What was this about?
I'm just kinda curious, because that time almost exactly matched this hitting the newswires:
"WASHINGTON (Reuters) - A federal judge in Miami has authorized U.S. officials to seek information from UBS AG about U.S. taxpayers suspected of using Swiss bank accounts to evade income taxes, part of a probe that could crack open Switzerland's tradition of bank secrecy.
The order issued on Tuesday gives the Internal Revenue Service permission to serve a summons on Zurich-based UBS to obtain information about possible fraud by people whose identities are unknown."
Heh heh heh..... is that "Rallyus-Abortus?"
I dunno, but it sure smells bad, doesn't it?
Never mind that The Nikkei was called higher before it opened, and then proceeded to slide on the open down over 150 points.
Now to be fair, I took a LOT of short exposure down today when we started to bounce. Not necessarily because I think we're going to scream higher - but because every day you sit with the sort of oversold readings that we've had on the clock, the greater the risk goes of one of those "green +300 days" becomes, and I hate giving money back.
The shorts will go back on - maybe tomorrow, if we blow up. I suspect, however, that we'll get a bit of a relief rally first.... and I love making the same money twice.
Challenger's unemployment report showed 81,000 layoffs in June, with 19,000 of them being high-paying jobs in the financial sector. This will continue to accelerate for the foreseeable future, as all the "alphabet soup" nonsense games, which never produced real value in the first place but rather served as a means of ripping people off, continue to be culled.
ADP's employment report said that 79,000 jobs were lost last month, over 40,000 worse than expected. This number, however, is not necessarily any good - they're often way off compared to the "official" reports. Of course neither are simply counting jobs - both use a "black box" method that tries to estimate the number of small business jobs created and destroyed and both are frequently BS. Most notable the ADP report showed the first decline in service-sector employment in a very long time (since 2002).
The problem here is simple - its called "lack of income", and you won't be making it up by withdrawing equity from your house!
Merrill Lynch cut GM's price target to $7. They had a hell of a bounce yesterday, but in their note they also said they can't rule out bankruptcy. Well duh. GM has been a zombie for years; their embedded and unrecognized costs are seriously skewed in the wrong way, and have been for more than 20 years. The facts of the matter are that their embedded health care "promises" are unsustainable and this was the fault of both management and labor over a very long period of time. Will they be able to "adjust" to reality? I have my doubts.
I'm quite sure we're going lower. Much lower. And those polyannas who say "No Recession" are, frankly, 100% full of crap. Never mind that the average bear market costs you 35%, and we've only lost about half that, which means we've got the second half yet to come.
Think back to 1576, back in October. Think about how much you have lost if you're long the market in your 401k or IRA. Double that, because that's about what you're looking at, if this is an average bear market.
But was this an "average" credit bubble? An "average" overheat in the system? So would you expect an "average" bear market?
Or perhaps, should you expect something like 2000-2003 Bear Market, which wiped out half of the index value for the S&P 500 and more for the Nasdaq?
Speaking of which, what if its worse?
Why would it be worse?
Well, let's go down the list.
We have SIVs, "Covenant Light" (the businessman's version of "no ratio" mortgages), fog-a-mirror mortgages, toggle bonds, securitization with cooked ratings and "errors" in computer programs, negative amortization, rolling balances forward in auto lending and more. We have consumers who have been rolling credit card debt from one zero-interest balance transfer card to another in a desperate attempt to avoid having to make payments they don't have. We have commercial real estate construction loans going out with cap rates that are insanely light - all "on the come" of appreciation in "values", and our Boomers have spent the false appreciation that they never had, destroying the largest store of wealth they owned - their homes. (BTW, GM is still writing negative rollover auto loans! If you're wondering whether GM can or might actually go under, the answer is "yes", and that's why.)
None of this is coming back and none of it CAN come back, because there is no underlying asset base left to leverage nor enough earnings power to make the debt service payments!
There is not one damn thing that Bernanke, King or Trichet can do about the course of events at this point, other than make it far worse by allowing the fraud to continue to be stretched out rather than reconciled and recognized.
The Central Banks need to drain the swamp now - the longer they wait, the worse this gets as the compounding of interest is murderous when you're in the hole - and the only way to stop that is to force the debt to be either paid down or defaulted.
China and India "enabled" this horsecrap by printing up wheelbarrows of their local currencies to keep the charade going, exchanging it for $2 billion a day in Treasury debt over here. All of this was predicated on The United States Consumer continuing to spend spend spend irrespective of the ability to pay!
