ADP Unemployment Report

They need to rename it.

The first negative print in four years from them, -23,000, and January's number was revised down 11,000.

This strongly suggests that Friday's number from the BLS is likely to be a bloodbath.

In addition while productivity was up (good) so were labor costs (very bad); the potential for "pull" wage inflation pressures appears to be headed up. This further puts Bernanke in the vise, although nobody is really expecting him to shift his emphasis on where monetary policy should go (irrespective of the fact that he should do so)

In other news we now have an official "Plunge Protection Team" (PPT) and its one man - Charlie Gasbagperino, who once again stepped to the microphone to pump the "impending" Ambac "bailout."

Never mind that even with a so-called "bailout", unless it is roughly of the size of the market cap of Goldman Sachs (and its not) wouldn't put their capital ratios where an ordinary peon like I would expect for something rated "AAA".

Then again my view of "AAA" is what "AAA" should be (and is in the municipal space) - "able to pay under any circumstance short of nuclear war."

The trend in commodity markets and treasuries has resumed its upward price pressure (down on yield) in the general sense, as risk aversion continues to rule. Never mind the traders in the pits now screaming for the government to step in and buy up $200 billion or more worth of bad mortgage paper.

Heh, it works for "rate cuts", right? Let's just shove the costs off on the taxpayer! Yeah, that's the ticket!

(Hint: You only think that would fix things. It would in fact make them much worse as it would be like throwing gasoline on the fire in the credit markets and spread it into Treasuries. God Help Us All should we go down that road - that is how Depressions are made, by ramping government borrowing costs into a slowing economy.)

Let's not, however, minimize the potential for stupidity among the government and our "elected representatives." After all, there really is only one job responsibility in DC - getting reelected.

While you're at it, don't look at the ABX, CMBX, or for that matter any other form of spread. They're all blowing to historical wides, with alleged "AAA" credit trading under SIXTY in the ABX space and "AA" credit trading at TWENTY.


Any more questions about what the market thinks when it comes to Moody's, S&P and Fitch's so-called "ratings"? There shouldn't be; the obvious conclusion to draw here is that all three of these so-called "ratings agencies" no longer mean anything.

The secondary mortgage market (across the board) has basically disappeared. Why?

Because we have no way to know what is and isn't good credit any more! This is what happens when you cheat long enough and screw enough people that they say "screw you!" and refuse to buy any more of your paper, considering ALL of it crap.

Nor is it limited to mortgages. Auction-rate security markets remain frozen, with the failure rate remaining in the 70% range. Yet another accounting fiction explodes in people's faces - the idea that you can pay short-term rates on long-term money. The days of fraud-for-fun are over folks!

One interesting divergence in financial statements is that among non-financial corporate balance sheets many firms now have enough cash to literally operate with no debt market at all. That is, they could literally pay down all of their debt right now with their balance sheet cash, leaving them operating entirely on a cash basis! This is a historical change over corporate reliance on the debt markets to fund operations and raises an obvious question - have CEOs and CFOs in the private sector, but away from the "FIRE" economy, prepared for an economic depression as not only a possibility but a probability, as this is your only hope of corporate survival in such an economic climate?

Balance sheets would seem to say "yep!"

If consumers would have only prepared as well...... (but that would mean only spending within your present earnings power and not beyond it.)

My commentary yesterday about banks taking back mortgages and writing down the principal, then re-issuing the mortgage under sound underwriting criteria set off a tsunami of commentary on the forum, with a lot of people screaming about "moral hazard." Uh, what moral hazard? Getting rid of the fraudulently inflated marks and thereby incenting banks to take the pain (which is justly theirs as they created this monster) now rather than hide the dead bodies under the rug is "moral hazard"?

Yes, I understand that some people under such a program would be incented to intentionally default in order to "get theirs." I get that. And some of the folks who have done debt collection in the past claim that this would "destroy the morals involved in credit issuance."

Morals? What morals? Issuing a mortgage to someone you know they cannot pay is moral?

There is something in Contract Law called an "unconscionable" agreement. This is, in essence, the principle that terms which are so manifestly unfair that nobody in their right mind would agree are unenforceable. This is often claimed and rarely won, but the fact remains that it is part of contract law precisely because the law recognizes that there often is a power or information imbalance between the parties to a contract, where one party has superior information (perhaps intentionally so) or obfuscates, either by intentional omission or commission, material information that the other party would use to avoid entering into a bad bargain if they only had access to it.

I believe that when it comes to this mortgage mess we have this principle expressed in spades, and ignoring it is worse than forcing the knocks to be taken - by far.

The argument that this will result in the "destruction" of consumer credit is farcical. The key item here is that the terms of a mortgage are within the borders of the paper and there is NOTHING wrong with either side using every instrument (including an "efficient breach") to the fullest legal extent. The banks did - why not you?

Ambac today announces a "rights offering" including common stock totalling $1.5 billion, finally expiring Charlie Gasbagparino's new "PPT" appointment. The market first popped, then went sideways, then sold off a bit. Where's it go into the afternoon? Difficult to know for sure, but this much is not difficult at all - the deal as announced does not to preserve the firm's capital position and is known as a "cramdown" among those who have been around for more than a week in the markets, and in addition $1.5 billion is a JOKE compared to the exposure involved here. WHAT SORT OF IDIOTS THINK THIS WAS ALL GOOD NEWS?

Egan Jones was immediately on Bloomberg saying that this doesn't even keep them at Investment Grade in their opinion! No kidding - $1.5 billion?! That's a joke!

THIS was what had been the "sticksave" on the market selling off for the last two weeks? THIS? That's a freaking JOKE!

Unbelieveable.

You want to buy this market? Go right ahead. I've about had it with the stupidity in the so-called "financial media."

Oh, as just one example yesterday Citibank called itself "financially sound."

Today, there's this:

"Citigroup, under pressure to raise capital, is making a big bet that it can raise money from yield-hungry investors. It is selling a $2.5 billion bond issue, most of which it is underwriting by itself."

So much for the truth. Sarbox anyone?

Rumors abound today that there is MAJOR unloading going on in Agency (Fannie/Freddie) paper going on right now. Tens of billions worth. Then this evening Thornburg Mortgage blew up with an 8K admitting that they're in serious (as in potential BK) trouble.

My answer to that?