Saturday, July 21, 2007

The Chart

In the past they would circle the wagons as there is safety in numbers. Whether it was Jack Grubman, Frank Quattrone, Mary Meeker or Henry Blodgett, (tech analyst extraordinaire. Quick, free 2 for 1 Dennys coupon to anyone who knows Henry's prior gig to internet fame at Oppenheimer and then Merrill Lynch. Drum roll please........ proof reader at Random House) they would deny, deny, deny and proceed to write a check while neither admitting nor denying wrongdoing. I just love that phrase neither admitting nor denying wrongdoing.
Then without warning someone breaks rank, gets cold feet and panic sets in. Everything in the toxic world of sub prime slime was fine as long as they all kept up appearances. The brokers all knew the paper was worthless yet their charade of mark to model was still being swallowed by the clients so none the wiser. But then Merrill broke ranks (he who panics first panics best.) and turned on comrade in arms Bear Stearns. Now we get news the gloves are off.

It just boggles my simple mind how they (the Fed, Wall St., NAR, mainstream media) expect me to believe sub prime is contained (wait till the discussion spreads to Alt-A) and how this housing problem which is 30% of the economy is no big deal ?! Housing has accounted for, according to multiple sources, 40-45% of all new jobs in this economy the last few years. The consumer represents about 60-70% of the economy and has been using his house as an ATM. Lending standards are on the rise, and retirees have been counting on their home to help fund his/her pension years.

The ARM (adjustable rate mtg) crowd is facing the perfect storm. This perfect storm is composed of 3 variables to the mortgage scene for the average couple. His job, her job and the interest rate. I have long believed that all 3 have to be in favourable mode to keep 'the game' going and if any one of these were not, financial calamity looms. Here we are now where rates are higher with the mortgage about to re-set and in many cases 1 or both income earners are suffering. Now add in tightening lending standards which will now spread like wildfire as the pendulum swings back from overt recklessness to overt curmudgeonness (such a word?)

Hence I show you THE CHART, again, cause if you're like me you need to see it again to get it to sink in. (after much effect I found osmosis doesn't work for me) The implications of this chart is something you should be very afraid of. Forewarned is forearmed.

More evidence of trouble in consumer land. Brunswick getting wacked and stock heading much lower.

Another sign that you should fasten your seat belts. Fund of the year in 2006.

Boy is the U.S. dollar sick. Just can't seem to get out of its own way. I am sure glad I am not in Ben Bernanke's shoes. Hmmmmmm.... lets see, if he raises rates to save the dollar and contain inflation he will crush the housing/credit/derivative markets and if he lower rates to save housing/economy/Wall St. he will crush the dollar and put inflation into overdrive. Good luck and good trading to you.

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