"Horror Show"

Can't take credit for this excellent title that Nat Worden of TheStreet.com has given to the projected earnings and economic data due out this week. Still feeling queasy from the Ambac 200 point reversal on Friday, I felt a bit more fortified this morning as Lowe's earned $300 million less than analysts expected and 1st quarter and full-year estimates were well below expectations. Yet another signs that these jokers refuse to acknowledge our credit crisis and refuse to lower forecasts until after the fact. Also, as it typical of our irrational bull-machine, the report from Charlie Gasparino that led to the rally had 2 parts, the second half of which was ignored. He mentioned that MBIA's reinsurer, Channel RE, got downgraded. I'd love the bitttersweetness if Ambac somehow manages to save its AAA rating only in time for MBIA to get whacked down to AA or even A in its arrogance!

Just to update our current impending disaster state along with that of our fellow European neighbors, read the attached links below. The first article from the Washington Post details that people's home loan lines of credit have been abruptly cut off. People depending on those lines to pay off higher debt, to run their small businesses, to pay tuition, are out of luck and they'll have to pay off sooner than expected. In the article from the Telegraph, we learn that England will have a similar blowup scenario to our overbuilt condo problem in areas like Miami, with 12% occupancy rates, no hall lighting, no promised amenities, etc. They went crazy on flats, and now these building are ghost towns. Finally, D.B. Zwirn & Co. is closing 2 of its hedge funds after investors lost confidence secondary to fraudulent practices from the manager. Different from funds blowing up due to subprime exposure, this isn't any better, but more of the same from these guys who continue to try to make money out of thin air.

I'll post later with my NFL combine report......good to talk some foosball again!

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/22/AR2008022202987_pf.html

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/21/cmbtl21.xml

http://money.cnn.com/2008/02/22/news/companies/zwirn_closes.fortune/index.htm?postversion=2008022214#

Still the Minors

Whether or not Ambac or MBIA remain AAA or AA, they still have huge sub-prime exposure that can't be easily corrected with a simple line of credit. It's a joke that the market rallied on news that's been out there for 6 weeks. Ambac has already been downgraded and MBIA is headed there. These banks don't have the capital to spare on their already thin liquidity and bolstering Ambac to do so is a sham.

Why aren't we paying attention to the other developing crises at hand like student loan defaults, retailers going bankrupt every week (bye bye Sharper Image), and even preferred customers at investment banks being told they can't withdraw their own money from revolving auctions because these banks would lose too much capital? Citibank has already done this to their own hedge fund customers. The influx of sovereign wealth doesn't mean savior capital, it means greedy capital misplaced.

Muni auctions continue to fail at all-time highs. Even the Patriots are paying 13%-20% on their revolving bond, even though I'm pretty sure Bob Kraft and Cheese is a good credit risk. More and more inflation becomes a significant variable, and the simplistic argument that an economic slowdown means an inflationary slowdown is falsely reasoned. Historically, that has not proven to be the case, but Bernanke, leaning on his degrees, insists it is so. Furthermore, he thinks that the fed will simply reverse rates in a rapid fashion once the economy kicks in and stop inflation in its tracks! Too bad 50% of Americans will be in some sort of delinquency at that point with no usable credit and a negatively amortized home. But let's cheer an Ambac rescue, a company that strayed from its business model to risk $700 billion dollars in loans for our local governments and municipalities for their own gain.

Inflated

Where's Goldilocks now, Kudlow? How do you justify a 160 point loss from the daily high on mostly good news as a Goldilocks economy? When oil pushes over $100, you can't. Almost as impossible to listen to that dude as it is Crammer. By the way, anyone who calls Cramer Crammer is hilarious. Have you watched the video on itulip.com yet?

Watching the B team on CNBC in the morning to see the CPI and housing data while I fed my daughter her breaksfast almost made us both puke. It's like they gave 2 kids and a muppet (Kernen) a microphone and said, "go play!" But don't forget to say, "this doesn't mean the market won't go up" at the end of every sentence.

In light of awful CPI numbers that show inflation is rising as wages are stagnant and unemployment is increasing (not good), let's examine how some retailers have been blasted recently. Also, how can these clowns make statements like "the sudden rise in oil?" Uhhh, oil was at $100 on January 3rd. A commodities trader said this is just a speedbump to $120 this morning; I thought they were going to ban him from speaking ever again.

