Friday, January 1, 2010

THE Rally of 2009 - How did we get here - what can the S&P tell us?

Since I have some time, and need to get away from looking at stocks for a few days, I have decided to do a little exercise I thought might be interesting. Having watched, participated, and read about the epic rise of the markets this year, myself, along with many others entertained the thought; this market doesn't make any sense, based on a number of factors.

I will say up front, I am not a Wall Street cast off who can calculate the P/E of the S&P 500, nor can I tell you if each and every company in the index is presently valued as it should be. But what I can do, is enough technical analysis to find various times throughout this massive run up doesn't make a lot of sense, and at times seems beyond reason. So this little exercise it to prove to myself if my theories are correct, or I am just another market junkie who has been fooled by the market. At the same time, I may find enough proof to allow others to share my theory and therefore pass along our conclusions so others can be aware of the pitfalls, as well as a little piece of mind on why they lost their money. So here goes.

Below is a yearly chart of the S&P 500 for the entire year of 2009. What I will attempt to prove is some key dates, chart patterns, and events that changed the direction, sentiment, and ultimately, manipulations that affected the market. As you can see the S&P bottomed out on March 6th at 666.79 (intraday)and a high of 1130.38 (intraday)on December 28th - Merry Christmas huh? I used intraday values because they represent the highest and lowest level of the numbers. If you want to just the open/close numbers, they are as well accurate and very close. I did this because my charts(I'm using my trading account charting package where the support/resistance, trendlines, and notes have been updated as the year progressed)need little or no extra work. Using this, and my not so great memory, I think I will find certain events, on specific days, that will show manipulation, and will also coincide with particular chart patterns (using common technical indicators) that prove my theory. (click on images for larger view)

We will start a bit before the March 6th low. As you can see from the chart, the market had dropped from 875.01 on February 9th to 666 on March 6th; or 13 out of 18 days. The VIX (or volatility index) was trading in the 40 to 50 range, a sign of worry in the markets. At this time we knew the housing mess was just that - a mess, and the big banks were in serious trouble. Goldman Sachs, JP Morgan, Citi, Wells Fargo, and AIG stocks had been dropping precipitously in recent weeks. All market participants, as well as the nation were waiting, and wanting, to know about the upcoming "Stress tests" on the top 18 or 19 banks. The New York Times ran an article on February 11th which you can use to refresh your memory, or use to follow any other research on the subject.

As you can see, the S&P formed a "doji" on March 6th, which in the world of TA (technical analysis from this point forward) sometimes signals a directional change; in other words, a reversal. From my research, a doji in this larger pattern will signal a reversal 52% of the time. That's like flipping a coin, but in this case it in fact signaled a change in direction - and as it turned out, a big one. A recap of the chaos on March 6th us summed up pretty good by Zach's Investment Research in this article, and a good refresher. I won't go into it since this is not the intent of this article.

It is also of note, March 6th was a Friday, and the monthly employment report came out that morning at 8:30. It was not good, as reported by the WSJ, who stated; The number of employed non-farm workers fell 651,000 in February. That followed declines of 655,000 in January and 681,000 in December. The market sold off hard on Thursday before this report, which makes one wonder if someone knew something. Friday's action formed the doji, and maybe everyone just wanted to get to the weekend. It was scary times in the market for sure.

I don't find anything of note for the weekend, but Monday the market didn't show us much. It lost ground again, but didn't break the intraday lows from Friday and formed another doji, although a sloppy one. Which brings us to...

Tuesday, March 10, 2009 - and the beginning of the rocket shot upward.
At this point anything can happen. We are still looking at financial Armageddon, and the market knows it. But then (drum roll please) the Vikram Pandit memo obtained by Bloomberg which you can read here, but it said - Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit. The shares rose 38 percent and helped spur gains for finance company stocks.

“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “We are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”

What happened? Wow, would be the correct answer;

Dow... 6,926.49 +379.44 (+5.80%)
Nasdaq... 1,358.28 +89.64 (+7.07%)
S&P 500... 719.60 +43.07 (+6.37%)
Gold future... 895.90 -22.10 (-2.41%)
30-Year Bond 3.71% +0.11 (+3.17%)
10-Yr Bond... 2.98% +0.10 (+3.33%)

But there is a little more to this. On this day as well, Barney Frank, head of the Financial Services committee was reported to have said the uptick rule would be imposed within a month, as reported by Reuters. But that's not all, and interestingly enough, the Citi/Pandit news, the memo, according to the link above, was meant for their employees. So if this memo was for internal consumption, how did Bloomberg get it???

You can do your own research on this, but if you send out a memo to your employees and figure it will not get to the public, especially one as important as this (if in fact that) you are pretty naive in this blogger's opinion. Color me skeptical, and mark this one up as possible manipulation. I'll leave it at that.

Full disclosure: I had forgotten about this until I started researching for this article. I do think its pretty clear this rally had started with an internal memo from Vikram Pandit, with a little help from their friend Barney Frank and the uptick rule. And let's not forget the call of all calls; on March 3rd by President Obama said "It's a good time to buy stocks."

We are off to the races.

Thursday/Friday, March 12 -13, 2009

Dow... 7,170.06 +239.66 (+3.34%)
Nasdaq... 1,426.10 +54.46 (+3.97%)
S&P 500... 750.74 +29.38 (+4.07%)
Gold future... 923.80 +13.10 (+1.42%)
30-Year Bond 3.64% -0.02 (-0.60%)
10-Yr Bond... 2.89% -0.02 (-0.82%)

These are Thursday's numbers, but on Friday morning Reuters reported the following in a recap article;

Banking and insurance stocks led the rally, after U.S. lender Citigroup (C.N)said the bank does not need any more emergency cash from the government and expects to stay private, while rival Bank of America (BAC.N) said it was profitable in January and February, calming worries over the faith of the two stricken banks and the financial system in general.

Not sure why they said Citi staying private, but the point remains; more gas for the market and we all know how profitable those two have been.

Wednesday,March 18, 2009

Of note, from the FOMC notes;

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.

Monday, March 23, 2009

The market sold off on Thursday and Friday of the previous week, but as reported by CNN; Stocks surged Monday, recharging the rally, after Treasury's plan to buy up billions in bad bank assets and a better-than-expected existing home sales report raised hopes that the economy is stabilizing. as well as; The Treasury Department unveiled its long-awaited plan to remove many of the troubled assets from banks' books Monday, representing one of the biggest efforts by the U.S. government so far aimed at tackling the ongoing financial crisis.

Under the new so-called "Public-Private Investment Program," taxpayer funds will be used to seed partnerships with private investors that will buy up toxic assets backed by mortgages and other loans.

The goal is to buy up at least $500 billion of existing assets and loans, such as subprime mortgages that are now in danger of default.
Which resulted in;

Dow... 7,775.86 +497.48 (+6.40%)
Nasdaq... 1,555.77 +98.50 (+6.76%)
S&P 500... 822.92 +54.38 (+7.08%)
Gold future... 952.50 -3.70 (-0.39%)
30-Year Bond 3.69% +0.04 (+1.07%)
10-Yr Bond... 2.66% +0.04 (+1.33%)

The market moved up until a large sell of on March 30th, a Monday, possibly because of the General Motors bankruptcy plans released by the government. I can't find what I consider solid data for the sell off that day,other than the GM news, but the indexes were down 3 to 3 1/2 percent, or 250 on the DOW and 28 on the S&P. On May 1st the market began to rally again, even on bad news, including a horrible employment number on Friday the 3rd. Alcoa sent the market lower on Tuesday, April 7th with a worse than expected earnings report, kicking off the earnings season.

Thursday, April 9th, 2009

Wells Fargo is the hero this time. From a MarketWatch report; Wells Fargo & Co. said Thursday that first-quarter earnings would surge to a record $3 billion, well ahead of analyst forecasts, as loan losses and loss provisions dropped from the difficult previous quarter and its mortgage business thrived.

Wells shares jumped 26% as the bank also said its Wachovia acquisition was exceeding expectations and reported another quarter of double-digit revenue growth.

"They didn't just beat estimates, they blew them out of the water," said Stuart Plesser, a financial-services analyst at Standard & Poor's Equity Research.

Which resulted in the following:

Dow... 8,083.38 +246.27 (+3.05%)
Nasdaq... 1,652.54 +61.88 (+3.89%)
S&P 500... 856.56 +31.40 (+3.81%)
Gold future... 883.30 -2.60 (-0.29%)
30-Year Bond 3.76% +0.10 (+2.65%)
10-Yr Bond... 2.93% +0.08 (+2.77%)

The earnings by Wells sent the market higher until April 17th, a Friday, with only one down day, the 14th. At this point (see chart below) the rally had came back to the 875 level, which many considered a support/resistance point. Since the beginning of this rally, the sentiment was still very bearish because the economic indicators, especially jobs, were still bad. Not to mention the banks were still in trouble and everyone knew it. Reading throughout the investment/trading sites, the general belief was to go short. Ha! Hell, we haven't even got started yet. (click on link for larger picture)

Monday, April 20, 2009

Sitting at a critical technical level, and knowing Monday would bring the earnings reports from Bank of America, many traders shorted the market on Friday. They had a happy Monday as the market responded as they had hoped, even though BAC's earning were not that bad.

