pertaining to the BS/JPM bailout....KD asks some very interesting questions about 'systemic risk' in his blog today... based upon the conflicting testimony of bernanke and dimon....you will need to click on the vid link for that (and don't let the face made for radio deter you <vbg>)
of course, no congressman picked up on it, they were too busy with stuff like ....'mr. supah-star, lemme ax you a question' tripe
market-ticker.denninger.net
Friday, April 4, 2008
No Jobs Friday
Yep - no jobs.
Down 80,000.
What's worse is that there were big revisions to prior months too, negative 70,000 more.
In other words, there were 150,000 actual jobs lost.
Get that through your head - 150,000 jobs lost.
There is no way to interpret this other than we are in a recession.
Also, unemployment jumped to 5.1%, a huge increase month-on-month (up 6% on the month), fulfilling another of my predictions in "The Year In Review" ticker.
"Unemployment will increase significantly, rising to north of 5% by the middle of next year. This will of course cascade back into consumer default rates (mortgages, credit cards, auto loans, etc) and cause yet more layoffs. The 'virtuous cycle' will turn vicious."
The number of unemployed people rose by over 400,000. In addition, "Business and Professional" employment, which has held up this economy for years, being the "good-paying professional jobs."
What was necessary to confirm the "bell ringing" bottom in the market was a push forward in the Dow over 12750 and roughly SPX 1400. The "famous 64,000 question" is this - is it over?
Well, probably not. Remember that the survey day for the unemployment claims report comes after the cutoff for non-farm. What this means is that the employment situation is getting worse, not better as we got towards the end of March, and the revisions are all in the negative direction as well.
The amazing thing is that the futures, after reacting strongly and immediately, actually backed off their negative prints.
Are people nuts?
No, they're listening to bubble TV again, and let me remind everyone that this is a script and story we have seen before.
Specifically, all through the 2000-2003 tech crash "Bubble TV" was calling bottoms every other week and pumping the markets incessantly.
It wasn't until CNBC got to the point that they were basically prognosticating that "this market will never turn" that it actually did turn around.
We're nowhere near there.
There have been a huge number of people in this nation that have literally stuck their heads in the sand and don't want to hear about the facts in the greater economy and the likely impact on their personal situation. Even titans of the airwaves like Limbaugh and Hannity have continued to parrot this line - the old "we're going to talk ourselves into a recession if we're not careful."
Nonsense.
The facts are that there has been a tremendous bubble first in tech stocks and then, in a vain attempt to prevent the full depth of the necessary adjustment in the economy, a bubble was intentionally blown in real estate.
Greenspan is famous, for example, with his advice to Americans to "consider" taking ARMs instead of traditional fixed-rate mortgages. Why? Because he couldn't control the real cost of money on the long end, and "long money" never went materially below 5% even with the Fed Funds target at 1%!
Yet without a "rush" of housing-related spending, Greenspan's Fed could not have created the housing bubble and "rescued" us from the adjustment that was appropriate and necessary as we worked off the tech wreck excesses.
And let's cut the crap here and now - Bernanke was in The Fed during Greenspan's machinations, and was part of the intentional deception spun in the economy. He said exactly nothing during Greenspan's missives on "ARM loans" nor has he ever said anything about restraining leverage and open, public pricing of alleged "assets" on bank balance sheets until the bomb went off this last summer.
So before everyone cheers that "The Fed has our backs" and "Bennie will make it all ok" please do remember that Ben Bernanke, just like Greenspan, have been either intentionally asleep on the job or lying to America for the last EIGHT YEARS.
Here are Ben's predictions in March of 2007:
"Overall, the economy appears likely to continue to expand at a moderate pace over coming quarters. As the inventory of unsold new homes is worked off, the drag from residential investment should wane. Consumer spending appears solid, and business investment seems likely to post moderate gains."
The record is a bitch, and while American's attention span tends to measured in seconds, one of the beauties of the electronic revolution is that you can no longer hide from your words, as they are accessible to anyone, at any time, forever.
