The Market Ticker

Is that a waterfall I hear in the background.... and why is it getting louder?

Unemployment claims came in at 375k, year over year PCE up 3.5%, core up 2.2%, spending up 0.2%. Psst - that's called "recession."

The odds of a 50 bips cut in March in the FF Futures market goes up instantly to 80%, while the futures sell off to -200 on the DOW within seconds. Oh, and the intrameeting cut crooners come back out again too. Immediately.

Hmmmmm.....

Its rather amusing to me how "Da Bulls" are forced to come kicking and screaming around to what is better known as "reality."

And who's responsible for this?

The "Mainstream" Media, who's job appears to be to insure that Pavlov's Dogs continue to salivate every time someone say "buy!"

But what happens when that Pavlovian Response leads you to a trough full of sweetly-flavored treats, you eat them, and then discover they're laced with Ethlyene Glycol?

You die.

Or rather, your 401k does.

The worst example of all last night was Cramer - we had a raw Bull Stampede that aborted instantly as soon as a bit of "reality" came into the picture. Yet Cramer's interpretation? "Buy buy buy buy buy" because "The Fed has our back."

Really?

Let me include one little chart here, which I usually don't do in the Ticker's any more - saving them for the technical - but this time I have to.



That first "bubble"? It was the emergency rate cut that Greenspan put on the market on the first trading day of 2001.

If you listened to the market "crooners" who told you to buy because "The Fed Has Our Back", about two months later you had lost twenty five percent of your money.

Worse, if you bought on that very day, right now, eight years later, you are barely back to "even", and if you look at purchasing power, you've lost 20% or more in real wealth!

You want to believe them this time?

Cramer's FAMOUS call in the early months of 2000 still stands as the crown jewel of pure folly in listening to these people - if you believed him THEN you lost basically ALL of your money!

How does an asshole like this who literally bankrupted people back in the 2000 "tech wreck" get his own TV show? How does he sell ANY books? How is it that his FAMOUS calls over the last few months - CROX anyone - aren't enough all on their own to lead people to show up at his studio with pitchforks and torches?

Its obvious that in this "ADD World" there really are a lot of STUPID people out there, otherwise people like Kudlow and Cramer would have no audience and would be off the air!

Are you one of them?

Today we keep hearing that the ratings agencies are intentionally holding off downgrading the monoline insurers even though they know they don't merit their credit grade.

If this is true that's fraud guys. This is a purely indefensible move and those who are engagaed in it will eventually find themselves paying for it, either through civil or criminal action.

This shouldn't lead to lawsuits - it should lead to indictments and revocation of "agency" status, and I predict that eventually it will.

Look folks. You can deny deny deny all you want, but the reality of the situation here is that the "smart money" has taken its ball and gone home. The sooner you recognize that until the truth is told and the excesses shaken out of the economy we will not have "found the bottom" the more of your money you will keep!

We have allowed, through willfully-absent regulation, the "Pigmen" of Wall Street to intentionally deceive those who lend money - real money - into our economic system. We allowed people to claim that there was a "risk free" return available that was radically better than Treasuries, when in fact such a thing is impossible. We have allowed "financial alchemy" to take place - when scientific truth is that "alchemy" is a scam and a fraud - ALWAYS - just as it was when people claimed they could turn lead into gold!

Now the trap has sprung and all that so-called "smart money" has been burned. The very regulatory system that makes us allegedly a "first world" nation, where crimes are punished and truth is the hallmark of our government and economy, has been shown to be not only toothless but intentionally absent.

And the politicians? They're being paid off by these very same "Pigmen" who did this!

Go take a look. Who makes "campaign contributions" to all these Senators and Representatives? Can you find one who isn't flush with campaign cash from the Wall Street Crooners?

Good luck.

Was all of this - the housing bubble and now crash - an honest mistake?

Or was it an intentional act perpetrated by greed with the simple intent to siphon off as much money as possible, truth be damned to Hell?

But now all the folks with "hard money" have in fact bit into the sandwichs they were served up and they've discovered they in fact have crap in the middle, not peanut butter. 2Girls1Cup (and no, don't look that up on the web - unless you want to be grossed out!)

The real nasty is the pension funds, money markets, and other places where Joe Six Pack - that is, you, the public - have their money. You trust these people to guard your retirement. To keep that money safe. To insure that you have something coming in when you retire and swing on the porch with your wife or husband.

You've been had, but most of you don't know it yet.

