October 13, 2009
By John Galt
The next wave of problems is quietly crashing on top of our collective heads but the MSM, especially the Financial Bubblemedia will not cover this nor make you aware of what is happening. The rating agencies, already under fire and being threatened with a Congressional extinction event, are quietly downgrading RMBS for Alt-A and Option ARM series which reflects the reality of what is happening in the real markets. As these downgrades increase in voracity and volume, the eventual reduction in bank asset quality will result in a tidal wave of desperation capital replenishment as even under the current FASB mark to whatever you feel good about rules can not prevent the MBS from assuming room temperature with values of little more than ten cents on the dollar. As this happens, the realization of “gee, I’m shocked and stunned that the residential real estate has not improved” will hit home.
There are several indicators to watch and as the banksters report earnings, I’m going to try to find the time to report on them. In the mean time, keep your powder dry as this glass shelf rally will eventually shatter. The lack of volume indicates to me that at some point the glass will crack and the eventual bear market correction will be at least as severe as this rally was surging upwards. For sanity’s sake, do not use one year charts except as points of reference; start using 3, 5 and 10 year charts as we are now moving into the new paradigm of what happens when financial markets experience ten years of declining growth where the wealth extraction was used to destroy individual retirement accounts and currency depreciation to devalue savings. The long term view has been horrid and the ten year S&P 500 says it all so if you don’t believe my warnings, just use your eyes: