The Market Ticker

So last night Intel comes in with a "meet" on earnings, which incidentally is a meet of lowered guidance (by 12%!) and is promptly credited with a nearly $2, or 10%, pop.

But let's be straight here - Intel continues to serve up the financial equivalent of prison-rape on AMD, which is not overall strength of PC demand - its screwing your competitors and profiting (handsomely) from it, and despite this savaging of their competition they still wound up with 12% less profit than they forecast just three months ago for this quarter.

That, of course, was good for a nearly 10-handle pop in the /ES futures (and a colossal 24-handle pole-vault in the /NQs) immediately after their report.

CSX also beat handily and popped the entire transport sector.

Ignored was the fact that California foreclosures are rocketing higher as are NODs, which will translate into foreclosures.

How much higher? It is truly hard to believe.


Credit: foreclosureradar.com

Even worse, more than 97% of foreclosures that are sent to auction are coming back to the lenders without being sold as lenders simply refuse to take the bids submitted and either shell-bid (which is legal, surprisingly enough) or set a reserve that is not hit. Oh, this is with an average discount of 21% off loan value - meaning that the market says that these homes are worth less than the loan value minus 21 percent!

If that's not bad enough, Southern California home prices plunged 24% year-over-year to a 4-year low - and even that didn't stimulate enough demand to clear the inventory.

But wait - isn't it "spring selling season" for housing?

If so, where are the buyers and why are prices paid down 24%?

Think we'll get the truth about that on Bubble TV? Of course not.

Never mind this pretty chart over on patrick.net having to do with "problems" in housing on Marco Island, FL:



Having visited there in 2001 I was astonished at the price of everything, including diesel, which was a good 30% higher than anywhere else I cruised that spring (in my 45 foot fishing boat.) I guess that applied to real estate too eh? Is that the foreclosure monster I see walking about?

Good - I found the people there insanely snooty and ridiculous.

Or shall we talk about retail chains, which are increasingly caught in bankruptcy problems:

"The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country."

Don't worry, its ok, buy stocks.

Or should we talk about the flash on WaMu this evening - now forecasting losses on credit cards of nine to ten percent this year, which is more than a clean double from present levels?

Or the credit-default swap monster that has just stuck one finger or two out from under the bed?

"Rather than dispersing risk and lowering borrowing costs as former Federal Reserve Chairman Alan Greenspan predicted, the contracts have exacerbated the debt crisis. What was intended as a way for lenders to protect against defaults spawned a market covering $45 trillion of bonds and loans where no one knows how much is traded and speculators who bet on deteriorating credit quality end up forcing that reality."

Here's the bad news - essentially none of the actual credit losses have been taken yet!

As I have repeatedly said the actual credit losses on mortgages, top to bottom, will come in somewhere between $2.5 and $3 trillion.

We've recognized $245 billion of loss but unfortunately less than $100 billion of that has been actual credit loss! Most of what's been recognized to date has been due to derivatives, not underlying credit.

The rest of that loss remains to be taken and it won't be pretty.

Never mind the wave of bankruptcies that are just getting started:

"'Money was so easy, companies that should have failed were kept alive,' said Rick Cieri, a bankruptcy lawyer at Kirkland & Ellis in New York. He said bankruptcies will include businesses 'with severe operational problems' and too much debt. 'Companies may well be sicker when they enter Chapter 11.'"

No really? You mean that people were given loans that should have never gotten them across the board? It wasn't just minorities that were targeted to be screwed?

Ooooohhhhh so we're going to see those bankruptcies now eh? Is that bullish?

And don't worry - oil solidly over $110 and showing no sign of slowing down in its advance doesn't count either, right?

Or shall we talk about the market's demand for more hits from the bong in the form of "rate cuts now!" - the siren song of which continues to be sung - despite articles like this (which I happen to agree with):

"Lower interest rates could raise the already high prices of energy and food, which are already triggering riots in developing countries. In order to offset the inflationary impact of higher imported commodity prices, central banks in those countries may raise interest rates. Such contractionary policies would reduce real incomes and exacerbate political instability."

No kidding? What happens when our flour price goes from single-digits a bag (50lbs) to $45? Oh wait - that already happened! You want to know what your local pizza parlor thinks of it? Make sure you're wearing a kevlar vest and are ready to dodge punches before you ask the proprietor!

