Let’s Have Lunch With The Mad Hatter

I’m trying to free your mind.  But I can only show you the door.  You’re the one who has to walk through it.   – The Matrix

The overnight computerized stock market futures trading systems mysteriously “broke” once again as the futures were heading south (see this and this).   This  glaringly overt intervention reeks unmistakably of desperation.

Corners of the global economy – and specifically the U.S. – are collapsing behind the smoke and mirror cloak of ebullience emanating from a sharp bear market dead-cat stock market bounce and from absurdly manipulated data reports on employment and housing.

I was looking at a daily graph of AIG earlier today and comparing it to a couple other insurance company stock charts (Allstate and Progressive).   Contrary  to other insurance Untitledstocks, AIG has not participated at all in this stock market bounce.  In fact, it’s been hitting new 52-week lows almost everyday since early February.

The same problems that caused a temporary systemic collapse in 2008 are back in full force again.  Only they are much larger and much more insidious because rules were changed in a way that enabled the big financial firms to better disguise their Ponzi schemes.   AIG is the born-again poster-child of this evolving financialized nuclear melt-down.   I was chatting with a colleague earlier who told me that a  contact of his at the Company said that everyone who stayed on at AIG after 2008 are now being let go. Something ominous is going on there…

The Kansas City Fed survey reported today that its index has dropped to 7-year lows.  Yes, the Government reported today a bounce in durable goods, but it was driven by a huge order for aircraft parts from the Dept of Defense (great, we’re preparing for war in the Middle East).  Here’s what the real economy looks like:

Untitled While the Government insults our collective intelligence with tall tales of 5% unemployment and Janet Reno Yellen lobbies the public on the view the economy is improving, the actual numbers coming from Main Steet show an economy slipping into recession. Treasury yields continue to compress. This is not the signal that it’s time to take out a 100% mortgage from a private lender and overpay for a crappy house, it’s the unmistakable onset of economic collapse.

Today both Dominos Pizza (12%) up and Lending Tree (up 22%)  spiked up after “beating” their earnings.  Here’s what was missed in the reporting:  Dominos trades at 16x EBITDA and Lending Tree trades at 25x EBITDA.  This is sheer insanity.  Oh, by the way, TREE’s trailing EBIDTA is “adjusted,” which means EBITDA  after the financial Kreskins at the Company add back all of the recurring “non-recurring” expenses.

It’s incomprehensible the way the market can ignore the bad news piling up.  JP Morgan admitted earlier this week that it is woefully under-reserved against defaulting energy loans it was unable to unload onto the market.  Bloomberg News featured a story today which reports that “the biggest wave of oil defaults looms as the bust intensifies” – LINK.   I think this is already becoming a hidden problem in the financial system and it explains why we seeing financial firms like AIG (credit default swap issuer) and DB (lender to defaulting energy companies) not participating in this bear market bounce.

We know that the middle class is running out of money – “more subprime borrowers are falling behind on their auto loans”  and “Retail Apocalypse: Major US Chains Closing 6,000 Stores Nationwide” – but Restoration Hardware yesterday told us that upscale shoppers have stopped spending money now as well.

The “Minsky Moment” occurs when too much borrowed money has fueled too much asset valuation speculation.  The market will no longer absorb increasing levels of debt and the current borrowers can no longer support what’s already been borrowed.  A severe collapse in asset values ensues.

In early 2015 the Government allowed Fannie Mae and Freddie Mac to offer 3% down payment mortgages.  This is because the system had run out of borrowers capable of taking down a 5% mortgage.  Later in the year the Government began offering a zero-percent down payment program.   Private, non-Government pools of capital are offering  reconstituted versions of the type of mortgages which led the collapse in 2008.  The mortgage market is now searching for the last non-mortgaged stragglers who can still fog a mirror and are willing to overpay for a chance at the American dream.

Currently we are seeing the Minsky Moment swarm the energy market and begin to engulf the auto loan market.  Soon it will start creeping into the housing mortgage market.  The gerbil is almost dead but it’s still making the wheel spins albeit slowly.  Not surprisingly the stock market is looking at the gerbil as it dies and interpreting any sign of life as a reason to party on…

8 thoughts on “Let’s Have Lunch With The Mad Hatter

  1. Janet whoever – point is, she is the clueless grandma like lady who is in charge of helping the banksters now after uncle Ben abdicated his seat.
    Regarding the housing market – when the Fed raised rates, initially the 30 year mortgage rate went up a little but now it has gone back down. Banks are desperate to keep the bubble going for a while longer. But with prices so high and a recession knocking on the door saying hello, buying now doesn’t seem to make sense. Sure, you want to own a home but you don’t want the home to own you either.

  2. Hi Dave,
    I have no idea if this is related but I still get email updates from my old broker.Here is what they sent me.”I am writing to let you know that AIG Advisor Group, the parent company of our broker-dealer, Royal Alliance Associates, will shortly be sold to a holding company formed by a private equity firm and other investment groups. This change in ownership should be seamless and will have no impact on you or the relationship with our transfer agent. A change in broker-dealer ownership requires that regulatory notifications be made directly to you from Royal Alliance. You will be receiving this notification over the next few weeks, and there is NO ACTION required on your part”

  3. Zerohedge published an analysis earlier showing that the seasonal adjustment factor for Durables, and similar to January Retail, was abnormally large – read “Outlier”.

    This market bounce is the Wise Guys playing their usual three card monte scam, luring in the suckers, and emptying the few coins they have remaining in their pockets.

  4. Hmmm must keep purchasing power of clown bux, but stock market must rise too?…hmmm…clownbux wont’ be worth much if we keep paying out the schleps in stocks?…..the central bankers paradox…….. 🙂

  5. This is from Aaron Layman of http://www.aaronlayman.com – Houston R/E professional:

    Absolutely comical that these jokers preach about free market capitalism with so much fraud and institutional looting going on behind the scenes.

    Here in Houston the shit is hitting the fan. Construction permits just dropped 31 percent in January. But hey, we have more than 30 months of supply for new luxury condos priced $700,000 or higher.

    http://aaronlayman.com/2016/02/census-new-home-sales-decline-5-percent-yoy-in-january-494000-saar/

  6. I liked this quote from one of the links above {Zero Hedge]

    “If and when the CME breaks next, we expect everything to lock limit up as only the upward momentum-levitating algos will be allowed to frontrun each other.”

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