The fine folks over in Abu Dhabi have figured it out. Why do you think their LAST bunch of "hard money" came with a 14% effective coupon? They may be able to be duped, but they're not stupid, and most people will not willingly let you have more than one free shot at their back door. After all, most people don't get (and stay) rich by being stupid.

Wake up folks.

Or lose 50 or even 75% of your money.

Again.

Just like in 2000.

PS: Beware that "rally" today. Take a real close look at the last 15 minutes. That can - and likely soon will - happen all day.

Here's your technical!

You know that "throw darts at the WSJ Stock Page, and short what you hit" quip I made not long ago?

We may be on the precipice.

Why?

This letter.

What is it?

Its from Bill Ackman. You know, the guy who's short the monolines for charity? Yep, him.

Now normally I would not go batshit about something like this. After all, you could hardly blame Bill for talking his book - we all do, I do, you do, and we know he's short all these guys.

But this is, as they say, a "special case".

Why?

Because in this letter he sets for the exact valuation models he is using and has published them.

So this isn't just a guy running his mouth. It is, in fact, a guy who has done an awful lot of analysis, and I've looked over the data.

He is being very conservative in terms of his assumed losses.

None of these firms, as I see it, are likely to survive. None of them can, in my opinion, reasonably be called "AAA" credit, no matter whether some rating agency would like to give them that rating or not.

Nor can they be bailed out.

The money simply does not exist.

And now, Bill has called out the ratings agencies, the SEC, lawmakers and State Attorney Generals - IN PRINT - on what sure looks to him (and me) like a gross case of "grade inflation."

This evening, S&P came out and did what amount to a "mass downgrade" on mortgage-related securities, cutting ratings on hundreds of billions worth of CDOs - about one third of ALL outstanding mortgage-related CDOs. One third - all at once - in a mass action.

This WILL result in additional, very material, writedowns among banks and other holders of these assets, and it WILL force asset sales into an illiquid market.

The latter event was not known before the close.

The former was, and it, along with FGIC being downgraded from its AAA rating, was what aborted the "Fed Rally" this afternoon and led to a RED close.

We also had Amazon, which had widely been expected to do tremendously bullish things to the tech sector, do exactly the opposite. It lost $9 after hours and the Qs were down along with it.

Now, as is sometimes said, "do you want the bad news or the REALLY bad news?"

I have repeatedly noted that the "retrace rallies" on the plunges since last February have been taking one half as long in each instance. The technical from this evening goes over this in some detail.

The top, 1576 on the SPX, was put in back in October. Since then we have seen two plunges, and two retrace movements (we are in the second one right now.)

The clock has almost run out on the current retrace, if the pattern that has worked since February of 2007 holds.

The REALLY bad news is that the third move (out of five) is usually the largest.

When you add to this the fact that the bad news keeps piling up and the people who bought into financials thinking that the majority, or even all, of the writedowns had been taken are now discovering they were had, the potential for a true "waterfall" type of event rises substantially.

While I cannot give you a "this is the big one, short the phone book" call at this point in time, I just took a look at the ticking financial WMD and noticed that someone had removed the tape from the timer window - except for the last two digits.

All the other digits, if my eyesight serves me correctly, read "0".

Make of that what you will.

PS: Permission to republish Bill Ackman's letter on the blog has been obtained from his firm by teleconference this afternoon.

First up - GDP. 0.6% for 4Q. Hmmmm...... that's awfully close to zero, eh? After the 3Q print this is an insane deterioration one quarter over another. Obviously should that trend continue we would be deep into recession next quarter.

ADP - the employment survey continues to surprise. But - let's not forget that holiday part-time hiring should have factored into this - and now should bleed off. Will it? That's a good question, and we'll know next month. For right now, it looks pretty good - the problem is all those "adjustments"....... do they represent reality? Probably not, but heh, the market runs on perception, not necessarily facts.

So we've got one "on the brink of recession" print and one "things will be fine" print. Along with that we've got the obvious "surprise" 3/4% cut last week - is there really any need for more?

Now let's add to the quandary - embedded in the preliminary 4Q GDP results were Core PCE numbers that should be enough to scare virtually anyone - here's the "money quote":

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.8 percent in the fourth quarter, compared with an increase of 1.8 percent in the third. Excluding food and energy prices, the price index for gross domestic purchases increased 2.5 percent inthe fourth quarter, compared with an increase of 1.9 percent in the third.

Let's put this in terms of percentages.

The topline price index increased by one hundred and eleven percent (111%) from the third to the fourth quarter, while the "core" price index increased by thirty-two percent (32%) over the same time.

