The Market Ticker

So Wednesday and Thursday I threw up a bit while relaxing after my day of trading.

Why?

Because I had the unfortunate circumstance of listening to the Democratic Convention where a train of politicians, including Clinton and Biden, pontificated about how change "starts from the bottom up", clearly trying to tie themselves to the "common man" theme.

Please.

Joe Biden is the quintessential Washington DC insider.  He has more tenure than just about anyone in the Senate, and has a voting record that shows quite clearly that he has absolutely no understanding of the plight of "Joe Sixpack", but boy, he sure understands special interests, lobbyists and spending money the government doesn't have.

Biden tried to play the "Barack is not an elitist" (yeah, ok, everyone gets to go to Harvard, right?) card, but got absolutely nowhere with it.

Clinton?  He (and she) attacked the Republicans, of course - what else would you expect?

But let us look at what was not said by any of the speakers, including Barack himself:

• How about locking up the fraudsters in the banking system?  Lenders?  Realtors?  Appraisers?  How many ENRON-style corporate structures will Barack Obama's administration stomp on and send off the bad actors to prison?
• There was a nice comment about bankruptcy reform and protecting pensions.  Where is the commitment to JAIL those executives - and WALL STREET FOLKS - who have put these pension funds in a critically underfunded condition in the first place?
• What are we going to do about the fact that it appears the FDIC may need as much as $500 billion to bail them out from all the bank failures?  The $800 billion Paulson "bazooka"?  Where are we going to get the money and why should we pay for any of it when 80% of America got nothing from the fraud that led to this mess?
• Where was the mention - and condemnation - of Democrats getting $70,000 worth of "extra-good mortgage benefits" from lenders who financially raped millions of Americans?  Why did Bank of America get to write huge parts of the housing bailout bill - in your Democratic Congress?
• How about the fact that if you want to increase the affordability of homes you must shrink, not expand or "stabilize", the price of houses?
• Was there anything of a message having to do with the fact that we, as Americans, have spent ourselves into a hole from which we must extract ourselves, and that this will of necessity require less spending and more saving by both individuals and government?    All I heard was "more more more" - an extension of the failed policy of our government and private sector to spend that which they do not have.  In short - where's the money going to come from to cash all these checks that Obama and the rest of The Democrats wrote?
• Could there be an attempt at an honest evaluation and debate on Medicare, Medicaid, and other entitlements?  Admission and discussion of the fact that we simply do not have the money to provide health care on demand irrespective of ability to pay?  Lots of promises were made here, but nowhere did we hear about how we're going to cover the bill.
• Did I hear a discussion about how we pay for government, moving away from a tax code crafted by the lobbyists, for the lobbyists, instead of for The American People?  How about The Fair Tax Barack?  Which is more important?  "K" Street or Main Street?  Claiming that you're going to give a tax cut to 95% of America can only be accomplished by running even bigger deficits, and we've had 20 years of that failure too.  Where are you going to get the money?

Finally, let's talk about American Inventiveness.  What was the last "big innovation" to come out of America in terms of technology? 

There hasn't been one in over ten years.

The Internet?  Long time ago.  Laser and inkjet printers?  Long time ago.  Personal computers?  Even longer ago.  Ipods?  Please.  Cell phones?  1980s.

It is technological innovation that drives GDP growth, in the end.  Take a look at history, and that is what you will find.  Trains, then automobiles, telephones, mechanical refrigeration, etc.  Each technological innovation has resulted in major steps forward in GDP and the common weal of the world.

In the last 20 years we have gone from a nation that innovates in technology to one that innovates in finding new ways to steal.  And make no mistake, that's what "financial innovation" really is - its a way to steal.  All this "innovation" produces nothing and relies on the gullibility of the "investor" to believe that 2 + 2 can be made to equal 5.  This is the history of our last 20 years of "innovation" in America, and I heard nothing - absolutely nothing - from the Democrats that indicates that they recognize this as a problem or intend to stop it.

Oh sure, the usual Democrat talking points were out.  Iraq, among others.  Melissa Ethridge singing "Give Peace a Chance" conflated with "God Bless America"; she obviously didn't get the memo that occasionally you have to help God out with a rifle or two.  Make sure you send the tape of that performance over to Putin and Mevdeved; I'm sure they will will appreciate The United States' new position on the recent Russian armed invasion of foreign lands, especially now that Russia has announced an intention to screw with Eastern European oil supplies.

