Monday, April 20, 2009

Today's Market Report

While the market is taking a break from the bear market rally, I'll take this opportunity to pass on all sorts of stuff.

Treasury Dept's stress test results leaked.
Here's the important sentence: Of the top nineteen (19) banks* in the nation, sixteen (16) are already technically insolvent.

*Don't forget, the investment banks (Morgan Stanley & Goldman Sachs) converted to commercial banks to cash in on the Fed's largesse last fall.

What does this mean?
This means it is not a subprime crisis. Trixie & Bubba buying a McMansion they couldn't afford didn't cause this problem, nor are they even the most important part of the problem.
This is not a liquidity crisis. That is, the banks would be fine if only they had access to cash. Why, in that case, every homeless person is experiencing a liquidity crisis.
IT IS A SOLVENCY CRISIS. To put it bluntly, the United States is bankrupt. And BushObama policies are saving Wall Street and throwing the rest of us to the wolves.

What two-party system?
Rep. Jane Harman (D-CA) assisted AIPAC* in attempting to reduce espionage charges (see Jack Abramoff) back in 2006. CQ's Jeff Stein's scoop is that then-Attorney General Alberto Gonazles intervened to kill the criminal investigation into Harman -- even though DOJ lawyers had concluded that she committed crimes -- because top Bush officials wanted Harman's credibility to be preserved so that she could publicly defend the Bush administration's illegal warrantless eavesdropping program.
*See Sibel Edmonds on AIPAC.

Prepare for (much) higher food prices.
Somewhat of a perfect storm (pardon the pun) is coalescing. The meteoric rise of commodity prices last year priced farmers out of fertilizer for this year's crop. This translates to fewer acreage and reduced yields per acre.
Add to that bad weather, such as hard freeze across the U.S.'s wheat belt. In Oklahoma 60% to 90% of the spring wheat crop is wiped out.

The next shoe(s) to drop.
Pensions and commercial real estate are rapidly approaching critical mass in terms of mass financial destruction. General Growth Properties filed for bankruptcy last week. So did Six Flags (debt restructuring). In the flash of an eye, the shopping mall model fell apart and left GGP with debt it couldn't roll over.
Moody's downgraded all municipal debt, which translates into states & local governments experiencing more problems financing their debt. This will translate into higher taxes, "fees*," and services getting cut.
*For example, the City of Chicago emailed me, to remind me not to forget my city sticker in June. And not to forget my dogs need city dog licenses. Very helpful, those Department of Revenue people.

And finally, the lesson we need to relearn: everybody in the market is lying. Exhibit A: Citigroup's so-called earnings report. They stated they lost $966 million in the first quarter. And that's in spite of Titanic-sized cash infusions from Washington. Worse, they lost more than that but courtesy of accounting tricks the loss may have been well north of $3.5 billion.
[Dealbook] Citigroup posted a $2.5 billion gain because of an accounting change adopted in 2007. Under the rule, companies are allowed to record any declines in the market value of their own debt as an unrealized gain because a company COULD buy back its own debt at a discount.

Then there's FASB caving under pressure and letting mark-to-model back into the game. But I'll save that for another rant.

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