Tuesday, May 12, 2009

Bears and Bulls hit…

…the target on occasion. But you know what they say, “bulls make money, bears make money, but hogs get slaughtered. Are you being a hog?

The BEARS say that the economy is riddled with debt and that the debt must be cleared to renew growth again – if that’s the desired objective, as misguided as that objective may be. The bears just don’t think this rally is for real:

The BULLS, meanwhile, spew forth hopes and dreams of greenshoots and passed “stress tests.” Why heck, the “experts” at Oppenheimer are all over the television this morning touting that any rally greater than 20% is a bull market! Oh really? The largest uninterrupted rally in modern history sent the S&P 500 up 40 amazing percent off the devilish 666 low, true, but here’s a chart of the past two years in the SPX… does that look like a bull market to you? We haven’t even made a new high! After a 40% rally, LOL!

Yes, I’m pretty sure Satan can be found in there somewhere, most likely in the basement of the Golman Sachs headquarters!

But don’t think you’re going to be getting fat eating greenshoots any time soon. The data just doesn’t support that notion. The only thing that DOES support that notion is FALSE ACCOUNTING, and it is RAMPANT.

Just last night we learn that monoline insurer MBIA (remember them?), reported amazing “earnings” from “insured credit derivatives.” Here’s how Schwab is reporting MBI’s earnings:

MBIA (MBI $7) reported 1Q EPS of $3.34, including a $1.6 billion pretax unrealized gain and a $31.8 billion pretax realized gain, both on insured credit derivatives. This ended a string of five straight quarterly losses for the firm, ahead of the loss of $0.33 that had been expected by analysts polled by Reuters. MBIA, the country's largest bond insurer by outstanding guarantees, said it did not write any new policies during the quarter as a result of downgrades to the company's credit ratings by major ratings agencies in the last year. Management does not expect to write a significant amount of new business until the company's ratings are upgraded, although MBIA's president and CFO Chuck Caplin said the company's balance sheet is strong and the firm has "ample resources to meet all expected obligations" in spite of the tough environment and mortgage-related risks they now face.

Please, let me translate this for you;

“we have marked up our worthless derivative portfolio because if we die all the big financials die with us and thus we can get away with anything we want. The SEC and government not only now let us mark to fantasy, they encourage it, so we took full advantage! Heck, they even look the other way as we spin off companies in a shell game to hide bad assets. Again, while that used to be illegal, in today’s environment it’s encouraged! And thus we are "making" billions while we fleece current investors and hope that you will donate your fiat dollars to us too!”
Yep, that’s really all you need to know, and that translation sums up this entire financial branch of government led rally.

What, you weren’t taught about the Financial Branch of Government in your Civics class? It’s true, there’s the Executive, the Legislative, the Judicial, and then there’s the Financial which actually runs the entire shooting match! All the “politicians” and “judges” in those other branches simply work for the Financial branch!

But before you ride their little experiment with money into a bullish sunset, I suggest you review history and the current facts closely.

When you do, you will find that tax revenues are collapsing while government spending skyrockets. You will find exports and transportation that is collapsing. You will find that the equity markets, the commodity markets, the residential and commercial real estate markets are crashing. You will find a bond bubble that by all appearances has already been pricked and that could easily spell higher interest rates for a world saturated with debt.

Greenshoots? How’s this headline that just came out this morning:

Home Prices in U.S. Drop Most on Record in Quarter

May 12 (Bloomberg) -- Home prices in the U.S. dropped the most on record in the first quarter from a year earlier, led by California and Florida, as banks sold foreclosed properties.
But it’s all good. Just look at Advanta who just announced huge losses and is going to shut down credit to more than one million consumers. Mish just did a good article summarizing this situation: Credit Card Issuer Advanta Has Huge Losses, Halts Lending.

Oh, and it seems that the current darling of the American auto industry, Ford, is a couple BILLION short in their retirement fund. Nothing to concern a bull munching on greenshoots.

Neither are the insiders at GM who are selling shares like crazy, but that’s no problem according to their spin master/ Spokeswoman Julie Gibson who says “the sales don't show a lack of faith in the company."

And I believe her too, primarily because I’m sure she has a degree in marketing or communications, and that means she knows of what she speaks (or is told to speak by the six executives who just sold their stock).

And on the very same day that CNN publishes this story in the morning, The forgotten fiscal problem , we get this story in the afternoon: Recession hits Social Security hard.

The Associated Press sums that mess up thusly:
WASHINGTON - The financial health of Social Security and Medicare, the government's two biggest benefit programs, worsened in the past year because of the severe recession.

Trustees of the two programs said Tuesday that Social Security will start paying out more in benefits than it collects in taxes in 2016, one year sooner than projected last year, and the giant trust fund will be depleted by 2037, four years sooner.

The trustees said Medicare was in even worse shape. They said that the trust fund for hospital expenses will pay out more in benefits than it collects this year and will be insolvent by 2017, two years earlier than the date projected in last year's report.
Nice. It’s funny how that math thing just keeps coming back to hound you no matter how upbeat you “feel.”

So, as you can see, I think our economy is the picture of health despite the more than $300,000 of debt for every man woman and child in this country. And besides, I just read this by a guest contributor on Zerohedge’s site which explains how he believes the markets really work:

Now, the economy isn't like the weather: If the weatherman says it'll be sunny tomorrow, the weather don't grow cloudy to spite him. The weather don't care what the weatherman say. But in macroeconomics, if enough people say that things are going to suck canal water, well then, things will suck canal water—hell, they'll suck turpentine. Macroeconomics is the ultimate example of the Heisenberg Uncertainty Principle, only magnified: If some observers say it'll get better, it'll get a lot better. If enough observers say it's going to get worse, it'll get a LOT worse. A relatively small group of influential market participants—the MSM and some key people, not even necessarily powerful people—can literally create self-fulfilling prophecies.
Ah, that explains it for me! So, if enough people put their powerful positive thoughts together then the market will rally onward in a new bull market! Just like that, viola, all that debt, graft, and corruption goes away.

And why not. Alan Greenspan, bubble blower extraordinaire, says he sees improvement in our economy – as if he knows what real improvement looks like! Does anyone actually believe anything he says, or anything that any of the current crop of government CLOWNS have to say?

Yes, psychology is one aspect of the market. But the underlying fundamentals of math are real and cannot be wished away nor can they be made to go away with trick accounting. So go ahead, my wayward son, buy, buy, bye – it’s a new Bull market for sure (just don’t look at that big and ominous rising wedge pattern, you’ll “feel better” that way)!

Kansas - Carry On Wayward Son:

Carry on my wayward son
There'll be peace when you are done
Lay your weary head to rest
Don't you cry no more

Once I rose above the noise and confusion
Just to get a glimpse beyond this illusion
I was soaring ever higher
But I flew too high

Though my eyes could see I still was a blind man
Though my mind could think I still was a mad man
I hear the voices when I'm dreaming
I can hear them say

Masquerading as a man with a reason
My charade is the event of the season
And if I claim to be a wise man, well
It surely means that I don't know

On a stormy sea of moving emotion
Tossed about I'm like a ship on the ocean
I set a course for winds of fortune
But I hear the voices say

Carry on, you will always remember
Carry on, nothing equals the splendor
The center lights around your vanity
But surely heaven waits for you

Carry on my wayward son
There'll be peace when you are done
Lay your weary head to rest
Don't you cry (don't you cry no more)