It is time for America to ask - if The Democrats want the brass ring for four years, what are they going to do to address these problems?

Specifically:

• Will you lock up the fraudsters who sold people 2 + 2 = 5?  All of them?  Realtors, mortgage brokers, investment bankers?  Auction-rate Securities sellers who peddled that crap as a "money market equivalent"?  In short, the entire structured-products "business" that is the financial equivalent of a perpetual motion scheme?
• Will you make certain that the bill for the losses created by these "innovations" does not go to the taxpayer? If Fannie and Freddie need to be "rescued", will you instead place them in rundown and open sustainable underwriting - 30 year fixed, 20% down in hard cash, 36% DTI - via Ginnie, instead of rewarding the levering up of a couple of gigantic hedge funds?
• Will you work to complete the correction of housing to affordable levels for all Americans - with "affordable" defined as, once again, 20% down, 36% DTI, 30 year fixed money?  The definition that, incidentally, leads to the homeowner having a clear title to their home before they retire?  Or will you continue to push the "status quo", which has you renting your house from the bank for eternity and beyond.
• Will you stop the influx of illegals to our nation and remove those who are here?  You say you want to stop outsourcing of jobs and illegals taking American jobs, but what I don't hear is that your administration will deport the 20 million who are here - an act that would force wages higher for Americans (supply and demand here - fewer workers, less labor supply = higher prices - that is, wages.)
• Will you stop the outright lying in our economic statistics?  GDP was not positive in 2Q; to get there you must believe that inflation was 1% and financial firms grew their profits tremendously in that same period.  Both assertions fly in the face of reality.  3, 4% price inflation as reported by the alleged CPI?  You can't be serious; everyone who buys groceries or gasoline knows those numbers are a lie.  This robs everyone as it gives justification for not only lower "cost of living increases" but also lower interest rates - decimating savers.
• Will you stop The Fed from peddling "moral hazard" as economic policy?  Market discipline - the risk of actual bankruptcy - is the only mechanism that exists to keep folks on the straight and narrow when it comes to risk management.  The last 30 years have proven that "Fed Intervention" simply leads to bigger bubbles and bigger messes.
• You said you want America to be independent of foreign oil.  That's something we must do.  How do you intend to accomplish it?  Natural gas won't get us there and neither will nuclear power standing alone.  But there are ways to make it happen; I've outlined some of them in Musings in the past - in 2006.  Yes, that's a rough outline.  Where's yours, given that The Democrats have been responsible for blocking nuclear energy development for the last 30 years.

The DNC and Barack Obama have both been getting copies of my Tickers, and some special edition letters, for months - not to mention the Petitions.

Show the more than 50,000 regular readers of The Market Ticker that you deserve their vote.

So Revised 2Q GDP comes out and results in a big spike in the S&P 500 futures, followed by the second half of two-day rally.

Now I (and many others) have always expected that the "deflater", that is, the inflation index (which must be taken off GDP because you're interested in real growth, adjusted for inflation) will be understated.

But what nobody expected was that we would see outright, blatant lies.

That's what we got.

A research note from David Rosenburg (sorry, no link) at Merrill Lynch categorized reality.

Here's what the BEA said:

"The acceleration in real GDP growth in the second quarter primarily reflected a larger decrease in imports, an acceleration in exports, an acceleration in PCE, a smaller decrease in residential fixed investment, and an upturn in state and local government spending that were partly offset by a larger decrease in inventory investment."

If only this was the truth.

Let's dig in.

Buried in that release is the real outrage:

"Domestic profits of financial corporations increased $24.7 billion in the second quarter, compared with an increase of $37.3 billion in the first.  Domestic profits of non-financial corporations decreased $46.9 billion in the second quarter, compared with a decrease of $32.1 billion in the first."

Excuse me?

Do you actually expect me to believe that profits of financial corporations increased by $24.7 billion (or that they did so in the first quarter either)? 

Am I smoking something or did not the financial sector report decreasing profits in the second quarter, and in fact, many reported absolutely stunning losses?

An increase on-balance?  You expect me to believe that?

You must be joking.

Oh, they told the truth on the decrease in earnings from the rest of the business world in America:

Domestic profits of non-financial corporations decreased $46.9 billion in the second quarter, compared with a decrease of $32.1 billion in the first.

So we have a totally bogus "financial service profits" number which of course pumps reported GDP substantially.

