week including "Black Friday". Expected was 0.3%. Yuck.

"ShopperTrak" claimed huge growth in sales Saturday. Yeah, right. Sorry, counting feet is stupid when it comes to retail - you have to count shopping bags and what is in them!

ICSC says that Santa is bringing coal this Grinchmas and my Wall Street Journal is safe from human consumption.

Citibank gets roughly $8 billion in an equity infusion from the Arabs. But it is a convertible preferred offering, although they structured it in a way to not say that (calling it a sale of "unit investment trusts" instead) and was made at a Guido-style interest rate of 11%. While there are allegedly anti-hedging provisions in the deal, anyone who actually believes that the folks over in Dubai don't have an affiliate that they can hedge through has rocks in their head. Some or all of that risk will almost certainly be hedged off immediately, and that coupon is insanely lucrative - for Dubai. Oh, if you just want to look at this as a discounted stock purchase (that is, roll the coupon into the stock price) it marks Citibank's stock in the low to mid $20s. That's nice if you're a current shareholder, no?

When you have to pay a higher interest rate than some of us have available on our credit cards, something serious is going on in your company and it ain't good!

Consumer confidence came in down at 87.3, which is SEVERELY DOWN AGAINST CONSENSUS of 91.0, and drastically down from the previous survey. Expectations came in at 68.7! There's nothing good in these numbers!

CNBC of course tried to put a nice spin on it, but let's be real here - a 68.7 reading on expectations SUCKS!

What sucks WORSE is the inflation EXPECTATION number. Leading expectations for inflation came in at 5.7%, up from last month's 5.1%. Remember, Ben's fear is that inflation EXPECTATIONS get out of control and start to affect consumer (and wage-earner) behavior. While I think he's totally full of shit in focusing on what people THINK instead of the truth (thinking follows truth, ya know) an expectation of nearly 6% inflation on a 12 month leading basis, up sharply month-over-month, has to be making what little hair Ben has stand straight up!

That number is nearly THREE TIMES the Fed's target!

Oh, and for the people who thought OFHEO would "ride to the rescue" and allow Fannie and Freddie to buy jumbos over $417k, nope. Today the announcement showed up that OFHEO is leaving the conforming limit at $417k for 2008. To which I say - DUH! House prices are coming DOWN, not going up - if anything the conforming limit should FALL, not rise.

Never mind the following Fed numbers from this morning:

Nov Richmond Fed Manufacturing Index: 0. Previous: -5.
Nov Dallas Fed Mfg Production Index: -3.5%. Previous: 10.6.
Chicago Fed Midwest Mfg Index: -0.6%. Previous: -0.1%.

-3.5%, 0 and -0.6% eh? Hmmmm..... those are expansionary numbers, right? (This is a short-bus rider question, if you can't tell)

The equity markets continue to trade as if this is going to be "no big deal."

Equity investors are wrong, and will be proven once again to be the retards of the investing world.

If I had a dollar for every claim of "this time its different" I wouldn't be writing Tickers; I'd own Tattoosh and would be sitting on it with my dive gear somewhere in the South Pacific, with a gaggle of 20-something models (in their birthday suits, of course) bringing me drinks!

Guys, these are recession prints. We're down 10% from the highs, and the recession average losses in equity indices are 30%. AVERAGE.

But this recession will be far worse than an "average" one, simply because we have overextended the credit side by far more than is average.

As this unwinds - and it WILL unwind - the damage will multiply and snowball.

This is inevitable.

We are, as I pointed out last night, now arguing over which orifice is being targeted, not whether the assault will take place.

Here's the technical......

Mud, as in the smelly, dark, foul brown kind that is injected into a high-speed airmoving device.

The internals today absolutely blew bananas. There's simply no other description for it.

Market action wasn't any better.

Friday? All retail idiots. If you bought into that - or worse, if you were the FOOL who bought the 2,000 S&P Minis last night on Globex I hope you like gay sexual acts, because you got it, and we're not talking about a spanking.

In that, that might have been a horse..... or a bear.

