Markets continue their unsteady ways ostensibly because of the European debt crises when in reality it is almost uniformly a global debt crises. Here at home in the good ol US of A, late Friday brought the December Consumer Credit report, outstanding credit balances fell for a record 11 consecutive months, dropping 1.7 billion.

The latest data from Fitch’s ratings of Prime Jumbo RMBS is that the delinquency rate is nearly 10% following a 32nd consecutive month of higher delinquency rates as January hit 9.6%. The Fed’s senior Loan officer Survey shows not only tightening lending standards and falling loan demand nearly across the board and that these trends have been fairly consistent over the last 2-years or so. The one exceptions being an increase of late for residential loans compliments of bargain hunting consumers and the homebuyer tax credit.

Of late the data shows that despite the extension of said credit mortgage lending is falling again. As per the commercial bank loans and leases data breaking the upward trend started mid 4th quarter. Through all of the data regarding lending, foreclosures and defaults the discussion of excessive leverage has been studiously avoided for the most part. The government desperate to restart the economy at all costs is doing everything it can to reinflate the real estate bubble.

If demand for loans is steadily decreasing as per the senior loan officer survey, consumer credit and related reports, delinquencies and foreclosures steadily increasing. It stands to reason that the problem here is too much debt and borrowing more isn’t the solution.

Politicians have played kick the can down the road 30-odd years and now the chickens are coming home to roost because the ability to borrow yet more money, and play kick the can again is no longer viable. As the Federal, state and municipal budget mess clearly illustrates. It is the modern version of Nero fiddling whilst Rome burns, except this time Nero doesn’t fiddle by himself.

Stocks are on track to end a rough week in the red. Since Monday the DOA has lost about 200 points or 2% while the NASDAQ has shed some 50 points a little more than 2.25%.

The January employment report came in with a loss of 20,000 jobs, December’s loss was revised to 150,000 while Novembers gain increased to 64,000. The net/birth death statistical revision subtracted a much less than expected 427,000, roughly half the expected loss. Overall the employment report is mixed, the unemployment rate fell to 9.7%, the work week increased to 33.3 hours while wages gained .3%, some improvement was seen in temporary help but hardly a positive trend.

The rate of job loss has definitely slowed dramatically, which is a very good start but what is required for true recovery is job creation as the following data illustrates. The number of people unemployed 27-weeks or longer is at a record 6.31 million or 4.1% of the workforce as per the BLS.

The future inflation gauge continues to increase, adding 3 points to 102 in January, while the smoothed annualized growth rate reached 37.6% suggesting that the Fed’s attempts to reflate the economy have achieved some success and that the specter of deflation has become less of a concern of late. I would expect both of these trends to be short lived but will see.

The ECRI Weekly leading Index continues to slip as the top line number fell to 130.9 and the smoothed annualized growth rate slipped to 21.5 during the latest week indicating that the recovery is anything but certain.

Stocks fell hard in morning trade on a supposedly unexpectedly weak unemployment claims report.

Productivity jumped 6.2% in the 4th quarter, less than expectations but a solid number that lends credence to the related GDP figure and marks the 3rd consecutive quarter of +6% productivity gains. Unit labor costs plunged 4.4% great for corporate profits, all together one of the more positive economic reports I’ve come across lately.

The increase of 8,000 initial unemployment claims ostensibly spooked the market this morning; I suppose it’s as good a lame excuse as any. The 4-week moving average jumped 11,750 to 468,750 a 4th consecutive increase. Indeed the recent reversal of trend relevant to unemployment claims is the real worry and with the official jobs report out tomorrow expectations are that will see increasing job losses. Additionally with the annual net/birth death statistical model revision on tap and expectations that this will erase 825,000 odd jobs from last years figures the employment trends both immediate past and present aren’t pretty.

Ultimately of course it’s about jobs and real economic recovery just isn’t going to happen until we start to replace some of the job losses over the last few years. Those on unemployment number 4.6 million while those collecting emergency benefits runs 5.6 million, add the 2 together and its 10.2 million folks on some form of unemployment benefit so its no wonder state funds for these programs are going broke leading to borrowing.