At this rate the headline price index would move upward by more than 400% on an annual basis, while the "core" index would move upward by more than 120%.

Inflation expectations are "well-contained" eh?

Not according to this data!

So now Ben's in a box. He can be "Wall Street's Bitch", damn the price index numbers and the slosh, or he can "pause". Either way he risks being blamed when - not if - things go wrong. And go wrong they will; the GDP print this morning is exceptional in its trend change, and coming in the 4th Quarter, which is traditionally strong due to seasonality, its especially ominous.

Here's what we come down to when all is said and done - the bid to cover ratio yesterday on the TAF was anemic at best.

The "money shot" question is WHY? We don't know if it was due to weak commercial credit demand - in which case the FFT will come down much further - or whether it is due to the lack of marginable collateral, in which case there's no need for any adjustment at all.

The increasing "slosh" to defend appears to claim that the latter is the case, but we don't know, as we're not able to get that data - but the Fed Governors have it!

As such unless you like risk - and lots of it - you're flat ahead of the FOMC on anything that has a short time-leash on it (like front-month PUTs!)

In the intermediate term, I believe there is no longer a case to be made about where the economy is headed - to get this sort of trend establishing itself into the 4th quarter makes clear that avoiding a recession is, for all intents and purposes, the wrong discussion to have.

The recession is already here!

What's particularly bad about this situation is that until the pricing pressures ease attempting to "stimulate" our way out of the mess won't work and in fact will make the problem worse.

It looks like we may be headed for a replay of the 1970s - low or no growth and ramping prices (but not necessarily inflation in the definitional sense, although you can bet the "crooners" will claim so due to their lack of understanding of what inflation actually IS!)

Now let's add to the "nasty" quotient - last night we found out that an Australian brokerage was unable to settle customer trades because an alleged 60% of their customers had received margin calls - and they hadn't been able to meet them!

This sort of news should have positively roiled the markets, and to some extent in Australia, it did.

To believe that this sort of problem will remain "localized" to Australia is pure nonsense; the unfortunate reality is that this is what brings the spectre of "systemic risk" to the forefront - and it should!

And no, a lower FedFunds Target does not ease these risks.

What would?

The Fed actually doing its job of REGULATION in the banking system.

IN SHORT, FORCE THE DAMN BANKS TO TAKE THEIR MARKS, STOMP ON THE RATING AGENCIES WHO CLAIM THAT THERE ARE "AAA" RATED FIRMS WHEN THEIR DEBT IS TRADING AT DEFAULT LEVELS (20% effective coupon?!) AND FOR THOSE WHO REFUSE, TAKE ENFORCEMENT ACTION STARTING WITH PUBLICLY NAMING THE OFFENDERS!

But it appears we need the other "F" agency - THE FBI - to do ANY of that. Yesterday we got news that fourteen separate institutions, some still operating and others "busted" mortgage lenders, are being investigated. The FBI doesn't sue people, it charges, tries and convicts them! Perhaps my dream of a few RICO charges will come true!

None of us in the United States should tolerate this outright horsecrap. There is no possible way you can argue that a company with its debt trading at 70 cents on the dollar, who just issued debt at a coupon of 10% (and which the market promptly marked down so the effective yield is double that!) deserves an "AAA" rating. This is absolute folly and points to the need for RICO indictments levelled against EVERYONE who has conspired over the last several years to practice inappropriate and entirely indefensible "grade inflation" for the explicit purpose of ripping off investors and enriching themselves!

The alternative, if the indictments and enforcement does not come in the immediate future (assuming the guilty do not atone right here and now for their misdeeds) is that debt ratings will quickly become totally worthless.

THAT results in the destruction of huge swaths of the Debt Market, "all at once", with extreme and severe impacts upon both the economy and financial markets.

Of course expecting CONgress to act against their "sugar daddies" that give them humongous amounts of money in campaign contributions, along with maintaining a tremendous presence on "K" street in the lobbying arena, is kinda like asking for Santa Claus to show up and produce a new BMW for you - tomorrow, not on Christmas.

What CONgress (and The Fed) need to get their arms around - and soon - are that they have a Hobson's Choice here - they can either act very soon (like now) and risk tanking the stock market, or they can fail to act and risk a lock-up in the financial markets very similar to what is starting over in Australia - failed trade settlements, swaps blowing up, and the sort of financial panic not seen in this country in well over 100 years.

DeNile is not just a river in Egypt, and no, the housing and financial markets will be not "be ok."