There is nothing to like in the market action, and to those who think we're headed for hyperinflation in the future, the credit market says otherwise - it is screaming loud and clear "SOLD TO YOU!"

Ditto for those of you who are long metals thinking that is going to "work". Beware. In a deflationary scenario you do not want to be in metals. Far from it. Yes, they've had a nice run, but you better be right about the inflationary tendencies. Were I in metals here I would take my profits and run.

NOW.

I am also getting very wary about being short dollars here. This has been "working" but it is, without question, the most one-sided trade I've seen in my years in the markets. If and when that reverses you're going to get destroyed.

Being long other currencies, or, for that matter, playing any part of the "hyper inflationary" game, requires that you believe that other nations will be ok even as we get destroyed.

That's a losing bet guys and gals.

Look at what is happening to Airbus. Now extrapolate that to any European nation that relies on exports to us. Then consider what happens when our consumption and Europe's both go in the toilet (we go first, and as soon as we clear the bowl they're right behind us) if you're over in the Far East thinking about "what's next".....

Oh yeah, and the Chinese appear to be intending to put the heat on Japan and play with Ms. Watchamacallit and her Carry Trading too. I bet she is learning all about gay male sex as well these last few weeks.

This is likely to continue.

The Fed will pump money like nobody's business? Uh, I doubt it. They've said they're going to be paying attention to headline inflation. Oh, and you have been watching those price ramps on import prices - especially from China - yes?

Rate cuts eh?

Hmmmm...... or is the truth more like "following monetary velocity as it spirals into the dirt"?

One helps the economy, the other, well.....

If you haven't read the Ticker about The Fed, Fed Funds, and how it really works, go do it now. Get educated, because understanding reality is going to be critical in the next few weeks and months.

Being wrong on critical gating issues is going to get you killed.

Today Chuck Schumer (D-NY) went after the record FHLB loans to CountrySlide (CFC). Those who have read the ticker for a while know that I am generally no fan of Democrats - but credit where credit is due must be given, and this is one of those times.

MR. SCHUMER, THANK YOU FOR LISTENING - AND ACTING.

Ok, now onto something far more serious - the possibility that we are literally weeks or a handful of months away from an utter implosion in the equity markets.

I believe we are very, very close to the precipice - and that nothing Bernanke or Paulson can do now will change the outcome. The opportunity to address this and stop it expired a few years ago, with the cumulative damage growing the longer regulators fail to act.

Treasury and The Fed are now caught between choosing only the orifice in which the US Economy is about to suffer a gang rape - it is no longer possible to prevent the assault itself.

The correct move is to force immediate marking to market on all "Level 3" assets, with full disclosure and recall onto the balance sheets. Those who fail, fail. Consolidate them into those who are left. Yes, this will cause an immediate - and huge - selloff in the equity markets.

THE ALTERNATIVE IS WORSE as even "good" institutions will get dragged into the toilet IF BERNANKE AND PAULSON DO NOT ACT NOW!

I want to talk a bit about the "why" and "when" on this.

Remember, the original estimates were for $50-100 billion of losses due to "subprime."

The problem is that we've already seen nearly $100 billion worth of losses (including $39 billion at GM alone!) and yet the ALT-A mess hasn't even begun to be realized. Nor have the worthless HELOCs and Seconds - all of which have a net present value of zero in a declining housing market should the homeowner decide not to pay (or be unable to pay!)

Remember that back when the S&L crisis got going the original estimates were in the low tens of billions - the ultimate bill was $150 billion, when it was all added up.

This is going to be worse.

Perhaps ten times worse.

The leverage in these deals insures it.

We are likely to see a real, no-bullshit trillion dollars of losses - real losses - in the United States alone. That's 7% of GDP. Overseas investors and institutions will take a trillion of their own up the chute in addition. Then there will be the collateral damage from OTC derivatives which can't be paid.

Supposedly "money good" institutions will get sucked into the hole by this. GM, for example, is a car company with a huge exposure, and they just ate $39 billion. How much more is there? I have no idea, but I bet its not zero. In fact, I'll bet my entire account balance its not zero.