The SEC couldn’t do its job relative the Madoff affair, nor could it manage to do its job relative to the B of A/Merrill deal. NY AG Andrew Cuomo has stepped in with a civil suit charging fraud by B of A’s execs including ex CEO Ken Lewis, while the SEC continues to try and paper over the whole mess with yet another settlement offer.

Stocks enter the final hour with modest losses despite a much stronger than expected GDP report. Since Monday the DOW has given up about 40 points or a little less than ½% while the NASDAQ has slipped more than 50 points or some 2.5%.

The ongoing testimony involving Timothy Geithner and others involving the bailout of AIG grows darker by the day. As it has been revealed that the NY Fed, on Geithner’s watch, despite little if any public transparency and or accountability, demonstrated that it’s allegiance is to the corporate interests.

The staff recognizing that the guano was about to hit the fan embarked on a plan to cover it up and explain things away as best they could. Geithner said he recused himself despite never signing a letter formally doing so, Hank, we all want transparency, Paulson claimed he wasn’t in the loop as did Ben Bernanke. Who was reappointed for a second term despite all of his shortcomings including what is increasingly looking to be a lack of integrity.

If you believe that the Fed Chair and then Treasury Secretary were unaware of what was going on regarding an 85 billion Dollar plus bailout of AIG give me a call as I have a magic wand that turns clay bricks into gold.

Recent events plus the Supreme Courts decision to allow unlimited corporate spending on elections caused Jeremy Grantham to state the USA had become the UCA, or United Corporations of America, I can’t argue with that.

The 4th Quarter GDP report came in much better than expected at +5.73%, the highest figure in 6-years. Prompting the cheerleaders to proclaim that the recession is definitely over with predictions of prosperity and economic growth later this year.
A careful analysis of the numbers using historical comparisons reveals that this figure isn’t anywhere near as good as it looks at first glance, especially when one considers how much stimulus was thrown at the economy to achieve it.

The following observations are courtesy of David Rosenberg Chief Economist and strategist of Gluskin Scheff. Strip out the inventory blip and foreign trade and the figure drops to +1.7% for domestic demand last quarter, lower than the previous quarters 2.3%. The GDP figure implies that productivity should be surging at a 6% annual rate, 4-times its historical average. During the 4th quarter aggregate hours worked fell .5% annualized. Never in the 50-year history of this data series has hours worked declined .5% and GDP come in at +5.7% during the same quarter. In fact the historical correlation is for private hours worked to increase 3.7% with a GDP figure like this. +5.7% is a good number just not as great as the headlines suggest.

Stocks fell from the open despite little significant news. Durable goods orders increased .3% in December, a volatile series the proxy for business spending, non-defense capital goods ex-aircraft, fell 2.2% though the rate of decline has fallen sharply. Businesses just aren’t investing, as overcapacity remains compliments of the credit bust. The Chicago Fed national activity index increased to -.61 in December just below the recessionary threshold of -.7.

DataQuick reports that Notices of Default hit a record in 2009, while the rate of filings trailed off late in the year I would think that has much more to do with the various moratoria including the HAMP Program than actual fundamental improvement. Still the report suggests that the worst is probably over for the lower priced, aka sub-prime, markets, though they noted that foreclosure activity is increasing rapidly in mid and upper end markets due to the Option ARM and Alt-A resets and unemployment driving prime defaults.

On the subject of employment the 4-week moving average has now increased 3 consecutive weeks reaching 456,250 with the latest release. Economic recovery is about jobs ultimately something Obama recognized in his State of the Union speech last night. Though once again the concept of too much debt was largely avoided with the exception of a passing reference to affordable mortgages and of course reducing the Federal deficit.

Much of this I imagine has to do with the fact that the Fed’s economic models don’t account for the burdens imposed on consumers by the assumption of an excessive debt level. Yet the data on the subject is quite clear as is the current example playing out before us in spades that is the credit bust.