Dow... 7,841.73 -289.60 (-3.69%)
Nasdaq... 1,608.21 -64.86 (-3.88%)
S&P 500... 832.39 -37.21 (-4.28%)
Gold future... 887.50 +19.60 (+2.21%)
30-Year Bond 3.69% -0.10 (-2.59%)
10-Yr Bond... 2.84% -0.09 (-2.97%)

Opps! Still a bit of volatility it seems. Zacks summed the day up nicely; The dramatic fall that markets witnessed Monday reignited fears that the recent run was nothing but a mere bear market rally. Financials once again bore the brunt, declining 10.6%. On the DJIA, financial components Bank of America (NYSE:BAC - Analyst Report) dropped 24.3%, Citigroup (NYSE:C - Analyst Report) fell 19.5%, American Express (NYSE:AXP - Analyst Report) declined 13.0% and JP Morgan (NYSE:JPM - Analyst Report) was off 10.7%. Bank of America (NYSE:BAC - Analyst Report) CEO Lewis added to concerns, warning of "challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment."

Larry Summers' comments on administration intentions to rein-in credit card abuses drew fire, as traders increasingly grew wary of Obama's intentions. Media reports suggesting the government may convert its interest in rescued banks from preferreds to common equity brought with it fears of nationalization and shareholder dilution. And another report that circulated yesterday said 16 of the 19 banks facing stress tests are "technically insolvent," a charge later denied by the Treasury.

Tuesday, April 21, 2009

The large down day on Monday spooked many in the market, but Tuesday brought Tim Geithner in front of congress. I can't find anything significant, but Geither must have said something, or an earnings report helped juice the market.  Geithner's testimony was summed up by the NYT in this article. I can't find an intraday chart so I can't tell how the day unfolded.  The indexes rallied just the same as the DOW recorded a triple digit gain and the S&P adding 17 keeping the rally intact after the large sell off on Monday.

The market was up and down until April 28, where it formed another doji at the 855 level, still below the 875 resistance.  We had heard during the period from the likes of Nouriel Roubini and Merideth Whitney, two market moving economists/analysts both citing the continued doom we are facing in the economy and markets.Over the weekend of 25/26 we became aware of potential problems with the swine flu problem.  This may have spooked the markets on Monday and Tuesday, both down days. We also learned of an investigation into Joe Cassano, the AIGFP head accused of blowing up the world. Well, maybe not that bad, but a CBS article had this to say; Sources say investigators are digging into whether Joseph Cassano, the former head of London-based AIG Financial Products, and two of his top deputies - Andrew Forster, an executive vice president, and Thomas Athan, a managing director - committed securities fraud and other federal crimes, reports CBS News chief investigative correspondent Armen Keteyian.Haven't heard much about that lately have we.

Wednesday, April 29, 2009

After closing at 855 on Tuesday, the market gapped up on Wednesday after a not so good GDP report and rallied nicely throughout the day. Zacks summed up the session as follows; In a marketplace given to looking forward six months or so, investors did not have enough reason to rejoice as the latest growth data showed GDP fell at an annual rate of 6.1% from January through March.  Nevertheless, investors looking for reassuring signs did find consumer data somewhat comfortable.  And U.S. Federal Reserve’s observation that the rate of economic contraction was “somewhat slower” was an added relief.  Markets shrugged off reports suggesting Chrysler’s imminent bankruptcy and media reports that at least one-third of the stress-test banks may require additional capital.  At the end of the day, the DJIA closed up 2.1% to its highest since February 9, the tech-heavy NASDAQ was up 2.3% to its highest since November 4, and the S&P up 2.2% to its highest since January 28.

The S&P tested the 875 level on Wednesday, even poking it's head above the key level of 875 but closed at 873.64, mere points below the critical level.  Thursday the 31st, and Friday, May 1st were flat with Thursday down a little but Friday an up day, finally finishing above the key 875 level at 877.52 keeping the suspense going though the weekend. A tough spot of both Bulls and Bears. For traders and technicians who follow TA, finishing above a critical support/resistance signals which strategy to play - long or short.  Let's expand on that a bit.

Using TA to play the market, technical levals are critical to which way you place your bets, if we may call them that.  As many on TV talk about, as well as looking at the charts, the 875 level is a large support/resistance area. This level also coincides with another tool  technicians use when predicting the markets and their direction - Fibonacci analysis, sometimes called Fibonacci retracements.  For an in-depth explanation of Fib (to be called from this point forward) see this article as a starting point. Or use Google and you will find enough information to keep you busy for weeks.

As we can see from the chart below, the S&P is at or close to both the 875 S/R (support/resistance) level as well as just below the 881.38 Fib level of 23.6.  These values are based on the S&P high of 1576.09 of October 11, 2007 and the 666.79 of March 6, 2009. Many technicians and Elliot Wave followers use these tools to predict direction and timing.  As we can see, the S&P on May 1st is just above the S/R but a tad below the 881.38 Fib retracement. As we can see from a closer look at the charts, this Fib level has been tested, or very close by daily candles on Jan 13 (877.02), Jan 28 (877.86), April 29 (882.06) as well as breached on May 30 and April 1st.

The difference in these two levels are slight, and depending on how you set up your S/R levels or rather you use intraday candle wicks or open/close values, there is a definitive range of S/R in this area, and critical to analyzing the market direction. At this point we have a stalemate between Bulls and Bears on which direction to take, but this area is significant and important.  See charts below for details.

Setup of S&P high/low Fib retracement.
Close up of March to Fib 38.6

Monday, May 4, 2009
Before we move on, we must not forget what hit the news on or about April 30th from Dick Durbin, the Senator from Illinois, as reported everywhere except the main stream media, had this to say; Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place."

From the same article, and found easily on the web using Google, you will also find these little gems of news (that is if you don't use the MSM (main stream media from this point forward);

 Former Barney Frank staffer now top Goldman Sachs lobbyist
Goldman Sachs' new top lobbyist was recently the top staffer to Rep. Barney Frank, D-Mass., on the House Financial Services Committee chaired by Frank.  Michael Paese, a registered lobbyist for the Securities Industries and Financial Markets Association since he left Frank's committee in September, will join Goldman as director of government affairs, a role held last year by former Tom Daschle intimate, Mark Patterson, now the chief of staff at the Treasury Department. This is not Paese's first swing through the Wall Street-Congress revolving door: he previously worked at JP Morgan and Mercantile Bankshares, and in between served as senior minority counsel at the Financial Services Committee.And this article from the New York Times,Geithner, Member and Overseer of Finance Club, a worthwhile read. Which contains the graphic on the left to help illustrate the connections. (click on graphic for larger image)

Back to the market. Over the weekend of May 2/3 we heard about the concerns over credit, the upcoming release of the stress tests, the ongoing housing crisis, and what might move the market in the coming week(s). Again, Zacks sums it up pretty well in this article which touches on many facets of the market, as well as this which I find a bit strange; U.S. stock futures suggested a higher opening at the Wall Street. Dow futures were up 49 points, or 0.6%, to 8,230, while the broader Standard & Poor's 500 futures rose 5.50 points, or 0.6%, to 881.60 which makes me assume the article was released before the market was open. I don't remember this weekend news very well but I do remember the anticipation of the stress tests might come out this week.  Yet, as cited by Zacks the market gapped up in the morning and charged higher all day.  This also verified the breech of the 875/Fib levels and any battle between Bulls and Bears is now settled - the Bears got their butts handed to them in fine fashion.

Monday's results;

Dow... 8,426.74 +214.33 (+2.54%)
Nasdaq... 1,763.56 +44.36 (+2.58%)
S&P 500... 907.24 +29.72 (+3.39%)
Gold future... 902.20 +14.00 (+1.55%)
30-Year Bond 4.07% -0.02 (-0.56%)
10-Yr Bond... 3.16% -0.02 (-0.54%)

Wow! Even more curious considering this report by MarketWatch which states the following; Standard & Poor's Ratings Services on Monday placed 23 U.S. large financial institutions, including Bank of America, Citibank and Wells Fargo, on CreditWatch with negative implication. "These rating actions identify companies that we believe have at least a one-in-two likelihood of a one-notch or multiple-rating downgrade within 90 days. That said, we believe that most rated institutions will be able to earn their way out of these credit losses during the cycle," S&P said in a statement. "Based on preliminary results, we believe the identified companies stand to underperform peers in the face of the emerging profit-growth pressure," it added. Other financial firms placed on review include BB&T , Capital One Financial Corp., Comerica, Fifth Third Bancorp, and KeyCorp. 

At this point, and even before for many, this is getting ridiculous.  The market doesn't make sense on many levels. It has been digesting bad news and going up, we know the banks are basically insolvent, the stress tests are due out, employment is awful - yet the market charges higher on a day like this - for what seems like no reason.  The shorts once again, using what seems to be valid technical analysis as well as the old and proper analysis by valuations, have been been crushed. There is no reason for these types of moves - Maybe.

As we found out as the next few days played out, the results of the stress tests have been leaking out bit by bit.  The Wall Street Journal reports on the 6th some of the conditions and findings of the results.  Of course as we now know, they were a joke. What is strange here, the large rally on Monday appeared to be on information known only to the people on the inside.  The market didn't do much Tuesday the 5th, up nicely the 6th, only to sell off again Thursday the 7th, perhaps in anticipation of the monthly employment numbers.

Friday, May 8th, 2009

We got the employment numbers at 8:30 as futures were up anyway because of more information (spin) on the stress tests. CNBC interviewd Ken Lewis who claimed he didn't know anything about the leaked stress test results.

The employment numbers (for April) were better than expected at -539,000 & 8.9% (at least headline numbers which are usually revised next month) which drove the futures on the DOW from around 90 up to over 100 by the open.