Now let's contrast Berspankme with what I said back in roughly the same time frame:
"As I've previously noted, essentially the entire advance in the S&P's earnings so far has been overseas.
Look here in the United States, earnings suck - and that's being nice.
In fact, if you wanted to look at it from an earnings perspective in the United States, we are in a recession right now!You wouldn't know this from the market's price response, of course. Yet today was yet another session with no leadership and one in which the obvious and clear weak data - right "in your face" - was shrugged off. This is no longer a "subprime" story. It is now a general housing story, and quickly is becoming a consumer story - witness TARGET saying their sales will not hit forecasts, not to mention GM's warning on auto sales. And therein lies the risk, because when the consumer goes in the toilet, so does the economy."
Nice differentiation there eh? I'm not going to try to claim to be the "only voice in the wilderness"; that would be hubris to an insane degree. In fact Mish and many others have been calling for the same general outcome for quite some time.
So far we've all been right and Berspankme has been wrong.
Repeatedly and outrageously, and one must ask - perhaps intentionally?
Is Bernanke the man you wish to trust with your financial future? You do have the right do that, should you so choose, but that doesn't make such a decision an intelligent one.
My view on this is really quite simple - there is no bottom in the broader economy visible at the present time, there won't be until the housing stock stabilizes, and that won't happen until prices stop declining and inventory returns to historical levels.
That will not be a few-day or few-week thing, because it never has been before.
This time is not different.
The stock market is said to be a "discounting mechanism", looking out six to twelve months into the future.
Really?
Or is the stock market now recognized as something that can be, at least on the short term, used as a forcing mechanism for the media and politicians?
If the latter, you're taking a horrible risk listening to Bubble TV and following the "advice" proffered there, because in reality when you buy stocks you are buying forward earnings, and as of right now, here's what you're paying in terms of P/E:
Dow Jones: 53.11
Nasdaq: 27.20
Russell 2000: 50.66 (!)
S&P 500: 19.94
To put this in perspective, a year ago The Dow was trading at a P/E of seventeen, the Nasdaq was trading at 25 and the Russell at 40. The S&P 500 was trading at 17.
When you hear people on Bubble TV saying that the market is "inexpensive" you need to point them at that data page and ask them - "compared to what?"
Forward estimates?
Are you kidding me?
Let me see if I get this right - we're in the start of a recession, and The Dow is currently trading at a P/E of 53 but on current estimates it is trading at 13.
So this means that earnings are going to quadruple in the next 12 months?
On the S&P, we are currently trading at a P/E of 20, but on the estimates we are at 14.
We're going to have a 40% acceleration in earnings in the S&P 500 over the next 12 months?
On the Russell we're trading at 50.66, but on forward estimates its 19.85.
The Russell 2000, which is all small-cap companies that, by and large, are penalized by a weak dollar, not helped by it, are going to experience earnings growth of two hundred and fifty-five percent over the next 12 months?
If you believe any of that can I have some of the drugs you're smoking?
What's more likely folks - that we will see that earnings acceleration or that we will see the averages contract to a more reasonable valuation, as earnings estimates are, right now, far too high?
Historically analysts are always the last to "get it", because a downgrade can mean the end of investment banking relationships with the firm you're covering and even the end of access to the firm's executives!
Think folks.
What we have been seeing the last few weeks is a vicious Bear-market rally, and if you want examples of how bad they can be, look at the 2000-2003 tech wreck for myriad "false bottom" examples that were later penetrated with disastrous results in your portfolio balance if you bought into the calls of "the bottom is in."
If you still buy the "decoupling" bullcrap, then tell me why BA says that international business travel is down 5%? Interested in a bet on that "decoupling" thesis?
CNBC and others are screaming about "short sellers" and rumors, whining, bitching and moaning.
How about some fairness in reporting - are you going to prosecute everyone who curried rumors about Warren Buffett buying everything under the sun, rumors that CNBC REPORTED and which all turned out to be FALSE?