If you're interested in how Americans are doing, try this:

"Real gross domestic purchases -- purchases by U.S. residents of goods and services wherever produced -- increased 0.2 percent in the second quarter, compared with an increase of 0.1 percent in the first."

Right.  Including $160 billion in stimulus checks, which incidentally, is about 1% of GDP.  So how much would it have fallen without spending $160 billion that we don't have?

I'll answer that, since the same page gives me a metric to use.  1.4 GDP points (percent) is $39.7 billion (so the BEA says); that is a 5.6% annualized "run rate" on GDP.

So GDP actually fell (using the cooked numbers) by 1.4% on an annualized basis in the second quarter, since taking $160 billion out of one hand and placing it into another didn't actually change a thing (the government doesn't have any money; they get it from you, so the "stimulus" should in fact be subtracted back out from any claimed "GDP" - but isn't), and this assumes you believe the BEA's "deflater" (inflation) number which is vastly different than the CPI reported elsewhere and that financial firms increased their profits in the second quarter!

One final note.  If you find and read Rosenberg's research report (its worth looking for; try a search on the forum) you'll find that the non-financial corporate deflater came in at negative 3.8%.

For the uninitiated, positive numbers indicate inflation (in prices), while negative ones indicate "that which Bernanke claims cannot happen here with The Fed on watch" - that nasty "D" phrase, otherwise known as a "deflationary collapse."

Let me put this in plain terms:

If you believe this "report" from the BEA your IQ must be smaller than your shoe size.

If you bought stocks today based in part on the strength of this report, you need to see a psychiatrist.

If you are a "hyperinflationist", you need to check your thesis at the door; the evidence says that exactly the opposite is in process right now.

If you believe the current administration and BEA employees are producing honest reports on the economic circumstances in America, given this "in your face" sort of nonsense, you must be a regular reader - and believer - of Pravda.

Extracted from this morning's Ticker and reposted....

This morning Harvey Rosenblum of the Dallas Fed (Executive VP) said something on CNBC that truly astounded me - The Federal Reserve is in business to create Moral Hazard. (watch his comments)

Now let's think about this for a minute, and go back to a relatively simple example - a lender makes a mortgage loan to a person who is unqualified, on an objective basis, to pay that mortgage down to completion and take clean title to the house.

Ok.

Now realize that when a bad loan is made the loss happens at that point in time.  Just like a stock you buy that immediately implodes the indisputable fact is that loss has occurred, and we are reduced to arguing over who gets to eat it and when we admit to it.

So if The Fed is in fact "in the business of moral hazard", then we have just had The Dallas Fed admit a truth that is in fact quite uncomfortable for anyone who has a brain and is willing to use it - The Federal Reserve, as a consequence of how its mission is defined and how it chooses to discharge that mission, shifts costs and losses away from those people responsible for them and onto those people who have been and are prudent - that is, the American Public at large.

In short, what Rosenblum admitted - on national television - is that The Fed as currently constituted and operated exists to rob the public to cover the losses of wealthy investment and commercial bankers, thereby allowing them to take risks that they would never take in a market where idiocy (or even outright fraud) was punished by bankruptcy.

You were just told that this private group of banks, operating under Federal charter by our government, has as its mission in life robbing the public whenever and wherever necessary so that its clients are not forced to act in a prudent fashion.  You also now know that The Fed has extended that list of "clients" to cover investment banks along with Fannie and Freddie.

I do not want to hear any more complaints about how our government or The Fed (and its monetary policy) are "screwing" you until and unless you, as citizens, act to stop this nonsense.  I am not asking you to accept on faith that The Fed's actions are not to your benefit any longer, as I have since The Market Ticker began publication.

You have been told in plain English what The Fed's primary mission is, on national television, by a Vice-President of The Fed itself.

Wake up America.

Each day that you have a cup of coffee instead of deciding that you will not pay one more credit card or mortgage bill, or that you will trudge off to work and put in your eight hours instead of throwing down your tools and keyboards and march on Washington, is a day that you give your willing consent to this outright, admitted robbery.

Labor Day approaches. 

Who are you working for, and why are you consenting, each and every day, to this blatant and admitted theft?

Yesterday the durables report came in better than expected, but the pump that produced bled off within the first half-hour - before the market opened.

However, that was not to last.  Within the first 30 minutes the market began a relentless rise higher, powered by an invisible force, as if someone has lit a rocket under its butt.

Now let's review for a minute the backdrop here.

