Philly Fed, LEIs, Yuck - FLASH

Philly Fed came in -24.9. Much worse than expected. New orders, employment, prices paid and received - all going the wrong direction. I can't find anything good in that report.

LEIs came in +0.1, a bit better than expected. But - that was during one of the major market bounces, and stock market prices are one of the components. In general? Nothing to cheer about there either.



Notice anything about that LEI and Coincident Index, and how it corresponds with this thing that starts with an "R". Yep.

Yet the crooners keep talking about how "the worst is behind us."

Uh huh. The Check is in the mail, I won't get you pregnant, and I won't (censored - that one's obscene)

Reality folks is that the insane credit-market explosion - giving anyone a loan if they can fog a mirror, whether a homeowner, a car buyer or an LBO-wielding hedge fund - has now led to a circumstance where debt service requirements are uncomfortably close to cash flow.

Note that this is debt service - we're not talking about paying down the principle - just paying the interest.

There is no way to support this paradigm going forward and a small minority of this excess debt and credit has been "worked off" thus far.

The rest will be worked off, with disastrous results for those who are knife-catchers in the markets, whether it be credit or equity.

While hope springs eternal in our capital markets the fact remains that earnings are all that matters, and earnings have been hyperinflated in recent years due to the credit bubble.

Everyone, from homeowners to leveraged buyout shops have been gorging themselves on "stuff" they cannot pay for in cash.

Then McCain comes out this morning and says "The Fundamentals of the US Economy remain strong."

Liar.

The fundamentals of the US Economy have been intentionally trashed by McCain and his cronies in the administration and Congress, who have intentionally and with malice aforethought spawned the growth of a gigantic credit bubble in our housing and personal financial systems that has placed our households into debt to an unprecedented degree.

In addition McCain and the rest of Congress practiced that same sort of insane and irresponsible crap with Medicare Part D, Social Security and all other manner of government spending. The profligacy in this regard is beyond disgusting and reaches into the realm of the treasonously criminal.

Projections at this point are that we will run a one trillion dollar deficit against a $3 trillion budget this year, or net credit growth against spending of thirty three percent. Nearly $500 billion of that deficit is already booked.

The reason Congress doesn't "get it" is that they are just as married to the idea of unsupportable, criminally insane credit growth as are American households. Congress and the Executive refuse to stop this among American business and households because they are doing it themselves, and so far, until today, the world has gone along with the scam.

Those of you who believe that our markets will continue to levitate or even make new highs need to ask yourself - how will all these people who are in debt up to their eyeballs not just service the existing debt but continue to expand their debt at the previous rate or better? Not just American households, but America the nation.

Paying existing debt service doesn't buy anything. It causes no production. It results in no GDP contribution. At all.

To make the Bull Thesis work you need to figure out how we manage to continue to grow sales and profits and thus earnings. Where is the money going to come from when the American Consumer has levered up to the maximum degree and now his collateral (the house) is falling in value, not rising? How does America the nation continue to do this when the world sees what we're doing to our personal and national balance sheets and responds by discounting the dollar?

As long as this continues the value of the dollar will continue to fall and the price of all necessities linked to energy, from gasoline to food, will continue to rise at a rate that not only offsets this credit growth but also provides a measure of "risk premium".

In other words we will lose from this credit growth, not gain, as the rest of the world will simply not let us take on more and more credit without associating a risk premium that we will be unable to pay with those transactions. The higher the leverage goes, the higher the premium charged.

This premium has an exponential curve to it and once that inflection point is reached we are finished, as the premium will rise at a rate that exceeds the growth in available credit. This "knee" is a point of no return and the collapse of our both our currency and economy.

We are very close to that point now.

You are paying $4/gallon for gasoline - instead of $2 - because you sit on your butt and nod your head instead of insisting that both US Business and the US Government cut this crap out!

You think this is a zero-sum game? Nope. You lose Americans. Your food and fuel bill will continue to rise at an increasingly parabolic rate not due to inflation but due to the profligate abuse of credit both by YOU and by our Government (which you want to continue to abuse credit so you can "get yours", whether its a stimulus check, farm subsidies, prescription drugs or the EITC)

Reality, however is that all these "benefits" from the government are immediately offset by higher food and fuel prices, and what's worse, you get taxed on the money you buy that food and fuel with, while you get no tax benefit from the increased interest expense and debt service.

The "Medicare Part D" benefit, for example, might save the average Senior $2,000 a year. That's a lot of money. Guess what? That $2,000 came right out of your pocket anyway and went directly to the grocer and gas station. You cheer the government's action but in fact you saved exactly nothing. You've been played as a fool for votes and screwed at the same time.

Everyone wants to pile into banks and other sectors of the market in the belief that "we'll be out of this in the 3rd quarter at the latest."

Really?

How are we going to pay off the debt? How are we going to be able to originate new debt? And how are we going to keep moving forward on new debt origination, which is absolutely necessary if we are going to see sales, earnings and profits continue to grow?

If you're buying stocks here, or if you're bullish on America in general, you need to be able to make that argument work.

I wish you the best of luck in doing so.