Don't Believe The Rally

One chart should tell you everything you need to know:

That's "AAA" credit folks, spread over reference (swaps).  250 bips in days, or a move of fifty percent?

The TNX, on the other hand, looks like this:

That's a very pretty triangle, it broke today, and should the TNX continue southward (as is indicated by basic technical analysis) it is forecasting a deflationary Depression.

If you think the stock market is bottoming then you must have some sort of belief that the credit markets are improving.

I'm sure you can explain, then, why the IRX (13 week T-Bill) is yielding a whole 1/11th of a percent (annually!)

To those bottom-callers:

Pull the other one.

These three charts tell you everything you need to know.  Commercial Real Estate is a train wreck and about to go supercritical while the credit markets are so sure there will be zero inflation over the next 13 weeks that people are willing to accept essentially zero to park money in 13 week T-Bills and less than 4% to park it in 10 year bonds.

The TARP/EESA has done nothing to stabilize anything.  It has provided a drink to a drunk, but the drunk is now once again going through DTs.  CONgress was again lied to today, and the proof is in the charts above - there is no way you can make the argument that "the credit markets have been saved" with that data. 

The market does not lie but people testifying before Congress sure as hell do and the committee today was either too stupid to call the "witlesses" on it or is complicit in the scam!

The data says that we are headed straight for a Deflationary Depression. 

Ben Bernanke is out of bullets in his rate-cut gun, having cut the rate to 1% but in fact Fed Funds has been trading at one quarter to one third of a percent since the day that cut was made. 

He may as well just cut to zero and get it over with, because the effective rate is zero, as you can see above in the IRX.

His gun is empty; the opportunity to stop this crap that existed back last fall when I was screaming for transparency and forced marks NOW has been squandered.

Yes, doing that would have forced "blood in the streets", it would have forced many bankruptcies, and it would have cut off the credit machine and forced it to retrench and purge itself.

That's what has to and will happen, and since we have decided not to do it the honest way by allowing the liars to pull a TARP over themselves and their rotten "assets" (in fact debt that cannot be prevented from defaulting) we now get to do it the hard, painful, nasty way as our nation is dragged into the gutter.

We'll be lucky if its only as bad as Japan had it when they tried the same thing (we learned nothing from them) or when we did in the 1930s (gee, we didn't learn anything from that either, did we, when we removed all the safeties on the nuclear credit devices with Gramm-Leach-Bliley?)

In fact, we still won't talk about what really happened, or what we did wrong.  We still have the architects of this mess advising our President-Elect (one of the other clownfaces was advising McCain until he made a comment about a "mental recession"!) and through the halls of both Congress and the Executive we have yet to hear a "mea culpa" for removing leverage limits, allowing affiliated broker/dealer transactions via commercial banks, off-balance sheet funding or "mark to fantasy."

Air America is pointed nose down at 60 degrees in a full-power dive and we're dangerously close to structural failure of the wings. 

If our trajectory is not altered now our nation is going to play economic lawn dart at 600mph - possibly within weeks, likely within months.

We have squandered more than $2 trillion that has been blown via commitment or direct expense down the rathole of coverups, handouts and bailouts, and we will need that money in the next couple of years to feed, clothe and shelter our people. 

Thanks to Bernanke, Paulson and Congress its gone.

Barack Obama made the statement that "deficits are not important" on 60 Minutes Sunday.

He is going to get a rude surprise; the President of the United States is subservient to the bond market - specifically, he is subservient to the willingness of foreigners to finance our deficit spending.  Embroiled in their own mess this capacity is quickly eroding, and over the last ten years our Treasury has put itself in the unenviable position of shortening the maturity of its outstanding debt (to get lower interest rates) which raises the potential of a rollover funding "emergency".

I have said it before and I'll say it again - President Obama is going to find himself on the wrong end of reality, and be forced into austerity measures that neither he or Americans are going to like one little bit.  I wouldn't want his job when he is forced to go on Prime Time TV to tell America that we simply can't finance our profligate spending any more and that serious, real, across-the-board cuts are going to have to be made to our federal budget, entitlements and "promises" - that we simply cannot keep those promises. 

Historically there is only one other way out of the trap we are now in. 

Start a war. 

A really big one - big enough to kill a couple million Americans (reducing competition for jobs) and destroy a trillion or more dollars in American "stuff" (that will have to be replaced.)

That option would truly suck.

Oh, and if you think that the FDIC presentation today on CSPAN is a model for "preventing foreclosures", you might not want to read this:

"Industry evidence indicates that in a majority of instances loan modifications simply delay the timeline from default to foreclosure but don't prevent them from taking place," Nathaniel Otis and William Clark, analysts at KBW, wrote in a note to investors on Tuesday.

For the industry in general, after mortgages are modified roughly 25% go delinquent again after just one post-modification payment and more than half end up delinquent after several post-modification payments, Lender Processing Services told the analysts.

So much for "putting a floor under home prices", "keeping people in their homes" and "an effective program to prevent foreclosures."

I know, I know, telling the truth is difficult in front of Congress, as we've seen, and Congress is too spineless to issue a contempt citation (or ten.)  They sure don't want truth-tellers on their panels, or they'd have invited people like Mish and myself to come testify!

As for GM, Ford and Chrysler: All I heard tonight was "blah-blah-blah give me money."

To GM, Ford and Chrysler: GO TO HELL.

Further, if CONgress passes this crap you will immediately hear a call here on The Market Ticker to permanently BOYCOTT the American automakers, and I've already got a bumper sticker order ready to go.  It'll be "send me a SASE, I'll stuff 'em with stickers."  Stickerguy, here I come again!

If Congress won't do the right thing and force these turkeys through Chapter 11 where they can shed 75% of their dealerships and their labor agreements, including the "Jobs Bank" (paying people who are furloughed is asinine) I say we kill 'em the old-fashioned way - stop buying their crap.