Some other interesting notes from today I dug up from my previous blog postings. Job losses from February and March were revised upward by 66,000 and we have now lost  5.7 million jobs since December 07.  Fannie Mae said it needed another $19 million.  As reported on CNBC; “We’re very well capitalized and expect to repay the TARP money soon,” Blankfein told shareholders at the company’s May 8 annual meeting. Goldman sold $10 billion in preferred shares to the Treasury in October. Fifth Third Bank needs to raise capital according to the stress tests, but they are up 43% on three upgrades. From that page you can also find the list of banks and what they need to raise.

I posted this graphic on that day since the stress tests came out and how the banks were still going up like nothing is wrong. It is now 2010 and we still have much pain waiting down the road, and to show how ridiculous the market was at that time. As we look back now, it seems someone knew exactly what was going on.

At 3:30 that afternoon, Bernstein upgraded Google with a price target of $600. Google was trading around $410.00 at the time.

The dollar index finally got some air time, thanks to Rick Santelli. It had been dropping from 89.62 on March 4th, to under 83 on May 8, but you wouldn't know it if you were watching CNBC. I can't find a video but I'll paraphrase Rick like I did that day when he said, ""Who would have thought a falling dollar, a not so good jobs report, that was revised upward over the last two months, would look so good." referring to the rocket shot of the market this day in the midst of all the bad news.

Late in the day Tim Geithner announced GMAC, the lending arm of General Motors will need and receive substantial support.  Of course GM stock, which is trading at a little over a buck, is up for the day.  Why would it even be traded, and even worse, why would anyone buy it?  Gamblers!

Nouriel Roubini is on Closing Bell with Maria Bartoromo and claims the stress tests are not stressful enough.  You would never know it looking at the final numbers for the day/week in the financial sector. The BKX ($BKX)Bank index was up 12.20% TODAY - 30% for the week. What did all this not so good news bring us?

Dow... 8,574.65 +164.80 (+1.92%)
Nasdaq... 1,739.00 +22.76 (+1.33%)
S&P 500... 929.23 +21.84 (+2.41%)
Gold future... 914.90 -0.60 (-0.07%)
30-Year Bond 4.27% +0.01 (+0.31%)
10-Yr Bond... 3.29% -0.00 (-0.06%)

After hours on Friday, we had one bank shut down by regulators. Westsound Bank, Bremerton, WA - the 33rd of the year.

Monday, May 11, 2009

At this point we have broken the technical levels of 875/881 area and closed on Friday at a 929, a 4 month high for the S&P. The banking index has led thoughout this rally, even though the the trouble has not been fixed or addressed.  Many traders, trading and investing sites, message boards, etc., don't buy this rally.  Too much, to fast.  Even Wells Fargo questioned the rally (or did they?):

From its crisis low on March 9, the S&P 500 has risen by more than 35 percent—a rally whose size and speed leave a dizzy feeling of something too good to last! As the enclosed chart illustrates, however, there is precedent for the contemporary stock market surge. This chart compares the contemporary rally with the recession-ending stock market rally in 1982. The solid line shows the cumulative percent change in the S&P 500 index from its low on March 9, 2009, and the dotted line
shows the cumulative percent change in the stock market from its low on August 12, 1982. Thus far, the contemporary rally (now 44 days old) is remarkably similar to the 1982 rally!

Also, we are not far from another key level 934.70, which is the January 6th close. If broken, it would be a new high for the year and give the papers, TV, and government more ammunition to convince the public things are getting better. If this happens, could this perhaps finally convince people this rally was for real, and we should dive back in with both feet? If you watch CNBC like many do, you know they are the biggest bunch of pump monkeys on the planet. They attempt to take bad news and spin it into good news. Why people listen to them I don't understand, but some apparently do.  The MSM usually give us headline numbers, such as the DOW closing price and perhaps a reason or two why it went up or down. In my opinion, they use the DOW because it is a large (the largest) number and people assume the bigger the number, the better. It's all about perception and confidence.  I would really like to know how many people understand the DOW is only 30 companies, and it is a price (not market capitalization) index, so one stock can affect the index price much easier than the S&P (500 stocks) or Nasdaq (many more).  Another reason I think they use the DOW.

As it turns out, Monday May, 11th through Wednesday, May 13 were down days, the first 3 day losing streak since the March 6th lows.  Thursday, May 14th was an up day, but not much, and Friday was another down day that closed at 882 and change, just above the Feb level and intraday touched the875.  So we had a week of churning in a tight range the media spun into consolidation, but 4 out of 5 days down just the same.  Maybe it was but the news would make you think otherwise.  A few pieces of news to note:

 Monday, May 11 - We find this from the WSJ the night before; Move by General Growth rattles investors. Which states;When General Growth Properties Inc. sought Chapter 11 protection last month, it took a step its biggest debt holders had believed was impossible: It took 166 of its malls into bankruptcy with it.

The surprised debt holders had believed the malls would be insulated from the parent's bankruptcy because of the way General Growth had structured the assets.

General Growth's action has rattled investors throughout the $700 billion market for securities backed by commercial mortgages, or CMBS. Investors in other deals had also figured their investment was insulated from a parent company's bankruptcy. Now they're worried that General Growth's move will set a precedent that could affect them.

General Growth is the single largest CMBS borrower in the U.S. The CMBS market has grown up over the past two decades to become the major source of financing for commercial real estate.

At this point, commercial real estate problems are no secret, but just getting started, although you would never know it by watching the Dow Jones real estate traking ETF (IYR) which has exposure to commercial as well as residential.

We also read reports from the White House, as reported by the NYT, there would be positive employment growth this year even if the economy began to grow this year. Other bits of bad news on Monday included Lowe's and Home Depot getting downgraded, Bloomberg reports analysts turning Bearish on S&P 500 after 14% rally. In their words; The biggest earnings-season rally since 2002 has pushed 34 percent of the companies in the Standard & Poor’s 500 Index above analysts’ price targets for the next year, raising concerns about the pace of the recovery.The market futures were down before open on Monday and the selloff was on.

Monday also brought some more bad news such as Banks Brace for Cedit Card Write-offs, White House Forcasts Higher U.S. Budget Deficit, the Healthcare bill started getting more ink and air time. The highlight of the day was the drilling the Fed lawyer got in front of congressional committee about where all the bailout money had went.  You can see the video here from YouTube.

Merideth Whitney was on CNBC late in the afternoon and stated: Earnings power continues to be an important focus of the banks. Do not see a bottom for fundamentals of bank stocks. Bank stocks defy gravity, grossly overvalued. Continued liquidity contraction. Unclear if this will be the final capital raise. You can watch the video here.

Tuesday, May 12 through Friday were a mixed bag of earnings, economic indicators, and news.  The markets sold off for the week and the Bears once again got excited. Friday gapped down and stayed down closing the week at DOW at 8268 and the S&P at 882.88. 

Monday, May 18th brought us a nice up move on some bank upgrades. I can't find who they were, but the DOW was up and the 235.44 (2.85%)S&P 500 909.71 +26.83 (3.04%). Incredible, but we will see this again I am sure.  Unexpectedly, the market sold off for the next 4 days but stayed in a tight range.  Friday's close on the S&P was 887.  A pretty uneventful week unless you count the first 4 day losing streak since the March 6th lows.

Monday, May 25 was a holiday so the market was closed.  But on the 26th we got another strong move upward. The Case-Shiller index and consumer confidence were decent numbers and the market took off - 196 on the Dow and 23 on the S&P - for no really good reason. The rest of the week were again, a mixed bag of news, reports, and earnings, all shrugged off by the market as it went higher.  Friday close on the S&P put us right back around 919 on the last trading day of May.

Monday, June 1, 2009

GM files for bankruptcy is the headline of the day. As they used to say, as GM goes, so goes the country.  Not any more apparently because the futures are up big.  Up 122 on the Dow and 16 on the S&P.  Dow 30 components GM and Citi (GM & C)out, replaced by Cisco & Travelers (CSCO & TRV).  GM, even as bankrupt as they are, has a stock that is still trading, and even more crazy, people are still buying and selling it.

But the strange news story of the day is why in the hell are the futures up this big, especially on the GM news?  We all know they were going bankrupt, so it should be priced in, one would think.  We also know the market rallied hard at the end of the day on Friday, but if you look at the after hours between Friday and Monday you can see this:

From this blog the day it happened; Looking at this chart we can see (Friday) the SPX was around 910 at 2:15 in the afternoon. It began to drop, going down to 905 around 2:53. The low was 887 Friday morning at 10:10. From 2:53 (or we can just round it to 3:00) it rockets upward to close at 919 with a huge spike in the last 5 minutes.

Today, Monday, the SPX gapped up to open significantly higher at 923. The market proceed to charge higher (on the GM news as one thing) to 942 by 10:20AM. Let's do a little math here. From 905 to 942 is 37 points. The climb took all of 2 hours between Friday afternoon and 10:20 this morning.

A couple of observations. 1)The economic data that came out last week was not all that good, and even bad in some cases. 2)The ISM and spending data that came out today was not awful, but not that good either. 3)GM, once the largest company in the world, has filed for bankruptcy. 4)We knew this was coming, probably on Monday, and considering the climb in the SPX last week, it would make a good case to be short for the weekend, no? (NOTE: edited for clarity).

For many of us who follow the markets on a daily basis, we have seen moves such as this - or peculiar moves you might say - in the past.  At this point in THE rally, many people still consider this a Bear market, and this rally nothing but a bounce. As the talking heads on TV along with the MSM keep telling us everything is better, we might just believe it.  Unfortunately, when you follow the data - earnings of the companies, employment reports, consumer confidence, GDP - they don't seem to support where this market is priced. That opinion was shared by many at that time.