There is a hurricane, Gustav, that all major global models predict will enter the Gulf of Mexico this coming weekend, strengthen to at least a Cat 3, and, with a high degree of probability, threaten gas and oil production facilities.  UNG, USO and others traded higher on this news (as expected.)  High oil prices are usually bad for stocks.

Treasury was auctioning a metric ton of 2-year notes today, which of course withdraws liquidity from the system (you have to pay for those notes in money, you see), which is a net negative, most of the time, for stocks.

And while durables were good, the report was shrugged off within minutes.

So what lit the fuse?

A rumor that Treasury would be "making an announcement" on the GSEs.

CNBC took the extraordinary step of discrediting this rumor - Steve Liesman actually did something honorable today, the first time I've ever seen CNBC do so. 

They called Treasury, got a categorical denial, and led with it.

This is the first time I have ever seen CNBC do this on anything approaching a contemporary basis, albeit it was after the ramp job was mostly complete.

Did the ramp go away?  Not really.  The market probably continued to believe the rumor.  After all, has CNBC not been the chief disseminator of rumors for months, including the incessant MBI/Ambac games of months ago?  Yep.

Anyway, after the market closed we got the actual truth - Fannie has several top executives leaving, specifically, their CFO, Business and Risk Managers.

"Fannie Mae Chief Executive Officer Daniel Mudd replaced three top managers at the beleaguered mortgage-finance provider as the company struggles to convince investors it has enough capital to weather the housing slump.

Financial chief Stephen Swad, 47, Chief Business Officer Robert Levin, 52, and head of risk management Enrico Dallavecchia, 46, will all leave, according to a statement today by the Washington-based company."

Now folks, you can talk to virtually anyone in the market relating to financial investments and firms.  You can read any one of dozens of books.  They will all tell you the same thing - when the CFO of a financial company leaves in a situation like this sell any long position you hold and consider going short - to zero.

So why not release this news once the rumor started circulating? 

Well, we know the reason for that. 

But more importantly - was this rumor intentionally started and circulated so as to prevent the setup for a potentially stunning drop in the market has the truth leaked during the day, and to try to defuse the expected reaction tomorrow?

Probably.

So Chris Cox, inquiring minds want to know - where are the subpoenas?  Where are the investigations?  Where are the lawsuits?  Fannie was up fifteen percent today, partly on the strength of this rumor.  In fact, you can see plenty of price action today that strongly suggests that a lot of the activity in the stock could be directly linked to that.

Certainly, the broader market moved based on this rumor.

And now we know it was absolutely without factual foundation.

So Chris Cox, show us what you got!  Issue some subpoenas.  Start with Treasury, Freddie, Fannie, and half the traders on the floor in Chicago.  Find the jackasses who did this, trace the source (which I bet leads straight to someone who was long futures this morning on that durables release and saw their profit bleeding off, like perhaps an investment bank prop desk?) and drag a few people out in chains and handcuffs.

C'mon Chris. 

Just once, enforce the damn law.

Just once, go after someone "big". 

Just once, show us that the investment banks, brokers and hedge funds can't get away with running a pair of stocks fifteen to twenty percent in one day on the back of a false rumor and get away with it.

JUST ONCE CHRIS.

I know, it won't happen.  That's because neither you, CNBC, Bloomberg or anyone else are interested in an actual level playing field in the markets.  You are not interested in people being able to invest and trade with the confidence that our markets are transparent rather than rigged.  You have zero interest in whether or not a stock is trading on the fundamentals or even sentiment - no, trading on the "crackberry" is better, and as long as the direction of the move is upward, its all ok.

Never mind that it is the retail bagholder who gets screwed by those events, as he is inevitably the guy or gal who sees the strong move, buys into it, and then it turns out to be total rubbish, costing them 10, 20, 30% or even all of their investment.

But this doesn't matter to you, right Chris? 

Just so long as stocks go up, right Chris, even if the means by which they go up is felonious?  Just like all the felonious mortgage originations that are still going on?  They were all ok as long as they made house prices go up right Chris? 

I know, that's not your department, but isn't it all of the same piece?

Screw the American People so "the big and the powerful" can steal from them...... kinda like Citibank "sweeping" credit card excess balances, right?

Is our entire financial system one big ball of fraud?

In other actual news Moody's announced that it is going to review ALL2006 and 2007 Jumbo Mortgage bonds:

"Moody's is studying its rankings on the securities after late payments started increasing more quickly in recent months, according to a statement today from the New York-based ratings company. The bonds aren't all under formal reviews for downgrades, said Thomas Lemmon, a spokesman.