This gets very ugly as credit contracts - yes, interest rates fall (a lot) but it doesn't matter as there's no velocity of money (credit) and shortly after consumer spending goes in the toilet businesses follow.

Not because they want to - but because they have no choice.

What sets off the spiral?

Likely a major financial institution - like Countrywide - formally violating a reserve requirement and being seized. Will it be them? I have no idea - but that this is likely to be the trigger event is pretty much assured. Indeed, it could even be an overseas organization that goes up in smoke first.

Timing?

I am now looking for this event any time from literally tomorrow through some time in the first quarter of 2008. I could be early, in which case we're still talking about '08, but perhaps into the second or third quarter.

How bad do I think it is going to get?

1070 on the SPX - minimum.

The potential exists for multiple circuit-breaker trips on the major indices when it cracks.

There is the possibility that the 2003 lows in the Dow and SPX could be taken out.

I do not rate this probability as high at the present time, but the possibility of this happening is now on the table, where as recently as a couple of weeks ago it was NOT.

You will not be able to effectively short into the hole - if you're not prepared to take REAL losses if you're wrong on timing and/or the outcome - perhaps very heavy losses - get the hell out and sit on the sidelines, watching the pretty fireworks from a safe distance.

In my viewpoint for 90% or more of the traders out there, you really ought NOT to try to play this, except perhaps for some lottery tickets (e.g. way OTM PUTs) on which you are willing to take a 100% loss.

Return OF capital is way more important than return ON capital.

The market is likely to be insanely volatile with extreme whipsaws during the upcoming next few months, and unless you are prepared to be very nimble and trade this aggressively, you can easily be right and still lose your ass if you're unable to hold positions due to getting in margin trouble, or if you get the timing wrong and are in options.

To put this in perspective - this will not be a quick plunge and recovery like '87. It has the potential to be more like what happened in Britain during the 70s, or worse, like what happened to us in '29.

You've been warned.

Oh, and here's your technical...... :)

Ahhhhh.... cruising........ no worries mon, just drink this...... :)

Gotta love it.

Last week was a study in contrasts, with Friday being the most amusing. The volume was simply absent. Who was bidding up things Friday? Retail investors. The pros were all out at The Hamptons or elsewhere just blowing it off.

God, I hope you didn't buy.

ShopperTrak did their usual pump job yesterday and got people all excited that "Black Friday" really was. Unfortunately for them, the National Retail Federation posted actual numbers, not "boots on the ground" - and of course counting the "cha-ching!" is what really counts.

What did they find? Increased traffic but decreased sales.

NOT good. In fact, very, very bad; people are looking - lots of them - but not buying.

Grinchmas kids. Guess I won't be eating my Wall Street Journal eh?

Tomorrow the "real deal" comes back.

Here's reality - as I noted in APRIL the Consumer is hitting the wall. No, not everyone. The upper end is ok for now, but this starts at the bottom, of course. Middle Class Joe and Jane are simply out of money. They will NOT get through the holidays without cutting back - that was apparent in April, and now we're getting proof in the sales numbers.

On the credit crunch, watch out for the rapidly accelerating version of "aw shit!" coming soon to a credit market near you. Libor is spiking (very bad), the Eurodollar contracts are going apeshit, and trading was suspended in some bond issues over in Europe last week. None of this is good. Oh, and Fannie/Freddie might have a little problem (I wonder if they have figured out how to count yet - they had a problem with that a couple of years ago if I remember correctly....)

Finally, we have what many are calling a Dow Theory confirmed Bear. Eeeehhh... I don't count it yet, and the reason is simple - I was wrong on the "ignore the tail" call on the Fed Surprise, so you have to be consistent - if the tail works in one place, it works in another. Thus, I want to see a DOW close below the swing lows, not the closing price, for confirmation. Nonetheless, there are a lot of people claiming we've got confirmation, and I bet a lot of people will trade that too, so my expectation is that we're arguing over formalities here, and not outcomes.

The rest of this I'm saving for the Technical..... which you can find right here!