The S&P closed this day at 943, up 24 points, a big move.  It becomes even stranger when we watch the market trade sideways for the next 9 days, with the S&P index trading in the range of 923 (the open of today) and an intraday of 956.23 on June11th., only to close at 944.89.  Only slightly higher than the high of today.  The numbers will show we made a bigger move today, than we will in the next 9 days, and we did all this in the span of a couple of hours.  Interesting.

Monday, June 15 -  Tuesday, July 7

World market were down overnight and it carried over to ours.  The S&P lost over 20 to close at 923, right about where it opened on June 1st. The market lost ground for a couple of more days but still stayed in a tight range until a sell-off of 28 points on June 22nd. The index closed at 893, still in the shallow range of 880 to 956, digesting both good and bad moves as they came.
On June 29th, a Monday, a surprisingly honest interview, especially from CNBC about the intervention in the markets.
From June 23rd, the market started a mini-rally grinding upward 888 to 931 on July 1st, a Wednesday. On Thursday July 2nd perhaps driven by some not so good economic reports, along with the last day of a long weekend (market closed Friday for the holiday) the index opened on it's high of 921 and fell throughout the day to 896, a 25 point loss.

After the weekend the market futures were down significantly Monday morning. Over 8 points on the S&P. But the market rallied and closed , only to give it all back, and then some on Tuesday.

Friday, May 8, 2009 - stress test results - on or around.

Bernanke testimony - moves market
GE credit rating
after hours spy contracts
Warren Buffet - times & BNI
China stimulus
Early reporting by a bank
ZH after hours trading - September 14 on
Neel Kashkari

Friday bonus - Chicago ISM - revised downward - opps!

From the WSJ

* DECEMBER 31, 2009, 12:41 P.M. ET

UPDATE: Revisions Show Chicago PMI At 58.7 In December

CHICAGO (Dow Jones)--The Institute for Supply Management-Chicago on Thursday released recalculations of the seasonal factors for the components of its headline business barometer. The new data, also known as the PMI, show Chicago business activity was weaker in December than had been reported Wednesday.

The recalculated business barometer for December stands at 58.7 and the November reading is at 55.5. The data originally showed the December barometer at 60.0 and November's at 56.1.

Readings above 50 indicate economic expansion.

The Chicago ISM typically publishes the new seasonal factors in mid-January.

"With the economy in a tender position, we felt obligated to get the data out sooner," says Jack Bishop of Kingsbury International, which compiles the survey for ISM-Chicago. The re-estimation keeps the trough of the recent recession at March 2009, when the barometer fell to 32.7 versus the 31.4 reported earlier.

For December, the largest downward recalculation was in the employment index. The reading is now 47.6 compared with the 51.2 reported Wednesday.

In addition to offering a snapshot on current economic conditions, the business barometer is scrutinized because it closely precedes release of the nationwide Institute for Supply Management's index on manufacturing activity.

The December U.S. ISM index is set for release Monday at 10 a.m. EST (1500 GMT).

Next month's Chicago business barometer is scheduled to be released on Jan. 29 at 9:45 a.m. EST.

-By Howard Packowitz, Dow Jones Newswires; 312-750-4132;

(Kathleen Madigan contributed to this article.)

Thursday, December 31, 2009

Market wrap - late - hey, it's New Years Eve - 10:30

What a day. Market didn't do much until late in the day. Down about 50 on the DOW most of the day, then took a poop at 3:30. Not sure why! Maybe nobody will notice.

Dow 10,428 -120 -1.14%
Nasdaq 2,269 -22 -0.97%
S&P 500 1,115 -11 -1.00%
GlobalDow 1,984 0 0.00%
Gold 1,097 +4 +0.37%
Oil 79.62 +0.34 +0.43%

Larry Kudlow vs. Arianna Huffington - classic TV - 12:20

Funny as hell! Part two - Larry is not a happy camper.

Jobless claims - 8:30

Full report here UNEMPLOYMENT INSURANCE WEEKLY CLAIMS REPORT SEASONALLY ADJUSTED DATA In the week ending Dec. 26, the advance figure for seasonally adjusted initial claims was 432,000, a decrease of 22,000 from the previous week's revised figure of 454,000. The 4-week moving average was 460,250, a decrease of 5,500 from the previous week's revised average of 465,750. The advance seasonally adjusted insured unemployment rate was 3.8 percent for the week ending Dec. 19, unchanged from the prior week's revised rate of 3.8 percent. The advance number for seasonally adjusted insured unemployment during the week ending Dec. 19 was 4,981,000, a decrease of 57,000 from the preceding week's revised level of 5,038,000. The 4-week moving average was 5,101,000, a decrease of 122,250 from the preceding week's revised average of 5,223,250. The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.621 million. UNADJUSTED DATA The advance number of actual initial claims under state programs, unadjusted, totaled 557,155 in the week ending Dec. 26, a decrease of 8,088 from the previous week. There were 717,000 initial claims in the comparable week in 2008. The advance unadjusted insured unemployment rate was 3.9 percent during the week ending Dec. 19, a decrease of 0.2 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 5,090,652, a decrease of 254,815 from the preceding week. A year earlier, the rate was 3.4 percent and the volume was 4,572,637. Extended benefits were available in Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, and Wisconsin during the week ending Dec. 12. Initial claims for UI benefits by former Federal civilian employees totaled 1,756 in the week ending Dec. 19, a decrease of 390 from the prior week. There were 2,274 initial claims by newly discharged veterans, an increase of 123 from the preceding week. There were 26,422 former Federal civilian employees claiming UI benefits for the week ending Dec. 12, a decrease of 49 from the previous week. Newly discharged veterans claiming benefits totaled 37,526, an increase of 1,378 from the prior week. States reported 4,448,914 persons claiming EUC (Emergency Unemployment Compensation) benefits for the week ending Dec. 12, an increase of 191,669 from the prior week. There were 1,567,930 claimants in the comparable week in 2008. EUC weekly claims include first, second, third, and fourth tier activity. The highest insured unemployment rates in the week ending Dec. 12 were in Alaska (7.4 percent), Oregon (6.1), Puerto Rico (5.8), Wisconsin (5.6), Michigan (5.5), Idaho (5.4), Montana (5.4), Nevada (5.4), Pennsylvania (5.4), and California (5.3). The largest increases in initial claims for the week ending Dec. 19 were in Michigan (+8,382), California (+7,317), Florida (+3,179), Iowa (+2,820), and Missouri (+1,628), while the largest decreases were in Tennessee (-2,972), Illinois (-2,923), Pennsylvania (-2,875), Georgia (-2,684), and North Carolina (-1,771). More at link with formatted tables
NOTE:See the red box? That is not reported, but very significant. That figure represents Emergency Unemployment Compensation, or in other words, people on extended benefits or some other form of aid that would have previously ran out if not for government extensions. That number by the way, is the HIGHEST in history. Green shoots? I think not.

Pre-market - Thursday, December 31, 2009

Futures pretty much flat on the last trading day of the year. DJIA INDEX 10,505.00 15.00 S&P 500 1,124.60 2.50 NASDAQ 100 1,878.75 2.00 Today's economic calendar: Jobless Claims 8:30 AM ET EIA Natural Gas Report 10:30 AM ET 3-Month Bill Announcement 11:00 AM ET 6-Month Bill Announcement 11:00 AM ET SIFMA Rec. Early Close 2:00 ET Money Supply 4:30 PM ET Today's earnings reports: Before open: PNY Piedmont Natural Gas Co. Inc. Utilities Gas Utilities After close: CRI Carter's, Inc. Consumer Goods Textile - Apparel Clothing