Defaults among homeowners ``across the credit spectrum'' have soared as home prices slump, mortgage rates rise and lenders rein in debt offerings, Moody's said. ``Serious delinquencies'' for prime-jumbo loans in securities rose 72 percent between January and June to 1.7 percent of balances, from 1 percent, according to Moody's. "

This is all that so-called "prime" paper, which normally has a default rate of about 1%.  Suddenly, it is defaulting at a rate of nearly double that.

Its nice to know that you can get to 72% higher default rates before a ratings agency will "review" its criteria for these instruments, never mind think about downgrading some of them.  Who knows when that will happen.

But heh, everything is all right, yes? 

Now here's the next nice tidbit, which went unreported in the mainstream media:

"Wednesday morning, the Department of Labor released its report on metropolitan area employment in the month of July, showing that unemployment continued to increase in a vast majority of the nation's metropolitan areas.

The Labor Department said that unemployment rates showed annual growth in 338 of the 369 metropolitan areas in July, while unemployment was lower in 25 areas and unchanged in 6 areas."

Nothing like refusing to report anything that isn't good, eh?

Yep.

This morning Harvey Rosenblum of the Dallas Fed (Executive VP) said something on CNBC that truly astounded me - The Federal Reserve is in business to create Moral Hazard. (watch his comments)

Now let's think about this for a minute, and go back to a relatively simple example - a lender makes a mortgage loan to a person who is unqualified, on an objective basis, to pay that mortgage down to completion and take clean title to the house.

Ok.

Now realize that when a bad loan is made the loss happens at that point in time.  Just like a stock you buy that immediately implodes the indisputable fact is that loss has occurred, and we are reduced to arguing over who gets to eat it and when we admit to it.

So if The Fed is in fact "in the business of moral hazard", then we have just had The Dallas Fed admit a truth that is in fact quite uncomfortable for anyone who has a brain and is willing to use it - The Federal Reserve, as a consequence of how its mission is defined and how it chooses to discharge that mission, shifts costs and losses away from those people responsible for them and onto those people who have been and are prudent - that is, the American Public at large.

In short, what Rosenblum admitted - on national television - is that The Fed as currently constituted and operated exists to rob the taxpaying public to cover the losses of wealthy investment and commercial bankers, allowing them to take risks that they would never take were they instead forced to operate in a prudent fashion.

Are you, America, going to allow this? 

When do you finally wake up and realize that the Federal Reserve is in fact in business to rob you, and the Dallas Fed's VP just admitted the truth on national television!

Hope you don't need your dictionary for the title....

I will focus today on fraud that is legal (at least so far) and point out just a few (more) examples - a few more items that should drive you to outrage.

Will they?  History says no, but Don Quixote needs his windmills.....

Let's start with the simple - "Down Payment Assistance".  There is yet another of these "charities" that is circulating petitions to try to get this scam restored - a scam that the recent homeowner "assistance" bill killed (one of the good elements of that bill.)

Let's talk about why this "program" is in fact a fraud upon the public - no matter who the provider is.

Let's take a hypothetical $100,000 house you own.  You put it on the market for $100,000.

A "buyer" comes to you and has no down payment, and thus can't qualify for an FHA loan (which requires 3% down.)

You take a $100,000 contract on the house.

But you don't get $100,000.  You "agree" to make a "donation" to the DPA company in the amount of the $3,000, plus an "administration fee" of, say, another $950.

So you received, in fact, $96,050 for the house.  But of course you paid 6% (real estate commission) on the full $100,000, not on the $96,050!  Your Realtor loves this little scam since he makes more money.

From the buyer's perspective, they paid $97,000 for the house; they got $3,000 from the seller.  The buyer likes it too, although in fact he probably got screwed, because the seller is less likely to reduce his price and pay the bribe, er, graft, er, "assistance".

But wait - what is the price recorded at on the HUD-1?  Ah, there's the rub, eh?  The HUD-1 shows a $100,000 transaction!  So does the lender, so does the title transaction, etc.

So everyone else in the neighborhood now has a "comp" on the house for $100,000, which pumps the price of their houses by 3%, and the lender is instantaneously upside down by 3% and change, as the actual value of the home is $96,050.

The actual sales price of the house wasn't $100,000. 

