Winter (Economic & Market) Watch

Even as the talking heads and goon squads blow it out about the worst being over, a lots of things seem to be for sale right now. “Recapitalizing” hyper leveraged firms seems to be the order of the day. The deals are coming, fast and furious, and the prices paid to say the least, are expensive. Take Fannie Mae for instance, the inquiring might ask how it is that a so called AAA rated firm needs to pay 8.75% for a preferred offering?

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

Any intelligent observer who understands the fundamental concepts and realities of a Ponzi finance based economy knows that borrowers will move from one worm hole to another until credit is exhausted and withdrawn. Meanwhile the same cast of characters who never saw the mortgage rout develop, fail to see a new disaster coming.

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

Fitch has some good background out on the major lenders in the home equity lines of credit (HELOC) market. Topping the exposure list are walking dead firms like WAMU and CountryFried. Institutional Risk Analyst has more comments out on the evolving CFC situation. Looking at the HELOC exposure we also see a couple names that are generally classified as our crap doesn’t stink firms, but JP Morgan and especially Wells Fargo stand out. The mean exposure of the whole list relative to equity of 106% is also an eye opener, and this is just one dicey category of consumer lending.
(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

Fannie Mae results are out (10-Q is here) and there is a lot to digest in short order. The pieces of the puzzle that I am immediately drawn to are the delinquency and loan performance numbers. My general observation is that because FNM is a political arm, they have never met a pig they couldn’t paint lipstick on. It is so much easier for them to “modify” crap and pretend it is cured. While normal lenders react to protect and seek recoveries, Fannie Mae just sits on an immense groundswell of “who knows what” and acts like its shit doesn’t stink.

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

In the whodathunk department Standard and Poor downgraded CountryFried Financial’s (CFC) bond debt because, drum roll please, Bankamerica (BAC) is suggesting that they will have nothing to do with it.

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

A new Radio Free Wall Street podcast has been posted with Russ, Aaron Krowne, and Lee Adler. Includes a 12 minute free preview for non subscribers. Related notes below.
(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

The dirty secret necessary to “understand” how US stock markets are so punch crazy lies with the open check foreign central banks (FCBs). For reasons that we can only speculate on, FCBs have seriously accelerated their purchases of severely overpriced US cans of worms (fictitious capital or FC). This in turn has created an altered reality down the rabbit hole Wonderland environment that is a marvel to behold. It also means that to accommodate the purchase of all this FC, these FCBs whether they be Russia, the UAE, or Brazil must in turn print massive amounts of local currency relative to their economic size. The resulting global Mad Max inflation has been well documented by this blogger, and even now by the MSM. The biggest question of all now is: how long do they persist with this banquet of consequences suicidal course?

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

The drum beat of very serious global inflation continues to ratchet up. The UK is now reporting nasty factory price increases. Incredibly the debate in the US centers around the notion that the Fed pauses at 2% is some how sound policy. The Wizards yesterday pulled out the familiar “inflation expectations” and other Orwellian script. The market reversed afterward, leaving only inflationary plays like energy and material higher on the day. The Pinocchio effect is still in full force.

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

Of late there has been a big ramp in consumer and retail stocks as the conventional wisdom is getting all lathered up about Joe Ultra Light Sixpack taking rebate checks and running out to splurge at the mall. Does this make any sense at all, or is it just more Kool-Aid? I suggest the latter, as many Americans will use these checks simply to buy essentials like food, and pay utility bills. Conditions for all essentials of life have severely deteriorated, and in effect the US is now resorting to massive borrowing from foreigners to pay for them. Further as the next item attests, retailers have new competition in the items biz.

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.

On the Mad Max economic front it appears that the short term response from the USD recyclers is to raise bank reserve ratios. The effect of this is to slightly “sterilize” (remove from the system) the USDs and Yen coming in. These will be Dollars that won’t be recycled back into low return US financial assets. However, the impact of a 25 bp reserve increase on inflation on India’s (and especially global) inflation is slight. To be truly effective, this removing of the punch bowl needs to be done aggressively and “unexpectedly” by all Dollar and Yen surplus nations. Enough of these moves however could be significant given that the US will need all hands on deck priming the pump as it attempts to unleash on the foils, even more USD paper offering lousy returns. The timing now is crucial, and it is an item to watch.

(Continued)

To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.