Wednesday, December 30, 2009

HR 4173 - Wall Street Reform & Consumer protection Act - 10:45

More money for the banks, hidden in this bill. From Bloomberg Commentary by David Reilly Dec. 30 (Bloomberg) -- To close out 2009, I decided to do something I bet no member of Congress has done -- actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill. Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. The Senate has yet to pass its own reform plan. The baby of Financial Services Committee Chairman Barney Frank, the House bill is meant to address everything from too-big-to-fail banks to asleep-at-the-switch credit-ratings companies to the protection of consumers from greedy lenders. I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog. And yes, I plowed through all those pages. (Memo to Chairman Frank: “ystem” at line 14, page 258 is missing the first “s”.) The reading was especially painful since this reform sausage is stuffed with more gristle than meat. At least, that is, if you are a taxpayer hoping the bailout train is coming to a halt. If you’re a banker, the bill is tastier. While banks opposed the legislation, they should cheer for its passage by the full Congress in the New Year: There are huge giveaways insuring the government will again rescue banks and Wall Street if the need arises. Nuggets Gleaned Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork: -- For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system. Admitting you have a problem, as any 12- stepper knows, is the crucial first step toward recovery. -- Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule. -- Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well. More Bailouts -- The bill also allows the government, in a crisis, to back financial firms’ debts. Bondholders can sleep easy -- there are more bailouts to come. -- The legislation does create a council of regulators to spot risks to the financial system and big financial firms. Unfortunately this group is made up of folks who missed the problems that led to the current crisis. -- Don’t worry, this time regulators will have better tools. Six months after being created, the council will report to Congress on “whether setting up an electronic database” would be a help. Maybe they’ll even get to use that Internet thingy. -- This group, among its many powers, can restrict the ability of a financial firm to trade for its own account. Perhaps this section should be entitled, “Yes, Goldman Sachs Group Inc., we’re looking at you.” Managing Bonuses -- The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play. Maybe Bank of America Corp. and Citigroup Inc. shouldn’t have rushed to pay back Troubled Asset Relief Program funds. -- The bill kills the Office of Thrift Supervision, a toothless watchdog. Well, kill may be too strong a word. That agency and its employees will be folded into the Office of the Comptroller of the Currency. Further proof that government never really disappears. -- Since Congress isn’t cutting jobs, why not add a few more. The bill calls for more than a dozen agencies to create a position called “Director of Minority and Women Inclusion.” People in these new posts will be presidential appointees. I thought too-big-to-fail banks were the pressing issue. Turns out it’s diversity, and patronage. -- Not that the House is entirely sure of what the issues are, at least judging by the two dozen or so studies the bill authorizes. About a quarter of them relate to credit-rating companies, an area in which the legislation falls short of meaningful change. Sadly, these studies don’t tackle tough questions like whether we should just do away with ratings altogether. Here’s a tip: Do the studies, then write the legislation. Consumer Protection -- The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth Warren, currently head of a panel overseeing TARP. And the first director gets the cool job of designing a seal for the new agency. My suggestion: Warren riding a fiery chariot while hurling lightning bolts at Federal Reserve Chairman Ben Bernanke. -- Best of all, the bill contains a provision that, in the event of another government request for emergency aid to prop up the financial system, debate in Congress be limited to just 10 hours. Anything that can get Congress to shut up can’t be all bad. Even better would be if legislators actually tackle the real issues stemming from the financial crisis, end bailouts and, for the sake of my eyes, write far, far shorter bills. (David Reilly is a Bloomberg News columnist. The opinions expressed are his own.) To contact the writer of this column: David Reilly at Last Updated: December 29, 2009 21:00 EST

Market wrap - 4:30

Ho hum, another day of boredom. Dow 10,549 3 0.03% Nasdaq 2,291 3 0.13% S&P 500 1,126 0 0.02% GlobalDow 1,986 -10 -0.48% Gold/quotes 1,092 -6 -0.56% Oil 79.34 +0.47 +0.60%

The Christmas present from Treasury - Wednesday, December 30

I didn't post this because I was taking some time away from the Markets, but this is highly important. I will also post a response that came out today which we should keep an eye on. First, the Christmas present to Freddie and Fanny (the big banks perhaps are the real winners in this). Remember too, it came out on Christmas eve. Around 8:00 if I remember right. Nice! From Bloomberg U.S. Treasury Ends Cap on Fannie, Freddie Lifeline for 3 Years By Rebecca Christie and Jody Shenn Dec. 25 (Bloomberg) -- The U.S. Treasury Department will remove the caps on aid to Fannie Mae and Freddie Mac for the next three years, to allay investor concerns that the companies will exhaust the available government assistance. The two companies, the largest sources of mortgage financing in the U.S., are currently under government conservatorship and have caps of $200 billion each on backstop capital from the Treasury. Under a new agreement announced yesterday, these limits can rise as needed to cover net worth losses through 2012. The Obama administration is “beginning to realize it’s not getting better and it’s not likely to get better” soon in the housing market, said Julian Mann, who helps oversee $5.5 billion in bonds as a vice president at First Pacific Advisors LLC in Los Angeles. “They don’t want the foreclosures now, so they’re saying, we’ll pay whatever it takes to continue to kick the can down the road.” Foreclosure filings exceeded 300,000 in November for a ninth consecutive month, RealtyTrac Inc. reported Dec. 10. The firm said filings will reach a record 3.9 million for the year. Fannie Mae and Freddie Mac now are using a combined $111 billion of the total $400 billion lifeline. Treasury Department officials said they didn’t expect the companies to need assistance beyond what is available under the current caps, barring significant deterioration in the economic outlook. Yesterday’s announcement “should leave no uncertainty about the Treasury’s commitment to support these firms as they continue to play a vital role in the housing market during this current crisis,” the Treasury said in a statement in Washington. Portfolio Size The Treasury also relaxed its timeline for Fannie Mae and Freddie Mac to shrink their portfolios of mortgage assets. Previously, the companies were instructed to reduce their portfolios at a rate of 10 percent a year. Now, they will be required to keep the value of their portfolios below a maximum limit, currently $900 billion, that will go down by 10 percent a year. This means they won’t need to take immediate action to trim their holdings and could allow them to rise. Fannie Mae’s portfolio ended October at $771.5 billion and Freddie Mac’s holdings at the end of November were $761.8 billion, according to the latest figures released by the companies. “Treasury does not expect Fannie Mae and Freddie Mac to be active buyers to increase the size of their retained mortgage portfolios, but neither is it expected that active selling will be necessary,” the Treasury said. Fed Program The change in the portfolio limits may ease investor concern that the companies could be forced to shrink their portfolios at the same time that the Federal Reserve ends its $1.25 trillion mortgage-bond purchase program. That could have exacerbated pressure on mortgage rates caused by the end of the Fed program, Laurie Goodman, an analyst in New York at Amherst Securities Group LP, said this month. The Treasury said yesterday it is ending its mortgage- backed security purchase program as of Dec. 31, after about $220 billion in purchases. The government also is eliminating a short-term credit facility for the two companies and the Federal Home Loan Banks that was never used. Also yesterday, the companies disclosed in regulatory filings that Fannie Mae Chief Executive Officer Michael Williams and Freddie Mac CEO Charles Haldeman Jr. are each eligible for compensation of as much as $6 million this year. Executive Pay Pay at the mortgage-finance companies, which were seized by the U.S. in September 2008, added to debate over salaries for executives at companies dependent on government bailouts. Compensation must be sufficiently high to “attract and retain” top talent, their regulator, the Federal Housing Finance Agency, said in a statement. In addition to the CEO pay, 10 additional executives at the two companies are eligible collectively for $30.1 million in compensation for this year. Overall, pay for top executives of the mortgage-finance companies is down 40 percent from before they were seized, the regulator said. Brian Faith, a Fannie Mae spokesman, and Michael Cosgrove, a Freddie Mac spokesman, declined to comment on the executive compensation and didn’t immediately return messages on the later Treasury announcement. The Obama administration is still developing its long-term plan for Fannie Mae and Freddie Mac. In yesterday’s statement, the department said it expected to release a preliminary report on the companies as part of the 2011 budget, due in February. ‘Prudent’ Policy Recent announcements from the companies and the Federal Housing Administration “demonstrate a commitment to prudent housing finance policy that enables a transition to an environment where the private market is able to provide a larger source of mortgage finance,” the Treasury said. The Treasury and Federal Housing Finance Agency seized control of the mortgage-finance companies almost 16 months ago amid fears the two were at risk of failing. The government- sponsored enterprises, or GSEs, own or guarantee about $5.5 trillion of the $11.7 trillion in U.S. residential mortgage debt. Officials set up the Treasury lifelines, which were expanded in May, to keep the companies solvent. If the two firms exhaust that backstop, regulators will be required to place them into receivership. Treasury officials weren’t likely to take the chance of allowing the companies to fall into receivership, which is a bankruptcy-like process that would increase the companies’ debt costs and disrupt the mortgage markets, Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, said in an interview last week. GSE Losses Washington-based Fannie Mae has lost $120.5 billion over the past nine quarters and McLean, Virginia-based Freddie Mac has recorded $67.9 billion in cumulative losses over the past nine quarters amid a three-year housing slump. The companies are an integral part of President Barack Obama’s housing-relief plan and have been pushed by the government to help more homeowners renegotiate their mortgages to stay out of foreclosure. As part of yesterday’s announcements, made ahead of a Dec. 31 expiration of some of the Treasury’s authority, the department said it would delay setting certain fees connected with the assistance program until the end of next year. The Treasury also made technical changes that affect the definition of mortgage assets and other accounting issues. To contact the reporter on this story: Rebecca Christie in Washington at; Last Updated: December 25, 2009 00:01 EST
Now we have a response from a congressmen. He at least admits there might be some back door shenanigans going on here. Kudo's to him for that, but I'll believe anything will happen when I see it. Don't hold your breath. From the WSJ By MICHAEL R. CRITTENDEN WASHINGTON -- The Treasury Department's surprise Christmas Eve move to uncap the potential aid to Fannie Mae and Freddie Mac should be investigated, lawmakers from both political parties said Wednesday. Rep. Dennis Kucinich (D., Ohio) said his congressional subcommittee plans to investigate Treasury's decision to lift the existing $400 billion cap on government cash available to the two firms. Separately, Reps. Scott Garrett (R., N.J.) and Spencer Bachus (R., Ala.) called for the House Financial Services Committee to hold a hearing on the matter. Mr. Kucinich, who chairs the domestic policy subcommittee on the House Oversight and Government Reform panel, said he is concerned about how the two government-controlled firms will use their new flexibility. "This cannot be used simply to purchase toxic assets at inflated prices, thus transferring the losses to the U.S. taxpayers and acting as a back door [Troubled Asset Relief Program]," Mr. Kucinich said in a statement released by his office. Messrs. Garrett and Bachus raised similar concerns in a letter to Rep. Barney Frank (D., Mass.), who chairs the Financial Services panel. The two GOP panel members decried what they called a "transparent attempt to hide the news from the American people" by announcing the news the day before a major holiday. "With hundreds of billions of taxpayer dollars committed to these two organizations and trillions of dollars in total taxpayer exposure, this level of oversight is plainly insufficient," the two wrote, referring to the lack of committee hearings on the two firms this year. In announcing the unlimited aid the Treasury stressed that it was trying to reassure investors in the firms' debt and wasn't predicting the two firms would need exceptional assistance from the government. Since seizing the firms last September the government has pumped $60 billion into Fannie Mae and $51 billion into Freddie Mac, well below the $200 billion limit for each firm that had been in place until last week. The unlimited assistance available to the two firms does give the government more flexibility to use them to help deal with the ongoing housing crisis, which has continued unabated amid a series of patchwork government programs that have failed to slow foreclosures. Mr. Kucinich said he wants to investigate what options policymakers have to deal with housing issues. "I want to determine whether Fannie and Freddie have a cohesive plan to buy up underperforming mortgages that remain on the books of the big banks, at appropriate prices, and undertake a massive reworking of the terms of the mortgages," he said in the statement. The aid announcement came the same day that the firms' regulator, the Federal Housing Finance Agency, approved multimillion-dollar pay packages for the companies' top executives. That decision has also provided fresh fodder for the companies' critics on Capitol Hill. Write to Michael R. Crittenden at