MBIA lost its AAA from Fitch today, with the following being said:
"April 4 (Bloomberg) -- Fitch Ratings cut MBIA Inc.'s insurance rating to AA from AAA, saying the bond insurer no longer has enough capital to warrant the top ranking.
MBIA, the world's largest bond insurer, would need as much as $3.8 billion more in capital to deserve an AAA, New York- based Fitch said today in a report. The outlook is negative, Fitch said."
Heh, but wasn't that going to cause financial Armageddon? Where's my 2,000 point down DOW day? We were promised that if MBIA got downgraded it would be the end of the world, remember?
Gee, was that prognostication as accurate as the justification for the forced sale of Bear Stearns?
Oh, and if you think there were no good nuggets from the hearings yesterday with Dimon and such see this quote (hattip to PCap), watch this:
So basically what we have here is this:
* The Fed has illegitimately picked your pocket - that of The American Taxpayer - with their $29 billion "backstop", but you can't know what you bought with the money.
* That "PUT" has made lending risk-free for banks, as any losses will simply be eaten by you the taxpayer, which means that these very same banks can, have and will continue to extend risk. WITNESS WACHOVIA STILL ADVERTISING PAY OPTION MORTGAGES. There is no risk of business failure for them in unsound lending AS YOU WILL BE BILLED FOR THEIR LOSSES.
And you, The American People, have failed to stand up and put a stop to it.
Freedom isn't free and there are times when you have only days or even hours to put a stop to the institutionalization of something that will destroy your economic future along with that of your children and grandchildren.
This was one of those times - indeed, it was a watershed moment that has not been seen in a generation.
The American Public failed the test, and now we have put forward precedent that all you have to do is claim "systemic risk" and even when that risk is denied by the person with the most intimate knowledge of that risk under oath, the transaction in question will be permitted and the costs will be shifted to you, the taxpayer.
The stupidity of this is beyond words, but I can't make people act in their own best interest. I can only point out when you will be robbed blind if you do not act immediately to put a stop to it.
America faced one of these tests the other day, and America, as a nation, failed.
Those of you who tried to talk to your friends and neighbors were called nutcases, conspiracy freaks, fruits and all sorts of other nasty names. I've seen it, you've seen it. Yet now we have in Jamie Dimon's own words that JP Morgan, the firm "most" intertwined with Bear Stearns, had no systemic risk from a Bear Bankruptcy and would be, in his words, "just fine."
Conspiracy nut or just plain right? It doesn't matter now - the hearings are over, the opportunity to force the unwind of this transaction gone. The actions of The Fed and JP Morgan have been institutionalized and confirmed by Congress, setting a precedent to charge off the loss of ALL lenders from here on and forever to the taxpayer's account. That is exactly what is going to happen, and is exactly why the XLF is up by FIFTEEN PERCENT in less than two weeks.
THE RISK OF MARKET FAILURE BY ALL LENDERS IS NOW BORNE BY THE TAXPAYER. ALL LENDERS. GET THAT THROUGH YOUR HEAD, BECAUSE IT DOES NOT APPLY TO YOU AS A CITIZEN, BUT IT DOES APPLY TO EVERY BANK AND FINANCIAL INSTITUTION THAT OPERATES IN THE UNITED STATES.
The worse news is that this does nothing about the economic problems or the housing correction (nor can it), so in addition to the recession and the damage that will do to our economy and your economic future you will also get to eat the costs of the fraud that these lenders foisted off on homeowners and investors.
How well will you, Joe Six Pack, do when the stock market is up but you're still unemployed and bankrupt?
You, the taxpayer, have just written a $2 trillion check on your own account through your inaction or outright cheering of this "bailout".
Congratulations; I hope you enjoy the cost of the beer you swilled instead of picking up the phone and hounding every one of your neighbors, friends and associates to do the same.
Your available time to fix this appears, unfortunately, to have expired, although should there suddenly be a crush of phone calls into Senators and Reps, we might pull this one off yet. |