Macy's: sales down 7.1%, 2,500 layoffs
Walmart: met sales but gave poor outlook for rest of 08'
Target: sales down
Best Buy: poor holiday sales, lowered guidance for rest of the year
Liz Arden: abysmal sales, poor outlook
Nordstrom's: sales down 6.6%

Would like to say thanks to an anonymous TheStreet.com reporter for responding to my email with honesty and personality. You don't often expect a personal response from a legitimate reporter. Thanks for the kind words and respecting the small investor......

Back in Business

Markets back in business today and I'm in full rant mode after I gained 2 new readers over the long weekend. Clearly word is spreading and before long, we'll be pushing a bloggership of 20!

Where to begin? Oh yeah, more writedowns. Credit Suisse magically failed to account for a billion dollars in losses last quarter and is writing down $3 billion total. Barclays is writing down over $3 billion, but somehow, this is good news. And sneaky snakes, American banks, thought they'd just borrow an additional $50 billion dollars last month under new fed rules to sure up liquidity. This however, was not received as good news because we know that they will not be able to freely lend this money for a better rate of return. So why the necessity? Because I can only assume more money is going to be written down and lost forever over the next year as banks continually try to hide their poor credit exposure. Can we punish these guys already?

Great article by Bill Fleckenstein of MSN Money (posted below, don't let the mullet fool you, this is a smart dude) about how we're just in the first leg of a recession, and that's denial. I'm not in denial. I know the credit mess is going to wreak havoc on every nook of consumership in this country. But the market is. Next comes "realization." When Bernanke and his bull-machine fess up, we can get the ball rolling. And finally comes "the give up." We throw in the towel, not every 100pt. Dow day is considered a rally but simply a dead-cat bounce, and we gain full acceptance that our economy is in the pooper.

Housing numbers come out today, should be a bleak story, but anything better than Armageddon will probably be "good news" for the market. Again, denial....

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/ItsTooEarlyToBeBullish.aspx

You've Been Cut Off

Kudos to the management company of my development for putting the hammer down on delinquent owners who don't pay their HOA fees but continue to collect rent. Starting today, the automatic gate clicker won't work for delinquent houses, and basic cable to those homes have been shut off. Is that unfair to the renters? Who cares? It's unfair to me and my wife who send in our fees on-time every month. As a matter of fact, the next step is to evict renters from those homes in arrears. Why should you collect income if you can't pay your HOA? Ba bye!

This is symptomatic of the oversold housing market, full of delinquent investors and overleveraged greedors. When steps like this are taken, more homes will go into foreclosure keeping the spiral trending down. How Bernanke could think this thing is going to turn around this year is insane.

The New York manufacturing survey posted its worst numbers ever. Paying more for gas and milk it turns out, doesn't represent a thriving economy. Please read the attached link to get a sense of how bad the banks have been covering up their losses. Credit default swaps are tough to explain, but the article addresses it well. Let's just setup a simple scenario. What's going to happen when a mortgage-backed CDO defaults for say $20 billion dollars? The banks that wrote CDSs against it will have to come up with the bonds from those mortgages to cover the losses. Problem is, the CDS on those bonds may total 10, 20, 50X the actual bonds' worth. So who gets paid and who doesn't? Furthermore, those CDSs are hardly regulated, who knows who even owns them to pay you if they go kablooey?

One of England's largest banks, Northern Rock, just got "nationalized." This is a nice way of saying it went bankrupt and the gov't is keeping it from going under. When asked what the shareholders in the bank will get, the Brits basically said, "oh, uh, we'll figure something out." I hope the same happens to Citi and BAC, then we can figure something out......

http://www.cnbc.com/id/23210754/site/14081545/page/4/

Waist Deep

It's been awhile, so let me comment on some sports-related issues. I'm still in my post-football funk, but will prep for March Madness shortly, and will start revealing picks soon.



First, is it any wonder that arguably the best pitcher and position player of recent memory (although I don't think Bonds is better than Rodriguez, roids or not) are not only juice monkeys, but HGH freaks? Clemens literally imploded this week, making a total jackass of himself and doing as much damage to his rep as anyone ever has. He might actually go to jail.