The banks, including the big Wall Street investment banks and the regionals like IndyMac and Downey, participated, along with Countrywide Financial. These firms all handed out credit like it was candy at the local fair, and all assured us that "you're now a homeowner", never mind that we had an infinite leverage ratio as we had no money down!
The game started to collapse last spring with the "Subprime" problem but we were told it was "contained."
That was false; whether it was a knowing lie or the worst sort of incompetence isn't all that important when you look at the truth - which is that "Subprime" was simply the first pustule to show up on the Acne-infested face of The American Family's balance sheet.
We have now seen that this disease is spreading to student loans, automobile loans, credit cards and commercial real estate.
7% of all outstanding commercial real estate construction loans out are delinquent as of the first quarter. That's an insanely-high number - far more than mortgages delinquent on a national basis. One in three banks analyzed by the Wall Street Journal had construction loan portfolios that exceed their total risk-based capital. Note that this is close to double the rate of credit-card delinquency!
No sector of the credit system is immune because all of them "ate their own cooking" and believed their own lies over the last few years.
The usual claim is that our government (or The Fed) will "print" - that is, we'll get an inflationary spiral that will be used to "save the creditors", and some even think we'll go down the road of Weimar Germany or Zimbabwe.
We can't get an inflationary boom out of this mess in the United States because there is no tightness in the labor market; there is in fact ramping unemployment and soft labor conditions everywhere you look. We have outsourced most of our production to places like Vietnam and China, destroying the ability of US workers to demand and receive wage increases. Instead of a wage/price spiral what we are and will get is a squeeze on standards of living and discretionary income, which means that debt-to-income ratios are going to continue to rise and as a consequence credit quality will continue to decline, forcing more and more defaults and the further constriction of credit through the economy!
Britain and The United States are in for the worst on the deflationary credit collapse side, because we "levered up" the worst and our "greatest outputs" - financial engineering - are totally unnecessary when there is nobody left to defraud and rob, as the rubes have all wised up after losing money for the 234th time. Witness the fact that the "Sovereign Wealth" guys haven't been knocking for a while and even Wilbur Ross is pissed to high hell about the bill of goods he bought when he ponied up for AHM's portfolio, thinking he got a "screaming deal."
He's screaming all right.
You think the Saudis are going to bail out our energy prices? Ha! They basically told us to pound sand yesterday, as others in the Gulf have recently, and why shouldn't they? We screwed them you know, duping the Abu Dhabi and Sultan folks with supposedly-great deals on equity and debt positions that they have discovered are in fact great big steaming piles of crap. I hope you like that squeeze, because its your (collective) fault - we have not only refused to develop our own energy infrastructure but we have sponged off these folks and their oil for years, tricking them into "investing" in paper that's not worthy of being used to wipe their butts (but its rated "AAA"!) as a means of financing our Hummers and McMansions.
China, India and the other "Asian Tigers" are in it the worst on the inflationary collapse side because their printing has now run into the natural limit of our ability to increase gearing - that is, make the debt service - both corporately and individually.
They're stuck with the inflation they generated and we're stuck with the deflationary forces. Neither of us are going to like it one bit but they are all headed for a Vietnam-like experience while we're headed for a re-run of The Depression.
You think the government doesn't know all this? Bullshit! The FDIC sure as hell does - they've been running around telling banks to get their act together, stop lying and raise capital:
"FDIC Chairman Sheila Bair has said examiners are forcing lenders to aggressively write down the value of their mortgages and home-builder loans to reflect likely losses from the worst downturn in housing markets since the Depression. To offset those write-downs, the banks and thrifts must get capital infusions from new investors or find buyers -- alternatives that IndyMac spokesman Grove Nichols said were being explored. He declined to provide details."
You think the banks are listening? Well if they are, that would be a first. More like being beaten over the head with a 2x4. How many times have we heard that "this is a kitchen sink quarter" or that "we don't need to raise capital" only to see them do exactly that - raise more capital - just days later?
What happens when you can't raise capital because all the places you go to for it simply refuse? They look at your books and say "not no but hell NO!"
How 'ya think Perry over at IndyMac is doing with his "attempts" to raise capital eh? Stock price under a buck, NPAs going parabolic and now, according to the LA Times, a mini run on deposits. All signs of confidence, right?
I have said it before and I will say it again.
Get out of debt. Now.
Raise cash. Now.
If your job has any chance of becoming imperiled, expect that it will be, or you may lose it outright and a replacement may be hard to find. You need six months of cash reserves - minimum - at a time like this, and one year's worth is better. No, credit does not count - available credit is already being tightened up and is likely to nearly disappear entirely for many Americans over the next couple of years.
And yes, I do expect that things may well get that bad.