This sort of intentional false statement is supposed to be illegal.  In fact, it is supposed to be a federal offense.  But through this "loophole" hundreds of billions of dollars has flowed, with many "charities" making plenty of money (and paying very nice salaries) to their executives and employees.

Laundering the money through a third party doesn't change the fact that what really happened was a nearly $4,000 seller's concession on the sales price, with the "charity" grafting off almost a quarter of it!

Yeah.

Worse, FHA has that 3% rule to insure that you have some skin in the game and can manage to save the 3%.  Of course this "no money down" program voids that part of their program, so now one of the principles of soundness and safety of long-term lending - that you can manage money well enough to save up a down payment - has been destroyed.

These so-called "charities" are, in my view, nothing of the kind.  A 501c(3) must exist for bona-fide charitable purposes.  What's "charitable" about intentionally misrepresenting the sale price of a house and destroying one of the pillars of sound mortgage lending?

Where are the cops - in this case, the IRS?

Next up, you'd think that with mortgages getting harder to get and underwriting tougher, fraud would be on the decrease, right?  You'd be wrong.

The study found that the number of fraudulent loans issued during the first three months of 2008 skyrocketed 42% compared with the same period in 2007.

The big jump was a surprise even to MARI. "We were stunned," said spokeswoman Jennifer Butts. "It shows that some folks [in the industry] are desperate."
....

The most common type of fraud that MARI found pertained to employment history and income. Many applications exaggerated how much borrowers earned and misrepresented their job descriptions.

The biggest increase came from a jump in the number of undisclosed or incorrectly reported debts, liens and judgments.

No, really?  You mean that we've had an "industry" full of snakes for the last eight years and everyone expected that they'd just quietly slink into the night and quit being snakes when the money started to dry up?

Oh, and it doesn't help that The Bush Administration decided that "fraud for housing" - that is, lying in order to buy a house to actually live in, wouldn't be prosecuted (even though its a felony.)

Guess who pays for this nonsense?  You and I - through higher borrowing costs.

If that's not enough Bloomberg reported yesterday that Lehman is "mulling over" the idea of creating a new company that it will then dump its mortgage assets into with Lehman claiming that the company will be "funded by outside investors."

Uh huh.  Like the last few of these so-called "sales", made no-recourse with the seller holding the note and only a "small" down payment?  Sale eh?  Why do the accounting people, the auditors and the SEC allow this sort of blatant fraud?  Now we're going to play "SIV" once again?  Or try to anyway, it would appear....

The punch line is of course buried in the story:

"Lehman may contribute some of the equity for the new venture so it could benefit should asset prices recover, the people familiar with the talks said."

There 'ya go.

Where are the cops?

Now let's turn to The Fed.  The "minutes" (a fraud in its own right, as what's released aren't minutes at all; they are in fact a press release sold as "minutes") were released yesterday and of course they revealed what we already know.

But buried in there is the old statement that "inflation will moderate over time."

Except it hasn't. 

For two years. 

For two years now core inflation has been "expected" to moderate over time, as it has been above target, and in every Fed Statement and "minutes" the same tired refrain has been repeated.  In fact, the Dallas Fed's President was out this morning repeating this mantra again, as if shouting louder will suddenly make it happen.

Core inflation has actually increased, not decreased, and The Fed has added, rather than removed, liquidity into the reality of life for Americans.

In short, once again, fraud.  Legal, but fraud nonetheless.  You, America, seem to think this is just great as your grocery and gas budgets get squeezed. 

You must think its great for your budget and lifestyle to get reamed, since I've yet to see a groundswell of people in Washington DC protesting or our city streets swarming with people who refuse to leave and shut down commerce.

Oh, and how about media reporting on new home sales?

"The heavy pace of foreclosures has also been a major force pushing home prices lower, as lenders aggressively price their backlogs of repossessed real estate, hoping to unload them before prices fall further. Once the pace of foreclosures begins leveling off, the pressure on prices will ease. "

That would be an outright lie.

See, in certain markets (parts of California for one) there were more foreclosures recorded - that is, completed - than there are houses in the MLS + sales! 

How can that be? 

How, may I ask, can you possibly foreclose on more homes than are newly listed and sold combined? 

Where did all those foreclosures go, if they were neither sold or listed for sale?  Are you going to try to tell me that they simply disappeared in some Martian's magical raygun?

The truth is simple and inescapable - the banks are holding inventory back rather than sell them, probably in an attempt to prevent being forced to recognize their losses! 