Belichick, it was revealed, has been taping defensive signals since the first second he put on a Pats hoody. Goodell revealed this to Arlen this week, in another of our country's most pressing issues. I mean, who cares about stuff like war and economic collapse when the Eagles might have been cheated out of a SB! What's going to happen to this dude? Nothing. He's already been punished and the NFL just wants it swept out into space with the bus-sized spy probe that may land in your front yard if we can't shoot it down with nuclear missiles in the next 2 weeks.



Good job IU. You replaced a guy who beat and choked his players with a guy who's going to bring your program the death penalty. Has the AD been shot yet?



Getting back to economic issues, let's start withe the Dinallo interview. Seemed like a bright guy, it was just so hard to tell with Joe Kernan interrupting him every 3 seconds to say, "But that's not going to hurt the market, right?" Jesus, every time CNBC ventures to bring on an educated, informed guest who wants to talk economic reality, they're almost kicked off the set for their anti-market sentiment. Dinallo spoke about how FGIC, another bond insurer, had filed to be split into its good and bad businesses, aka, munis and subprime cdos. When pressed about if this was a good option, Dinallo said it was better than bankruptcy, but would not make it a great company all of a sudden. Ambac and MBIA face the same decision in the very near future.



In a little-reported aftermarket note, S&P downgraded debt on 4 builders, including Centex, from junk to bad junk, or from ok to junk status as with Centex. They see very poor prospects of this debt getting paid with limited cashflow and don't think these companies should be allowed to borrow money. Shocking.



And last, just a quick note on analysts. S&P profit forecasts for the 1st quarter are now less than 0. In December they were 11%. In October they were 18%. So these guys were wrong by 20% and if we just look at these numbers, even less than zero seems overly optimistic. How do these guys have a job when they're so very wrong so very often?



IOD: XHB and Centex jan 09' puts
BOD: NFL will do nothing to Belichick
TOD: Watch Itulip.com's Cramer video contest. HIIIIlarious.

Dear Ben

Thank you, Master of the Obvious, for announcing that our economy is in the pooper and propelling stocks into a downward spiral as they should be. Unlike market gurus like Cramer who insist that the fed should only make forward looking statements that are optimistic, even if untrue, I was glad to see a bit of honesty in his testimony. But only bit. For some reason, he keeps insisting that growth will pick up in the 2nd half of the year. When is the 2nd half of this year taking place, in 2020? Bernanke said yesterday that housing and credit problems will continue to weigh on the market for perhaps longer than we expected. Well, which is it? Just earlier in the week he said that housing should pick up by the end of the year. That makes sense. Just yesterday, 45 states said that home sales were down and foreclosures were up. 4 states didn't report and the 1 state that had improving sales was S. Dakota. Wow, what a boon for the GDP that will be !



Cramer also recod yesterday that the gov't bail out all of the CDOs and float the mortgages of the millions of delinquent/foreclosure loans. That's great advice. Hey, I bought shares in a company that didn't actually go up. U.S. gov't, can you just refund me the difference in share price? Why should I have to take a loss? These idiots have only one concern, stock prices. They don't want market turmoil because then the 500 stocks they make you pay to get access to might go down and make their record, like Cramers, stink.



In a bold move today, Citibank is not allowing hedge fund owners to withdraw their own money. Can you imagine if you tried to pull money out of your mutual fund, and Vanguard or Fidelity said, "Nope, I don't think so. You have to ride this sinking ship to the bottom!" Nice work fellas, this on the heels of your other hedge fund which has produced a sweet 52% loss in its first 3 months.

Just in case you thought the bond insurers were in good shape, a reporter revealed on CNBC yesterday that he was begged by Dinallo 2 weeks ago to not report that the bond insurers may be forced to sell/be taken over in their muni business and just go kablooey on their subprime CDOs. All this talk of a bailout was smoke and mirrors, with Dinallo knowing all along that that wasn't a viable option. FGIC got downgraded yesterday and in turn, can't offer municipal protection. So for 2 weeks market optimism has been provoked by a lie. Big surprise. Dinallo has an interview in about 10 minutes, will report on that later......