Oh, and now Flagstar is talking about "jingle mail" and people willing to just declare bankruptcy, mail in their keys, and say "screw you!" on the mortgage, whining all the way about how this is "so bad".

MY ANSWER? STOP WHINING! IF YOU HAD MADE LOANS ONLY TO PEOPLE WHO COULD PAY AFTER THEIR RATES RESET, INSTEAD OF PRICING SO THEY WERE FORCED TO COME BACK FOR ANOTHER BITE AND EARN YOU ANOTHER FEE, YOU WOULDN'T BE IN THIS BOX! FLAGSTAR, AMONG OTHER LENDERS, CREATED THIS MONSTER - THEY HAVE NO RIGHT TO COMPLAIN!

And yes, I think people SHOULD consult with an attorney, figure out if they CAN jingle-mail their lender if they're in trouble, AND IF, ON A TOTALLY DISPASSIONATE BUSINESS BASIS IT MAKES SENSE ON BALANCE, THEY SHOULD DO IT!

FOMC goes 50/50; this will be fun trying to defend it. The TNX no likey. I am getting convinced we're going to see a 4 handle on the 10 within a week or so. Look at the technical; the pattern looks to be forming, and the last one confirmed and then hit the mark.

Check's on the table guys. Time to pay up - that pump didn't work out so well, did it?

Oh, and don't look at Amazon after the market closed. Hope you didn't BUY that pig! I've warned people repeatedly about buying broken momentum stocks - how many examples do we need now? Apple, Crox, Garmin, RIMM and now Spamazon. Google may well be next.

Got PUTs?

Here's the technical!

Down 4.7% last month.

No, you think?

Given that December is usually a crap month to start with, this is even worse than one might think.

And last month was down 9%, but is also revised downward this month.

Hmmmmm...... a bottom eh?

9.6 months inventory, also up from last month.

Prices down 10.9%, but inventory continues to increase, and the reported "price" doesn't include the "freebie incentives"!

So let's see.... we have prices down severely, we have inventory continuing to increase (the builders have yet to stop building into a downturn!) and yet we have the "bottom crooners" continuing to claim that "all will be ok" and "the bottom is in!"

Yeah, right. I've yet to see the bankruptcies in the builder sector, and until we see several the bottom not only isn't in you can't even see the damn thing!

CapEx will be next along with jobs. Of course many of the jobs in this industry have been illegal aliens and thus do not show up in the statistics.

But they do show up in the retail sales numbers, as they still spend money, legal or not!

People still talking about "avoiding recession" - like Dennis Kneale?

Give me a break - whatever KoolAid he's drinking, its got something illegal in it.

The recession has already begun.

I don't know why we keep having this "debate" with idiots like Dennis. Frankly, its disgusting that CNBS continues to allow that clown on the air. This is a guy who couldn't analyze a paper bag parade, say much less equities or the economy.

But I guess "The Pigmen" need their "useful idiot" to cajole people to "buy buy buy" - after all, without someone on the other side of the trade who would take the shares I - and others - want to short?

As for the currency and bond markets, they appear to be schizoid today. The currency market is clearly expecting more crack for the whore in a couple of days, pounding the dollar fairly significantly. The bond market, on the other hand, is selling off a slightly bit to flat. Hmmmm.

I'm not sure what to make of any of it, as the divergences are here as well as in the equity markets. In the equity markets we have wedges which should resolve upwards - at least for a little while - in more "relief rally" from the severe oversold condition we got to, while on the other hand I see all sorts of technical indicators (engulfing bearish patterns at the close Friday) which say "nothing doing buster; we're headed south and now!"

Pretty typical bear market behavior, to be up front, and very difficult to successfully trade. You're virtually guaranteed to churn lots of commissions, which doesn't help you a bit (but it sure as hell helps your broker, who HAS TO love this sort of market!)

Then you have this from a Fed Speaker:

""Our job is not to bail out imprudent decisionmakers or errant bankers, nor is it to directly support the stock market or to somehow make whole those money managers, financial engineers and real estate speculators who got it wrong. And it most definitely is not to err on the side of Wall Street at the expense of Main Street," he (Fisher) said."

Pull my finger.

You won't hear him speak about the truth of the matter, which is that The Fed follows the market, it does not make the market, even though just a couple of days ago this was actually said on Kudlow's show - and widely agreed with!

Why not?

Because if the truth gets out there, then The Fed loses the ability to "jawbone" its way around Wall Street, and the street stops listening and pandering to errant - or just plain irrelevant - Fed Chairmen!