Forecast 2010- 2:30

Courtesy of Clusterfuck Nation blog By James Howard Kunstler on December 28, 2009 7:32 AM The Center does Not Hold... But Neither Does the Floor Introduction There are always disagreements in a society, differences of opinion, and contested ideas, but I don't remember any period in my own longish life, even the Vietnam uproar, when the collective sense of purpose, intent, and self-confidence was so muddled in this country, so detached from reality. Obviously, in saying this I'm assuming that I have some reliable notion of what's real. I admit the possibility that I'm as mistaken as anyone else. But for the purpose of this exercise I'll ask you to regard me as a reliable narrator. Forecasting is a nasty job, usually thankless, often disappointing - but somebody's got to do it. There are so many variables in motion, and so much of that motion is driven by randomness, and the best one can do in forecasting amounts to offering up some guesses for whatever they are worth. I begin by restating my central theme of recent months: that we're doing a poor job of constructing a coherent consensus about what is happening to us and what we are going to do about it. There is a great clamor for "solutions" out there. I've noticed that what's being clamored for is a set of rescue remedies - miracles even - that will allow us to keep living exactly the way we're accustomed to in the USA, with all the trappings of comfort and convenience now taken as entitlements. I don't believe that this will be remotely possible, so I avoid the term "solutions" entirely and suggest that we speak instead of "intelligent responses" to our changing circumstances. This implies that our well-being depends on our own behavior and the choices that we make, not on the lucky arrival of just-in-time miracles. It is an active stance, not a passive one. What will we do? The great muddlement out there, this inability to form a coherent consensus about what's happening, is especially frightening when, as is the case today, even the intelligent elites appear clueless or patently dishonest, in any case unreliable, in their relations with reality. President Obama, for instance - a charming, articulate man, with a winning smile, pectorals like Kansas City strip steaks, and a mandate for "change" - who speaks incessantly and implausibly of "the recovery" when all the economic vital signs tell a different story except for some obviously manipulated stock market indexes. You hear this enough times and you can't help but regard it as lying, and even if it is lying ostensibly for the good of the nation, it is still lying about what is actually going on and does much harm to the project of building a coherent consensus. I submit that we would benefit more if we acknowledged what is really happening to us because only that will allow us to respond intelligently. What prior state does Mr. Obama suppose we're recovering to? A Potemkin housing boom and an endless credit card spending orgy? The lying spreads downward from the White House and broadly across the fruited plain and the corporate office landscape and through the campuses and the editorial floors and the suites of absolutely everyone in charge of everything until all leadership in every field of endeavor has been given permission to speak untruth and to reinforce each others lies and illusions. How dysfunctional is our nation? These days, we lie to ourselves perhaps as badly the Soviets did, and in a worse way, because where information is concerned we really are a freer people than they were, so our failure is far less excusable, far more disgraceful. That you are reading this blog is proof that we still enjoy free speech in this country, whatever state of captivity or foolishness the so-called "mainstream media" may be in. By submitting to lies and illusions, therefore, we are discrediting the idea that freedom of speech and action has any value. How dangerous is that? Where We Are Now 2009 was the Year of the Zombie. The system for capital formation and allocation basically died but there was no funeral. A great national voodoo spell has kept the banks and related entities like Fannie Mae and the dead insurance giant AIG lurching around the graveyard with arms outstretched and yellowed eyes bugged out, howling for fresh infusions of blood... er, bailout cash, which is delivered in truckloads by the Federal Reserve, which is itself a zombie in the sense that it is probably insolvent. The government and the banks (including the Fed) have been playing very complicated games with each other, and the public, trying to pretend that they can all still function, shifting and shuffling losses, cooking their books, hiding losses, and doing everything possible to detach the relation of "money" to the reality of productive activity. But nothing has been fixed, not even a little. Nothing has been enforced. No one has been held responsible for massive fraud. The underlying reality is that we are a much less affluent society than we pretend to be, or, to put it bluntly, that we are functionally bankrupt at every level: household, corporate enterprise, and government (all levels of that, too). The difference between appearance and reality can be easily seen in the everyday facts of American economic life: soaring federal deficits, real unemployment above 15 percent, steeply falling tax revenues, massive state budget crises, continuing high rates of mortgage defaults and foreclosures, business and personal bankruptcies galore, cratering commercial real estate, dying retail, crumbling infrastructure, dwindling trade, runaway medical expense, soaring food stamp applications. Meanwhile, the major stock indices rallied. What's not clear is whether money is actually going somewhere or only the idea of "money" is appearing to go somewhere. After all, if a company like Goldman Sachs can borrow gigantic sums of "money" from the Federal Reserve at zero interest, why would it not shovel that money into the burning furnace of a fake stock market rally? Of course, none of this behavior has anything to do with productive activity. The theme for 2009 - well put by Chris Martenson - was "extend and pretend," to use all the complex trickery that can be marshaled in the finance tool bag to keep up the appearance of a revolving debt economy that produces profits, interest, and dividends, in spite of the fact that debt is not being "serviced," i.e. repaid. There is an awful lot in the machinations of Wall Street and Washington that is designed deliberately to be as incomprehensible as possible to even educated people, but this part is really simple: if money is created out of lending, then the failure to pay back loaned money with interest kills the system. That is the situation we are in. The inertia displayed by our system - especially its manifest ability to keep stock markets levitating in the absence of value creation - is strictly a function of its size and complexity. It is running on fumes. I thought it would finally crash and burn in 2009. The Dow Jones industrial average certainly fell on its ass last March, bottoming in the mid-6000 range. But then it picked its sorry ass off the ground and rallied back up again thanks to bail-outs and ZIRPs and really no other place to look for returns on the accumulated wealth of the past two hundred years, especially for large institutions like pension funds that need income to function. I'd called for a Dow at 4000. A lot of readers ridiculed that call. Was it really that far off? A feature of 2009 easily overlooked is what a generally placid year it was around the world. Apart from the election uproar in Iran, there were few events of any size or potency to shove all the various wobbly things - central banks, markets, governments, etc - into failure mode. So things just kept wobbling. I don't think that state of affairs is likely to continue. With that, on to the particulars. The Year Ahead Just about everything which evaded fate via gamed numbers, budgets, and balance sheets in 2009 seems destined to hit a wall in 2010. To pick an arbitrary starting point, it is hard to see how states like California and New York can keep staving off monumental changes in their scale of operations with further budget trickery. Those cans they've been kicking down the street have fallen through the sewer grate. What will they do? They can massively raise taxes or massively lay off employees and default on obligations - or they can do all these things. The net result will be populations with less income, arguably impoverished, suffering, and perhaps very angry about it. Welcome to reality. Will Washington bail the states out, too? I wouldn't be surprised to see them pretend to do so, but not without immense collateral damage in everybody's legitimacy and surely an increase in US treasury interest rates. But backing up a moment, I'm writing between Christmas and New Year's Eve. The frenzied distractions of the holidays ongoing for much of Q4-2009 are still in force. In a week or so, when the Christmas trees are hauled out to the curbs (and it turns out that municipal garbage pickup has been curtailed for lack of funds) a picture will start to emerge of exactly how retail sales went leading up to the big climax. My guess is that sales were dismal. Reports of such will start a train of events that sends many retail companies careening into bankruptcy, including some national chains, leading to lost leases in malls and strip malls, leading to a final push off the cliff for commercial real estate, leading to the failure of many local and regional banks, leading to the bankrupt FDIC having to go to congress directly to get more money to bail out the depositors, leading again to rising interest rates for US treasuries, leading to higher mortgage interest rates for whoever out there is crazy enough to venture to buy a house with borrowed money, leading to the probability that there are few of the foregoing, leading to another hard leg down in house values because so few are now crazy enough to buy a house in the face of falling prices - all of this leading to the recognition that we have entered a serious depression, which is only a facet of the greater period of hardship we have also entered, which I call The Long Emergency. This depression will be a classic deleveraging, or resolution of debt. Debt will either be paid back or defaulted on. Since a lot can't be paid back, a lot of it will have to be defaulted on, which will make a lot of money disappear, which will make many people a lot poorer. President Obama will be faced with a basic choice. He can either make the situation worse by offering more bailouts and similar moves aimed at stopping the deleveraging process - that is, continue what he has been doing, only perhaps twice as much, which may crash the system more rapidly - or he can recognize the larger trends in The Long Emergency and begin marshalling our remaining collective resources to restructure the economy along less complex and more local lines. Don't count on that. Of course, this downscaling will happen whether we want it or not. It's really a matter of whether we go along with it consciously and intelligently - or just let things slide. Paradoxically and unfortunately in this situation, the federal government is apt to become ever more ineffectual in its ability to manage anything, no matter how many times Mr. Obama comes on television. Does this leave him as a kind of national camp counselor trying to offer consolation to the suffering American people, without being able to really affect the way the "workout" works out? Was Franklin Roosevelt really much more than an affable presence on the radio in a dark time that had to take its course and was only resolved by a global convulsion that left the USA standing in a smoldering field of