I hope you like $4 gasoline because on the trajectory we are on you're going to see it before Memorial Day across the nation. Diesel is already north of $4 quite cleanly; $4.14 as of today here. Yes, per gallon. Never forget that diesel is far more important to your end price at the store than gasoline since both trucks and locomotives run on it, and they get your "stuff" to the store.

As I've noted repeatedly the food and energy price inflation has been outrageous for the last several years and yet The Fed and The Government have intentionally rejiggered the numbers (or perhaps even just outright falsified them!) in order to avoid having to defend their claims. Bernanke has said time and time again that "inflationary pressures will moderate" and yet this is the same man who said that "the subprime housing crisis will not have a material effect on the greater economy."

Uh huh. You can tell if Ben is lying because his lips are moving.

Or shall we talk about London and 40,000 jobs being axed over there? JP Morgan says so and if there's anyone who should know, it would be them:

"In the most dire forecast so far of the impact of the worldwide credit squeeze on UK jobs, it was today predicted that as many as 40,000 posts in the City will be cut."

That's bullish, right?

Or shall we talk about yet another debt market that is going down the toilet, auction-rate securities?

"The $330 billion auction-rate securities market will 'cease to exist' after it collapsed in February when Wall Street firms stopped using their own capital to buy unwanted bonds, Citigroup Inc. said.

While the death of the market will only trim brokers' earnings by 1 to 2 percent, investor anger over their inability to liquidate their holdings may be significant if the frozen market doesn't thaw soon, Citigroup analyst Prashant Bhatia wrote in a report. New York-based Citigroup was the top underwriter of municipal auction-rate securities in 2006, managing $8.4 billion of sales, according to Thomson Financial."

No, really? You mean that selling someone some credit instrument that you claim is "as safe as cash but with a better return" and then proving to be a liar isn't good news? Why I thought we should buy financials? After all Dick Bove said it was "a generational buy."

Still think that way Dick?

What is astounding is the lack of depth of reality in our media. You want reality? Go over to Asia, which appears to get it. This article should be read by every investor on the planet, as it (honestly) puts in stark relief what nobody in our media is talking about (except the original source, The Prudent Bear):

"Consequently, in their view, there is no true market; consequently the assets are Level 3. It is notable for example that Goldman Sachs' Level 3 assets increased in the last quarter to $82.3 billion from $54.7 billion. Since it seems most unlikely that Goldman, a smart operator if ever there was one, has been deliberately loading up on $26.6 billion worth of illiquid rubbish, the change must result largely from strategic reclassification from Level 2 to Level 3. Indeed, Goldman's Level 3 asset-backed securities doubled during the quarter to $25 billion, presumably for precisely the reason that Goldman found unattractive the market prices prevailing for those securities. At $82.3 billion, Goldman Sachs Level 3 assets are more than twice its capital. This is not therefore a peripheral problem, which can be allowed to remain hidden within the arcana of accounting conferences. The reality is that, as was demonstrated in the true recessions of 1973-74 and 1980-82 but not in the mere dips of 1990-92 and 2001-02, the value of highly illiquid Level 3 assets taken on at the peak of a bull market is pretty well a big fat zero.

Since the Michigan Consumer Sentiment Index is now at its lowest level in 26 years, it is beginning to become clear even to investment bankers that the US and probably the world are in the early stages of a "proper" recession of the 1973-74 and 1980-82 pattern, albeit a recession with a considerable inflation problem attached. In that event, the Level 3 assets on the balance sheets of Goldman Sachs and other financial institutions are worth only a small fraction of their nominal book value, and the institutions themselves will eventually be demonstrated to be insolvent. So much for the supposed greater transparency of "fair value accounting". The shaky state of the world's major financial institutions is a matter of history; their shareholders and creditors have been deluded by the fictions of fair value accounting and the excitement and profitability of a prolonged asset bubble. Repeated bankruptcies are probably the only fair way out......."

Does representing something as having a particular value when you have every reason to believe it does not, in the process deceiving your investors, constitute fraud?

Is it not (yet) clear that all of these institutions should be trading at $5/share, if that?

Oh Dick, what say you to that article? After all, this Level 3 fiction isn't limited to Goldman you know. Isn't it present in all of our investment and commercial banks (that you recommended) too?

To put it in blunt english: isn't this a fairly clear allegation (read the entire article - its worth it) that all of our large commercial and investment banks with Level 3 exposures are likely in fact bankrupt and actively hiding it?

With our "regulators" explicit permission?