This failure to recognize the systemic problems caused by said debts is the root of much of the criticism surrounding Ben Bernanke’s confirmation hearings. While the official blindness to debt issue I find particularly surprising especially given the data available and the Japanese example, an example that continues to this day and has been going on for 20 odd years.

The hypocrisy and BS from the bank bailouts and credit bust fiasco grows deeper by the day. Despite assurances that the Fed Chairman would remain free from political influence and I quote; “I will be strictly independent of all political influences.” Mr. Bernanke makes the rounds to kiss the hands of no less than 18 of the 23 legislators on the Senate Banking Committee prior to their 16-7 vote this month on his second term. An unprecedented level of political pandering by a Fed Chairman seeking an additional term. The list goes on and includes other politicians and a some CEO’s as well as per the article in Bloomberg.

Bernanke Met With 24 Senators After Renomination as Fed Chief

To his impressive list of accomplishments we can add clueless lying hypocrite as well.

A more recent piece in the Wall Street Journal:
Does Harry Reid Want Something From the Fed For His Vote?

Suggests that influence peddling is part of the Federal Reserve Chairmans nomination process. While certainly no surprise it serves to underscore just how corrupt and compromised the whole government big business relationship really is. A relationship more commonly known as Fascism-by definition. Or to put it another way, the banksters utilize the AAA sovereign debt rating of America to back their highly levered fractional reserve lending scheme that allows $1 in deposits to be backed be 3 Cents in reserves, 33-1 leverage, add a growth rate of 7-10% periodically go broke and run to our supposedly independent Fed for a taxpayer funded bailout, so that they can do it all over again.

What has been passed of as financial innovation derived economic growth and prosperity is in fact a mirage of consumerism funded by debt and leading to indentured servitude, ala the 2005 Bankruptcy Reform and Consumer Protection Act, incidentally written by the banksters.

Nero continues to fiddle whilst Rome burns, a sad state of affairs. America and its people are a resilient bunch, very good at getting their collective acts together when their backs are against the wall. My hope is that this will happen again as the social cost of this fiasco will prove steep indeed and the one thing that really keeps me going is the hope that this will motivate my fellow citizens to effect real change on society for the benefit of America and its populace, change that is desperately needed yet still lacking despite promises to the contrary.

Source:
Bloomberg
Bernanke Met With 24 Senators After Renomination as Fed Chief

Wall Street Journal
Does Harry Reid Want Something From the Fed For His Vote?

Stocks struggled from the open and enter the final hour with modest losses. Treasury Secretary Timothy Geithner’s feet are being held to the fire today regarding the NY Fed’s role in the AIG bailout during his governorship. Things aren’t going well for the Treasury Secretary as it appears his handling of the matter left a lot to be desired and apparently Congress doesn’t like to be conned, unless of course it’s by a lobbyist with a lot of campaign contributions and other goodies.

Despite near record low mortgage rates, an extension of the $8,000 homebuyer tax credit and easy finance terms from the FHA like existing home sales, new home sales fell sharply, dropping 7.6% to 342,000 units annualized. Inventory increased to 8.1 months while the median price gained 6.4% to $225,700 the highest since December 2008. That said the recent plunge in sales activity despite all the stimulus and dramatically improved affordability poses some serious questions not only for real estate but for the economic recovery as well.

The MBA activity index fell 10.9% to 513 during the week ending on the 22nd as refi’s slipped 15.1% and purchase apps fell 3.3%, the 30-year contract rate was essentially unchanged at 5.02%. Mass layoffs fell to their lowest level since July 2008 dropping to 1,726 in December involving 153,127 employees. As expected the Fed left rates unchanged at the conclusion of the latest FOMC meeting.