We can't have the truth out there, can we? Why that would be a travesty! Never mind that BenDover is partially responsible for the bubble, as is his predecessor - either or both could have clamped down on the outrageous leverage being deployed with absolutely no margin supervision within the banking system, but neither did.

Never mind that said regulation is part of The Fed's charter.

IMHO there needs to be (and might eventually be) a Congressional investigation of official misconduct within The Fed. WHEN (not if) there is a massive counterparty collapse in the CDS space (particularly the insurance of CDOs) and the financial damage actually forces some banks underwater, you might see CONgress grow a pair and start doing ITS job.

My answer to this? THE PETITION.

Oh, and don't look at the Effective Fed Funds rate or the Slosh today. Not only was the EFF up over the target but in addition the slosh has been rising at a fairly rapid pace since last Tuesday. This is a major problem as BenDover keeps having to inject money to defend his target and the string is limp - he ain't pulling, he's pushing!

What this means is that come Wednesday, if the data is as it was today there would be no change in rates at all, or even a 25 bips INCREASE!

Of course the nasty reality is that The Fed gets to look at the data for the day before we do, so who knows what Wednesday will bring. All you can do as a trader is be on your toes and be prepared for anything that may come......

Reality is that it is probably time to start scaling into some pretty significant short-side bets. Not all at once, but there's a smell of brimstone in the air and I think I caught a glimpse of someone's red face......

There's a major rollover in the CP market coming and I'm willing to bet that "no mas!" will be heard more and more often; as this continues you will see more and more "quiet panic" rise on The Street until it finally spills over out into the open - and provokes "Giant Selloff #2."

Here's your technical!

... and for an a-b-c corrective movement on the stock indices.

On the CONgressional point, go to the petition page at http://financialpetition.org/ and sign again please. Yes, this is different. It is a plea for the CONgress to quit dorking around and actually force all the bad debts in the banking system out where we (the people) can see 'em.

Why?

Because if we don't, we're going to be facing a catastrophe.

We're in a recession now folks.

NBER will call it a year from now. I'm calling it right now.

Why?

Profits. Period.

Hello!

That, and ramping debt defaults.

The market is starting to "get it", which is why we had a huge selloff. This is not done and those who listen to Cramer and Kudlow, trying to "bottom fish" here, are going to be looking at blackened - as in "burnt up", not "made lots of money" - 401k and IRA statements in the coming months.

Recessions are not to be feared. They are in fact good things, in that they clean out the bad businesses and cause them to go under, which is exactly what needs to happen from time to time. This is true despite the wishes of some that we would never have a recession - an impossible and outrageous expectation, but there you have it.

Government, of course, can make it worse. A lot worse. And left alone that is exactly what they will do by trying to buy votes with promises of "bread and circuses", all of which, by the way are empty promises.

Why?

First, the $1,000 or so they're claiming will be distributed will do nothing, for it will not hit anyone's bank for months and when it does, people will likely pay down debt rather than spend it - which means "no stimulus effect."

Second, the changes that Democrats want to make to Fannie and Freddie limits are unsafe (so says OFHEO, the regulator of these organizations) and could very easily cause the cost of mortgage money in the "conforming space" to ramp precipitously - especially if these GSEs start to run into trouble in the marketplace (and they're likely to.)

Further, we are right now seeing credit contraction. That's deflation folks. Its even starting to show up on "mainstream" media sites - for example:

"Other credit available to consumers has been shrinking sharply, according to an analysis by Ms. Zentner. The pool of unused credit — predominantly home equity lines of borrowing, bank loans and credit cards — was still growing at nearly 15 percent annually as recently as the fall of 2006. Now, with debt mounting, home prices falling and job growth slowing, that pool is diminishing at an 8 percent annual rate."

Ding ding ding ding ding.

Folks, credit is money and money is credit. Yes, I know they're different. But they are what is called "fungible" in the world of finance - that is, interchangeable for purposes of trade.

Credit is, in fact, virtually all of the monetary supply! Very little is actual money.

Oh, that "throw darts at the WSJ's Stock Page to pick shorts" moment? It may be approaching - see this:

"The U.S. Securities and Exchange Commission is updating rules for how mutual funds value holdings after they struggled to price mortgage-backed investments during the subprime-lending crisis.

Regulators are reacting to an explosion in derivatives and mortgage-backed bonds that don't always trade on exchanges, said Douglas Scheidt, an associate director in the SEC's investment management division. The guidelines, to be proposed this quarter, will set out steps to value assets when trading prices aren't available, he said."

That could easily do it all on its own.....

Here's your technical!