prostrate losers? One wild card is how angry the American people might get. Unlike the 1930s, we are no longer a nation who call each other "Mister" and "Ma'am," where even the down-and-out wear neckties and speak a discernible variant of regular English, where hoboes say "thank you," and where, in short, there is something like a common culture of shared values. We're a nation of thugs and louts with flames tattooed on our necks, who call each other "motherfucker" and are skilled only in playing video games based on mass murder. The masses of Roosevelt's time were coming off decades of programmed, regimented work, where people showed up in well-run factories and schools and pretty much behaved themselves. In my view, that's one of the reasons that the US didn't explode in political violence during the Great Depression of the 1930s - the discipline and fortitude of the citizenry. The sheer weight of demoralization now is so titanic that it is very hard to imagine the people of the USA pulling together for anything beyond the most superficial ceremonies - placing teddy bears on a crash site. And forget about discipline and fortitude in a nation of ADD victims and self-esteem seekers. I believe we will see the outbreak of civil disturbance at many levels in 2010. One will be plain old crime against property and persons, especially where the sense of community is flimsy-to-nonexistent, and that includes most of suburban America. The automobile is a fabulous aid to crime. People can commit crimes in Skokie and be back home in Racine before supper (if supper is anything besides a pepperoni stick and some Hostess Ho-Hos in the car). Fewer police will be on guard due to budget shortfalls. I think we'll see a variety-pack of political disturbance led first by people who are just plain pissed off at government and corporations and seek to damage property belonging to these entities. The ideologically-driven will offer up "revolutionary" action to redefine some lost national sense of purpose. Some of the most dangerous players such as the political racialists, the posse comitatus types, the totalitarian populists, have been out-of-sight for years. They'll come out of the woodwork and join the contest over dwindling resources. Both the Left and the Right are capable of violence. But since the Left is ostensibly already in power, the Right is in a better position to mount a real challenge to office-holders. Their ideas may be savage and ridiculous, but they could easily sweep the 2010 elections - unless we see the rise of a third party (or perhaps several parties). No sign of that yet. Personally, I'd like to see figures like Christopher Dodd and Barney Frank sent packing, though I'm a registered Democrat. In the year ahead, the sense of contraction will be palpable and huge. Losses will be obvious. No amount of jive-talking will convince the public that they are experiencing "recovery." Everything familiar and comforting will begin receding toward the horizon. Markets and Money I'll take another leap of faith and say that 6600 was not the bottom for the Dow. I've said Dow 4000 for three years in a row. Okay, my timing has been off. But I still believe this is its destination. Given the currency situation, and the dilemma of no-growth Ponzi economies, I'll call it again for this year: Dow 4000. There, I said it. Laugh if you will.... I'm with those who see the dollar strengthening for at least the first half of 2010, and other assets falling in value, especially the stock markets. The dollar could wither later on in the year and maybe take a turn into high inflation as US treasury interest rates shoot up in an environment of a global bond glut. That doesn't mean the stock markets will bounce back because the US economy will only sink into greater disorder when interest rates rise. Right now there are ample signs of trouble with the Euro. It made a stunning downward move the past two weeks. European banks took the biggest hit in the Dubai default. Now they face the prospect of sovereign default in Greece, the Baltic nations (Estonia, Latvia, Lithuania), the Balkan nations (Serbia, et al), Spain, Portugal, Italy, Ireland, Iceland and the former soviet bloc of Eastern Europe. England is a train wreck of its own (though not tied into the Euro), and even France may be in trouble. That leaves very few European nations standing. Namely Germany and Scandanavia (and I just plain don't know about Austria). What will Europe do? Really, what will Germany do? Probably reconstruct something like the German Deutschmark only call it something else... the Alt.Euro? As one wag said on the Net: sovereign debt is the new sub-prime! The Euro is in a deeper slog right now than the US dollar (even with our fantastic problems), so I see the dollar rising in relation to the Euro, at least for a while. I'd park cash in three month treasury bills - don't expect any return - for safety in the first half of 2010. I wouldn't touch long-term US debt paper with a carbon-fiber sixty foot pole. I'm still not among those who see China rising into a position of supremacy. In fact, they have many reasons of their own to tank, including the loss of the major market for their manufactured goods, vast ecological problems, de-stabilizing demographic shifts within the nation, and probably a food crisis in 2010 (more about this later). Though a seemingly more stable nation than the US, with a disciplined population and a strong common culture with shared values, Japan's financial disarray runs so deep that it could crash its government even before ours. It has no fossil fuels of its own whatsoever. And in a de-industrializing world, how can an industrial economy sustain itself? Japan might become a showcase for The Long Emergency. On the other hand, if it gets there first and makes the necessary adjustments, which is possible given their discipline and common culture, they may become THE society to emulate! I'm also not convinced that so-called "emerging markets" are places where money will dependably earn interest, profits, or dividends. Contraction will be everywhere. I even think the price of gold will retrace somewhere between $750 and $1000 for a while, though precious metals will hold substantial value under any conditions short of Hobbesian chaos. People flock to gold out of uncertainty, not just a bet on inflation. My guess is that gold and silver will eventually head back up in value to heights previously never imagined, and it would be wise to own some. I do not believe that the federal government could confiscate personal gold again the way it did in 1933. There are too many pissed off people with too many guns out there - and I'm sure there is a correlation between owners of guns with owners of gold and levels of pissed-offness. A botched attempt to take gold away from citizens would only emphasize the impotence of the federal government, leading to further erosion of legitimacy. Bottom line for markets and money in 2010: so many things will be out of whack that making money work via the traditional routes of compound interest or dividends will be nearly impossible. There's money to be made in shorting and arbitrage and speculation, but that requires nerves of steel and lots and lots of luck. Those dependent on income from regular investment will be hurt badly. For most of us, capital preservation will be as good as it gets - and there's always the chance the dollar will enter the hyper-inflationary twilight zone and wipe out everything and everyone connected with it. Peak Oil It's still out there, very much out there, a huge unseen presence in the story, the true ghost-in-the-machine, eating away at economies every day. It slipped offstage in 2009 after the oil spike of 2008 ($147/barrel) over-corrected in early 2009 to the low $30s/barrel. Now it's retraced about halfway back to the mid-$70s. One way of looking at the situation is as follows. Oil priced above $75 begins to squeeze the US economy; oil priced over $85 tends to crush the US economy. You can see where we are now with oil prices closing on Christmas Eve at $78/barrel. Among the many wishful delusions operating currently is the idea that the Bakken oil play in Dakota / Montana will save Happy Motoring for America, and that the Appalachian shale gas plays will kick in to make us energy independent for a century to come. Americans are likely to be disappointed by these things. Both Bakken and the shale gas are based on techniques for using horizontal drilling through "tight" rock strata that is fractured with pressurized water. It works, but it's not at all cheap, creates plenty of environmental mischief, and may end up being only marginally productive. At best, Bakken is predicted to produce around 400,000 barrels of oil a day. That's not much in a nation that uses close to 20 million barrels a day. Shale gas works too, though the wells deplete shockingly fast and will require the massive deployment of new drilling rigs (do we even have the steel for this?). I doubt it can be produced for under $10 a unit (mm/BTUs) and currently the price of gas is in the $5 range. In any case, we're not going to run the US motor vehicle fleet on natural gas, despite wishful thinking. Several other story elements in the oil drama have remained on track to make our lives more difficult. Oil export rates continue to decline more steeply than oil field depletion rates. Exporters like Iran, Mexico, Saudi Arabia, Venezuela, are using evermore of the oil they produce (often as state-subsidized cheap gasoline), even as their production rates go down. So, they have less oil to sell to importers like the USA - and we import more than 60 percent of the oil we use. Mexico's Pemex is in such a sorry state, with its principal Cantarell field production falling off a cliff, that the USA's number three source of imported oil may be able to sell us nothing whatsoever in just 24 months. Is there any public discussion about this in the USA? No. Do we have a plan? No. A new wrinkle in the story developing especially since the financial crisis happened, is the shortage of capital for new oil exploration and production - meaning that we have even poorer prospects of offsetting world-wide oil depletion. The capital shortage will also affect development in the Bakken play and the Marcellus shale gas range. Industrial economies are still at the mercy of peak oil. This basic fact of life means that we can't expect the regular cyclical growth in productive activity that formed the baseline parameters for modern capital finance - meaning that we can't run on revolving credit anymore because growth simply isn't there to create real surplus wealth to pay down debt. The past 20 years we've seen the institutions of capital finance pretend to create growth where there is no growth by expanding financial casino games of chance and extracting profits, commissions, and bonuses from the management of these games - mortgage backed securities, collateralized debt obligations, credit default swaps, and all the rest of the tricks dreamed up as America's industrial economy was shipped off to the Third World. But that set of rackets had a limited life span and they ran into a wall in October 2008. Since then it's all come down to a shell game: hide the giant pea of defaulted debt under a giant walnut shell. Yet another part of the story is the wish that the failing fossil fuel industrial economy would segue seamlessly into an alt-energy industrial economy. This just isn't happening, despite the warm, fuzzy TV commercials about electric cars and "green" technology. The sad truth of the matter is that we face the need to fundamentally restructure the way we live and what we do in North America, and probably along the lines of much more modest expectations, and with very different practical arrangements in everything