Increasingly our problems are shifting away from those of a purely economic nature, not to minimize them, to one of credibility and by implication trust. As today’s hearing demonstrates, as does the lack of real regulation in response to this fiasco, a glaring lack of prosecution though some investigations are underway with others planned. An almost complete lack of gratitude on the banksters part for their taxpayer funded bailouts and by implication employment along with a continued avoidance of any responsibility on their part. The public’s frustration level is high and rising along with the level of strategic defaults currently estimated at 25% of the total. If that reaches critical mass, and your guess is as good as mine the potential for a game-changing outcome cannot be discounted.

The banksters would be unemployed had we not bailed them out, yet they refuse to change, once again Elizabeth Warren tells it like it is.

Source:
Elizabeth Warren
The Daily show

Stocks moved steadily higher after a rough opening on mixed news. The Case/Schiller 20-city home price index fell at an annualized rate of 5.3% in November continuing the trend of a slower rate of annualized house price decline seen over the last 10-months, from October prices increased .2%. Some notable standouts from the previous month include LA +.8%, San Francisco +.6% and San Diego +.4% at the other end of the spectrum Chicago fell 1.1% while NY lost 1%. On an annualized basis San Francisco gained 1%, Denver increased .5% and San Diego the original canary in the coalmine added .4%. This reports marks the 6th consecutive month of increasing prices, though this trend is slowing. Expectations going forward include rising foreclosures as the year progresses and a resumption of price declines as a result. The gains to real estate affordability achieved through said declines to date look to come under increasing pressure due to falling rents a critical component of the affordability equation. Further the likely failure of the HAMP program to effectively modify significant numbers of mortgages along with continued labor market stress will put additional pressure on prices.

Of course price declines are a big factor in foreclosures, which has led to a significant debate on the subject, do I do the right thing, the moral thing and continue to pay my mortgage despite a failure of the financial argument to do so. Or is a mortgage simply a business agreement that involves risk to all parties and if the risks are deemed excessive a default results. If you’re an individual with a mortgage the general consensus is that you have a “moral” obligation to pay. However if you’re a so called professional investor its just a business agreement and you can walk away without any messy moral considerations at any time. The latest example of which is the decision by Tishman Speyer and BlackRock Realty to walk away from their investment in Stuyvesant Town, a huge complex in NY City, creating the largest residential real estate default ever at 4.4 billion. Interestingly the loans were obtained with little money down, only 112 million and ridiculous cash flow assumptions. Much like a zero down stated income individual mortgage loan.

I’ve always found it fascinating that a corporation is considered a non-natural person, lacking a soul and as is painfully obvious after the last few years, if it wasn’t previously. Is frequently devoid of morality and conscience as well. In all of the reporting on this subject by the mainstream media these concepts are strangely absent for the most part.

Stocks hold modest gains into the final hour despite a disappointing existing home sales report that saw a much larger than expected drop of 16.7% to 5.45 million units annualized. Inventory increased to 7.2 months while the median price fell 12.4% last year worse than the 8% decline in 2008 and registering the largest annual drop on record. As expected the numbers were skewed by the homebuyer tax credit and will have to wait until summer to get the real picture, assuming no additional government intervention. Though affordability has improved substantially the fundamentals for housing will remain bleak until the employment and foreclosure numbers improve.

Despite the finance sector and its efforts at deregulation proving significant factors in the current crises. Said finance sector remains on the offensive, and it is, using the World Economic Form in Davos as a venue to push for softer reforms following Obama’s proposal to rein in the banks.

It’s a big week for economic data that culminates with the 4th quarter GDP report on Friday. Expectations are that this preliminary number will be quite hot at +4.5%. Largely due to inventory restocking, a common factor coming out of recessions but as Paul Krugman warned, beware the statistical blip. Because the data increasingly points to the recession retuning later this year, if in fact it ever left.

Another 5 banks went to the receivers Friday; Columbia River Bank, Oregon; Evergreen Bank, Washington; Charter Bank, New Mexico; Bank of Leeton, Missouri and Premier American Bank, Florida. The latest credit card delinquency data from Fitch’s Ratings reports an all time high of 4.54% while chargeoffs hit 10.68% but remain below the record seen in September 2009.