The Recovery Myth on Wall Street

by John Galt

December 1, 2009

So why am I mocking the Bubblevisionistas once again? It’s quite simple when you think about it. The preaching, screaming and praying that we are in an actual recovery continues on the various networks yet reality is telling us that this is a myth. The reality is that the equity markets have been pumped upon liquidity only as the banksters had no desire nor incentive to risk loaning money to Joe SixPack and those evil Ma and Pa stores on Main Street because the government did not tell them they would back those loans with explicit guarantees; instead the idiots like Turbo Timmy just screamed at them to raise capital immediately.  Thus the banksters without the yoke of Glass-Steagall holding them back they went to the great casino on Wall Street doubled down with the taxpayer’s money and have been reaping massive returns and pocketing cash to preserve their precious ratios. Well, you know, I know and they know that when they have to start marking down all of the garbage on their books, the results could become catastrophic as the street and world realizes that “gasp” we were lied to again.

For example, my favorite examples are the very basic, self explanatory and logical MarkIt ABX indices. Here is a good one for you to see which illustrates the “rally” but requires some perspective:

ABXHEAA07_2That’s right, it’s recovered around 1% of approximate 97% it has lost since the high bid of 97. This means that no matter what is said, done or spoken about there still is no bid for RMBS unless the Federal Government or Federal Reserve elects to buy them and that will keep the pipelines pretty much shut down for credit to flow to potential homeowners who want non-conforming (GSE) loans. There is no recovery in residential real estate despite the flowery bullcrap you hear each month from the NAR and their ilk. Starts and permits are telling the tale and we are at levels that we have not seen since the Eisenhower administration.

Lastly, if anyone thinks this stock market is rallying, let’s see what happens if you took all the money ouf off of the sidelines. What am I talking about? A picture is worth several hundred billion dollars worth of words:

3yr6MONTHTREASYLDjgfla

If the new normal is a 0.50% yield or lower, then God help us the minute the “official” CPI-U ticks past 0.5% on a monthly basis. As of now, the 1, 3 and 6 month yields are all negative when you subtract inflation from their current yield levels. People are so scared, translation= large investors and international banks, that they are willing to lose money in short term Treasuries than gamble on the unpredictability of this administration and government plus the instability still inherent in our financial systems.

Until our financial system stabilizes and you see the short term rates tick above the levels that we have seen over the past year, then the recovery is a myth on Wall Street and Main Street and nothing more.

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2 responses to “The Recovery Myth on Wall Street

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  2. Jim ODonnell

    The “peeps” who believe in a recovery also think that there is no objective value to any security, and will buy anything that they are told is recovering.

    Soon the only objective measure of value in the financial markets [somewhere in the world] will be the “price” of gold in the form of some currency which has not been totally destroyed.

    John, for the life of me, I can’t figure out today any senerio which will get the US T-bill rate back to some “normal” level. Short of a gun of somekind pointed at their heads, they will just print-print-print until the computers can’t handle it anymore.

    Their economic theories have become “religious dogma” now and they will burn everyone at the cross until someone is able to burn them on it.