What happens if this "gets some legs" around the world folks? Give that some thought.

Careful thought.

And once again, I am compelled to ask, since this sort of falsehood was supposed to have been ended by Sarbanes-Oxley.....

WHERE ARE THE COPS?*

Step back for a second and remove the name "America" from where this is happening.

Walk up to a random person and describe all of the above, leaving the name off. Massive liquidity injections made to cover up the intentional lying of financial institutions, refusal to declare a loss when its a loss, a property bubble (intentionally blown by that nation's central bank through willful blindness to what amounts to a gigantic ponzi scheme in the credit markets) that has popped and is dragging down values by more than 20% in a single year's time (with no bottom in sight), 97% of the auctioned properties going back to lenders because they rigged the bidding and refused to accept the offered amount, and a government where literally millions of dollars in bribes, er, "campaign contributions" are made by PACs set up by the very companies that are doing the lying - and a government that not only allows this to go on but gives some parts of this den of thieves preferential tax status.

Then add in that virtually every large financial institution in the nation has intentionally moved billions of dollars of "assets" into a bucket called "Level 3" not because they can't get a price but because they didn't like the price they were quoted. So instead of recognizing the value (or lack thereof) that the market says these assets have (and which, by the way, is right in line with what has happened to them in previous recessions) they instead simply stuff them in the closet and stick a wholly-made-up price tag on them, calling that their "value". Oh, and then these same firms pay their executives bonuses based on these claimed "values"!

Finally, in the financial sphere, some of these firms allegedly "sell" off tens of billions of loans for 90 cents on the dollar, but they finance the purchase, yet account for it as a "true sale", and oh by the way, those loans were originally made to the same people who bought them back. The accountants wink, nod, and call this an "arms length" business transaction.

Due to all of this intentional fraud and deceit that nation's currency has declined in value by 40% in the last three years and is still falling, with some market analysts predicting a further 30% decline in the next year or two, and a full 10% of that currency decline has occurred in the last three months.

The nation's people have figured it out, driving consumer confidence to generational lows. They are being laid off at the rate of tens of thousands a month, yet the government claims that unemployment is modest and the nation's economy is "fundamentally strong."

Finally, tell them that this nation claims inflation is running "3%" (and adds that to their senior citizens entitlement checks) when over the last year meat has gone up in price by 30%, milk 35%, eggs have doubled, gasoline and diesel have doubled, and some basic crude goods have gone up in price four times over (e.g. flour) Add to this that this same government has mandated that 30% or more of the corn being grown be turned into fuel and put into the fuel tank of that nation's cars, driving these price increases in foodstuffs even harder.

To a man these people would call that nation crooked, corrupt, a "banana republic." They would call their stock market "rigged" and "impossible to invest in with any sort of rational basis." They would call their politicians and businesspeople "crooks", "thieves", "liars" and worse. They would lament that the population was being fleeced, ripped off, swindled and screwed. They would compare that nation to Germany prior to the rise of Adolph Hitler, Argentina and Venezuela.

Welcome to America 2008 folks.

Consider this - is there a reason left that Americans should bother investing in our capital markets or even living in this nation when this sort of outright falsehood in the banking system - the foundation of everything we buy, everything we finance, and every share of stock we purchase is not only permitted, but encouraged by the head of our Federal Reserve? ("There is nothing fundamentally broken on Wall Street that a little regulation and incentives for participants to be slightly more honest couldn't fix")

Or should we be looking for a nation with actual honesty in its banking and capital markets that would be willing to accept the few million of us in this nation that are willing to produce in exchange for a living and swap our citizenship over there?

If such a place exists.

After all, its clearly too much to ask that our lawmakers actually write laws that will be enforced, its too much to ask the executive to sign laws that make sense, and its too much to ask the judiciary to enforce the laws that are passed and signed, even when not doing so leads to the largest asset bubble since the 1929 stock market crash and $3 trillion in direct credit losses that will be foisted off on taxpayers. Oh, and most of that, over the last few years, has been "distributed" in bonuses and stock compensation to these executives (along with bribes, er, "campaign contributions", to those very same lawmakers.)

I know, I know, its not a big deal.

If you say so Joe.

Just don't tell me you weren't warned if you later find out that it was, indeed, quite a "big deal" indeed. That "discovery" might come in the form of a bond market dislocation...... originating in Asia.

* PS: Why are all the honest journalists in Asia?