from the very nature of work to household configurations, transportation, farming, capital formation, and the shape-and-scale of our settlements. This is not just a matter of re-tuning what we have now. It means letting go of much of it, especially our investments in suburbia and motoring - something that the American public still isn't ready to face. They may never be ready to face this and that is why we may never make a successful transition to whatever the next economy is. Rather, we will undertake a campaign to sustain the unsustainable and sink into poverty and disorder as we fight over the table scraps of the old economy... and when the smoke clears nothing new will have been built. President Obama has spent his first year in office, and billions of dollars, trying to prop up the floundering car-makers and more generally the motoring system with "stimulus" for "shovel-ready" highway projects. This is exactly the kind of campaign to sustain the unsustainable that I mean. Motoring is in the process of failing and now for reasons that even we peak oilers didn't anticipate a year ago. It's no longer just about the price of gasoline. The crisis of capital is making car loans much harder to get, and if Americans can't buy cars on installment loans, they are not going to buy cars, and eventually they will not be driving cars they can't buy. The same crisis of capital is now depriving the states, counties, and municipalities of the means to maintain the massive paved highway and street system in this country. Just a few years of not attending to that will leave the system unworkable. Meanwhile President Obama has given next-to-zero money or attention to public transit, to repairing the passenger railroad system in particular. I maintain that if we don't repair this system, Americans will not be traveling very far from home in a decade or so. Therefore, Mr. Obama's actions vis-à-vis transportation are not an intelligent response to our situation. And for very similar reasons, the proposal for a totally electric motor vehicle fleet, as a so-called "solution" to the liquid fuels problem, is equally unintelligent and tragic. Of course something else that Mr. Obama has barely paid lip-service to is the desperate need to retool our living places as walkable communities. The government now, at all levels, virtually mandates suburban arrangements of the most extremely car-dependent kind. Changing this has to move near the top of a national emergency priority list, if we have one. Even with somewhat lower oil prices in 2009, the airlines still hemorrhaged losses in the billions, and if the oil price remains in the current zone some of them will fall back into bankruptcy in 2010. Oil prices may go down again in response to crippled economies, but then so will passengers looking to fly anywhere, especially the business fliers that the airlines have depended on to fill the higher-priced seats. I believe United will be the first one to go down in 2010, a hateful moron of a company that deserves to die. My forecast for oil prices this year is extreme volatility. A strengthening dollar might send oil prices down (though that relationship has temporarily broken down this December as both oil prices and the dollar went up in tandem for the first time in memory). So could the cratering of the stock markets, or a general apprehension of a floundering economy. But the oil export situation also means there is less and less wiggle room every month for supply to keep pace with demand, even in struggling economies if they are dependent on foreign imports. Another part of the story that we don't pay attention to is the potential for oil scarcities, shortages, and hoarding. We may see the reemergence of those trends in 2010 for the first times since 1979. Geopolitics The retracement of oil prices in 2009 took place against a background of relative quiet on the geopolitical scene. With economies around the world sinking into even deeper extremis in 2010, friction and instability are more likely. The more likely locales for this are the places where most of the world's remaining oil is: the Middle East and Central Asia. The American army is already there, in Iraq and Afghanistan, with an overt pledge to up-the-ante in Afghanistan. It's hard to imagine a happy ending in all this. It's increasingly hard to even imagine a strategic justification for it. My current (weakly-held) notion is that America wants to make a baloney sandwich out of Iran, with American armies in Iraq and Afghanistan as the Wonder Bread, to "keep the pressure on" Iran. Well, after quite a few years, it doesn't seem to be moderating or influencing Iran's behavior in any way. Meanwhile, Pakistan becomes more chaotic every week and our presence in the Islamic world stimulates more Islamic extremist hatred against the USA. Speaking of Pakistan, there is the matter of its neighbor and adversary, India. If there is another terror attack by Pakistan on the order of last year's against various targets in Mumbai, I believe the response by India is liable to be severe next time, leading to God-knows-what, considering both countries have plenty of atom bombs. Otherwise, the idea that we can control indigenous tribal populations in some of Asia's most forbidding terrain seems laughable. I don't have to rehearse the whole "graveyard of empires" routine here. But what possible geo-strategic advantage is in this for us? What would it matter if we pacified all the Taliban or al Qaeda in Afghanistan? Most of the hardest core maniacs are next door in Pakistan. Even if we turned Afghanistan into Idaho-East, with Kabul as the next Sun Valley, complete with Ralph Lauren shops and Mario Batali bistros, Pakistan would remain every bit as chaotic and dangerous in terms of supplying the world with terrorists. And how long would we expect to remain in Afghanistan pacifying the population? Five years? Ten Years? Forever? It's a ridiculous project. Loose talk on the web suggests our hidden agenda there was to protect a Conoco pipeline out of Tajikistan, but that seems equally absurd on several grounds. I can't see Afghanistan as anything but a sucking chest wound for dollars, soldiers' lives, and American prestige. What's more, our presence there seems likely to stimulate more terror incidents here in the USA. We've been supernaturally lucky since 2001 that there hasn't been another incident of mass murder, even something as easy and straightforward as a shopping mall massacre or a bomb in a subway. Our luck is bound to run out. There are too many "soft" targets and our borders are too squishy. Small arms and explosives are easy to get in the USA. I predict that 2010 may be the year our luck does run out. Even before the start of the year we've seen the attempted Christmas bombing of Northwest-KLM flight 253 (Amsterdam to Detroit). One consequence of this is that it will only make air travel more unpleasant for everybody in the USA as new rules are instated limiting bathroom trips and blankets in the final hour of flight. As far as the USA is concerned, I think we have more to worry about from Mexico than Afghanistan. In 2009, the Mexican government slipped ever deeper into impotence against the giant criminal cartels there. As the Cantarell oil field waters out, revenue from Pemex to the national government will wither away and so will the government's ability to control anything there. The next president of Mexico may be an ambitious gangster straight out of the drug cartels, Pancho Villa on steroids. Another potential world locale for conflict may be Europe as the European Union begins to implode under the strains of the monetary system. The weaker nations default on their obligations and Germany, especially, looks to insulate itself from the damage. Except for the fiasco in Yugoslavia's breakup years ago, Europe has been strikingly peaceful for half a century. For most of us now living who have visited there, it is almost impossible to imagine how violent and crazy the continent was in the early twentieth century. I wonder what might happen there now, with more than a few nations failing economically and the dogs of extreme politics perhaps loosed again. History is ironical. Perhaps this time the Germans will be the good guys, while England goes apeshit with its BNP. Wouldn't that be something? One big new subplot in world politics this year may be the global food shortage that is shaping up as a result of spectacular crop failures in most of the major farming regions of the world. The American grain belt was hit by cold and wet weather and the harvest was a disaster, especially for soybeans, of which the USA produces at least three-quarters of the world's supply. Crops have also failed in Northern China's wheat-growing region, in Australia, Argentina, and India. The result may range from extremely high food prices in the developed world to starvation in other places, leading to grave political instability and desperate fights over resources. We'll have an idea where this is leading by springtime. It maybe the most potent sub-plot in the story for 2010. Conclusions The Long Emergency is officially underway. Reality is telling us very clearly to prepare for a new way of life in the USA. We're in desperate need of decomplexifying, re-localizing, downscaling, and re-humanizing American life. It doesn't mean that we will be a lesser people or that we will not recognize our own culture. In some respects, I think it means we must return to some traditional American life-ways that we abandoned for the cheap oil life of convenience, comfort, obesity, and social atomization. The successful people in America moving forward will be those who attach themselves to cohesive local communities, places with integral local economies and sturdy social networks, especially places that can produce a significant amount of their own food. I don't think that we'll be living in a world without money, some medium of exchange above barter, but it may not come in the form of dollars. My guess is that for a while it may be gold and silver, or possibly certificates issued by bank-like institutions representing gold-on-hand. In any case, I doubt we'll arrive there this year. This is more likely to be the year of grand monetary disorders and continued shocking economic contraction. Political upheaval can get underway pretty quickly, without a whole lot of warning. I'm still waiting to hear the announced 2009 bonuses for the employees of the TBTF banks. All they said before Christmas was that thirty top Goldman Sachs employees would be paid in stock instead of money this year, but no other big banks have made a peep yet. I suppose they'll have to in the four days before New Years. I still think that could be the moment that shoves some disgruntled Americans into the arena of protest and revolt. Beyond that, though, there is plenty room for emotions to run wild and for behavior to get weird. President Obama will have to make some pretty drastic moves to salvage his credibility. I see no sign of any intention to seriously investigate or prosecute financial crimes. Yet the evidence of misdeeds piles higher and higher - just this week new comprehensive reports of Goldman Sachs's irregularities in shorting their own issues of mortgage-backed securities, and a report on the Treasury Department's issuance of treasuries to "back-door" dumpers of toxic mortgage backed securities. And on Christmas Eve, when nobody was looking, the Treasury lifted the ceiling on Fannie Mae and Freddie Mac's backstop money to infinity. Even people like me who try to pay close attention to what's going on have lost track of all the various TARPs, TALFs, bailouts, stimuli, ZIRP loans, and handovers to every bank and its uncle in the land. Good luck to readers in 2010. To paraphrase Tiny Tim: God help us, every one....