See, if they sell the house then its an instant "mark to market" at the sales price.  But if they don't sell it, well, that's not a loss, right?

So the "months of inventory" are a lie and so is the median price, since supply is being intentionally held back to distort the market along with bank balance sheets.

That, of course, wasn't reported.

This same story DID tell part of the truth on consumer confidence, to its credit:

"Consumer budgets are also being squeezed by higher food and energy prices, though household budgets have recently gotten something of a reprieve as gasoline prices have eased. That helped lift overall consumer confidence a bit in July, though the outlook for jobs turned bleaker, according to the latest monthly survey from The Conference Board. "

The outlook for jobs - part of confidence - wasn't reported on bubblevision, but the headline number sure was. 

Surprised?  Not me.

Of course when this sort of "legal" fraud is ignored for years, you also get truly outrageous behavior, like this:

Citigroup's "account sweeping program" automatically removed positive balances from customers' credit card accounts, Attorney General Edmund G. Brown Jr. said. For instance, if a customer double-paid a bill by mistake or refunded a purchase for credit, that positive balance was then taken from the customer without notification, Mr. Brown said.

Nice.  Of course Citigroup claims they "voluntarily" stopped the practice. 

The better question is why they started doing it in the first place, and why this sort of thing doesn't result in revocation of the bank's charter to operate a credit card business.

Never mind this quote....

"In the words of a Citibank executive, “Stealing from our customers is a business decision, not a legal decision.” The same executive later said that the sweep program could not be stopped because it would reduce the executive bonus pool, Brown charged."

I see.....

Let me know when y'all get mad enough to do something about all this nonsense..... (funny how during the Democratic Convention last night the buzz was all about the second round of sore loserman with Hillary delegates rather than the outright theft and fraud from the people that the party supposedly claims to be most-closely aligned with!)

Now, onto Treasury.  You haven't heard that department talked about much, other than in the context of bailing out Fannie and Freddie, but you should be hearing about it. 

Treasury is absolutely flooding the market with new issues and rollovers.  Why?  Well the government is spending like a drunken sailor in a whorehouse, and guess what - to do that they have to sell Treasuries!  We're talking about a "run rate" over the last few weeks (and the next couple) that, if extrapolated, would result in more than $700 billion added to the Federal debt!

Now we all know that Congress raised the debt ceiling and that in general we as a nation are in it (debt, that is) up to our eyeballs, but what is little-appreciated by the "market commentators" is that it is the credit markets that really set the tone, not the stock market. 

Here's the problem - when you issue bonds like this you soak up money which must be collected in exchange for those bonds.  As a consequence there is a net withdrawal in liquidity and, all things being equal, coupon rates rise while treasury prices sink.

This "transfer" of free money from the market to the Treasury (which then wastes, er, spends it) tends to put downward pressure on stock prices (duh.)

See, the government spending too much does hurt your 401k!  Not only do you get price inflation but you also get lower stock prices.  Do you think the government bothers to tell you this?

Oh hell no.

One final note - yesterday afternoon the FDIC released its latest "troubled bank" numbers. 

"Total assets of troubled banks jumped from $26 billion to $78 billion in the second quarter, the FDIC said, with $32 billion of the increase coming from IndyMac Bank, which failed in July -- the biggest regulated thrift to fail in the United States."

What they didn't mention is that $78 billion is considerably more than the FDIC has.

Yes, I realize that not all of those "assets" will be zeros or even be impaired, but IndyMac is now recognized to be an $8 billion problem (of course the number keeps going up) and worse, the FDIC is now below regulatory capital limits and thus will be forced to raise insurance premiums, further stressing member banks.

Has the FDIC been "realistic" in the rest of its reporting?  Probably not.

That's the next bailout, and guess who's going to get the bill.

Yep.

Durable goods came in much stronger than expected today.  Beware this number, however, as there are some facts you need to pay attention to.

First, computer orders were down 10%.  That's a leading indicator on hiring (think; the reason should be obvious!) in the white-collar (read: nice-paying jobs) space.

A large part of the increase was due to aircraft orders.  These have a very long lead time and are subject to cancellation.

Machinery orders were up very strongly; most of this is due to "pull forward" provisions in the stimulus bill that accelerated expensing of items otherwise depreciated.  This has a major but short-term impact (this isn't the first time the government has done this; I personally benefited from it in the 90s) but the important thing to remember about it is that pulling forward demand means that in the out months you get rammed as the total spending hasn't changed, just the timing.