Was it Greece? Was it a fat finger trade? Was it high frequency trading? Was it quant funds run amok? No one knows for sure, but it was ugly to say the least. I believe the selloff was very, very real and a matter of no one left to buy the dip. We fell within 1.5 points away from all trading being halted and we miraculously reversed course and rebounded some 700 points. Some think it was the Fed or the plunge protection team, I would say that is not farfetched either.

The one thing this was definitely not was a fat finger trade, like originally reported. When trades are entered for equity orders they only use numbers, not letters so the whole “B” versus “M” argument is a bit irrelevant and merely makes a good news story. I believe this whole thing was a perfect storm of a hugely overbought market, yes it is and was overbought, mixed with Greece contagion fears sprinkled with a bit of tight orders by HFT or quant funds and no one left to buy, anything. All liquidity was sucked out of the market and when that happens, well you saw what the results are.

I believe this is only the beginning and things will get much worse. It was also odd to see mining stocks remain in the green along with gold. If this was a trading error these stocks should have tanked as well, but they did not. This tells me that the selloff was more than a bad trade or order imbalance and any other ludicrous reason the media can come up with. It was selling, real live selling from people who know what it is like to lose 40-50% of their money and did not want to repeat that again. Watch fund flows to verify this, I bet we see more bond fund inflows in the very near future.

Even if you were short it was a tough market for you, especially option traders who saw the bid/ask spread widen to levels I have rarely seen before. I am long VIX August and September calls and it took an hour to get pricing back to normal and there was no premium being given for being in the money. It was amazing to see the selloff today as I jokingly went to my wife’s office and said the market is crashing, it was down only 280 at the time, and when I turned it to CNBC to show here it was down 400 and moving fast to the downside. It was breath taking and luckily I was hedged, but the talking heads on TV and perma bulls that you talk to probably told you that hedging was not important and the market now only moves up, it doesn’t, sorry to tell you.

I always find it odd that when the market tank there is talk of manipulation, but if the market goes up for 8 straight weeks that is normal, come on now. I do not believe anything about today was manipulated, except for the massive rebound that “just happened” all of a sudden. No one seems to be really looking for the cause of this, in a serious manner I mean, and are chalking the decline up to a fat finger event, etc. I am a bit more inquisitive though and while I do not have an answer, I have some theories.

I have heard rumors that the overnight repo market in Europe is frozen, I do not know if this is true yet, and if you notice the overnight LIBOR has been creeping up and is close to the 1 and 3 month rate, this might mean the rumor of the repo market is true. On top of that the risk of contagion is extremely real, I wrote about that a week ago in the “Greece Does Matter” post, and the next up is Portugal followed by Spain, Italy and France who owns tons of PIIGS debt, $781B to be exact. After that it is anyone’s guess to who is next, but it is more than likely going to be the UK. What is happening in Europe should be a lesson, in advance, for the US who, ever since Obama has come into office, seems to think the European way of doing things is better than our system, it is not.

The reason for the debt crisis is the massive debt these countries accumulated to give away free health care, massive pensions, paid vacations and other luxury things to their populations. Clearly following the European lead is not a wise move, but that will not stop our politicians who are immune to market downturns because, A) they are all wealthy and B) they are paid very well for what little work they do. We are the next Europe and we will suffer the same issues they have now if we do not get our act together. I am fairly certain that the funding crisis which is a rumor today will be public knowledge in a few days and is one of the main reasons for our selloff today.

If Europe cannot fund itself, other than through the printing press, today will seem like good times moving forward. This is bigger than Greece and it is 10 times bigger than Lehman, we are talking about countries now, not banks. Essentially, we decided to save the banks at our own peril and we are now seeing the results of this action. We should have let them fail, all of them, because we now run the risk of major countries failing. Was Goldman Sachs really worth it? I think not.

What really stood out today was gold, it went up and is on the verge of a tremendous break out. Are gold bugs really that creepy now or is it that we knew something in advance? For those of you wondering, it is the latter. Gold is now the new reserve currency, period. We may suffer from deflation when this funding crisis escalates, but that will quickly turn into inflation, very, very fast. When dollars come into high demand and they are not available we will see this deflation, but remember, we have Helicopter Ben at our disposal. He will literally get into his helicopter and drop dollars all over the country. This will seem like nothing as the dollar stays strong, but that will be very short lived.

After the dollars are dropped inflation will be swift and unlike anything we have seen before. You see, even though Ben flooded the banks with dollars over the last 3 years none of those dollars made it to us, the people who spend them. Instead the banks bought treasuries, also a good option for investors right now, and this time the dollars will bypass the banks and hit us directly, think Bush stimulus instead of green energy stimulus from Obama. Putting that money in our pockets will mean people will spend, that is what Americans do, don’t ask me why. There is where inflation begins and that is only the start. I am not sure what they will do after that, but I am confident it will involve more spending and giving us money, thanks china!

There is where the problems will really begin because there will be a global funding crisis at that point. This means that no one will buy our debt so we can buy iPods. Ben will have to print it, literally print it to get it into our hands. Inflation is a funny thing and very misunderstood, but I assure you that we will not enjoy it, we will at first though if we pay off our personal debts. In the end we will merely be left with tons of worthless paper and sky high prices. What happens next is a mystery to even me and I am a doom and gloom guy, but it is not going to end well. This is why you must own gold, in your possession, because it will get that bad. The worst case scenario is the value of said gold drops, but it will still be better than holding only USD’s. I think the biggest risk is not owning it versus owning it at this point.

Perhaps this was a one day event though, I doubt it, and everything will be fine. Tomorrow we will receive news that the government hired tons of people and private companies hired more temporary workers, we know the number will be good because Obama already scheduled an 11 AM press conference to go over the jobs report. However, those who continue to think temporary jobs and government jobs are a good thing will be very disappointed to learn it is not. I believe that we will open up much lower, working off unclosed sell orders, and we will rebound some tomorrow, who wants to be short into the weekend.

The real show might be next week, depending what happens over the weekend. I am not sure of the near-term outcome or what will happen, I am holding my shorts and VIX calls though, but we did get a glimpse of what will happen longer term today. I do not know about you, but I did not think it looked pretty. As far as believing some trader pushed the wrong button, come on we can do better with our excuses than that.

Greece received its bailout today, pending an approval from some EU members which should prove interesting. Do European politicians care about reelection as much as U.S. politicians? If that is the case I suspect the longer term bailout is in question.  Even in Greece itself the bailout is not widely accepted, who would figure that the unions would be opposed to higher retirement ages and lower payments. The current system is kind of insane, 14 annual payments, there are only 12 months, even in Greece, and the minimum retirement age was 53, new proposed retirement age is 67, welcome to the real world.

The primary issue, as I see it, is that we are curing debt with more debt. The EU member countries will have to pay for this bailout through higher debt to GDP ratios and higher taxes. This is why in Germany the bailout is unpopular, as it should be. At the end of the day all they are doing is saving France and other Greek debt holders, they should not be rewarded for speculation, but that is what is happening. As David Rosenberg said, we should all be opposed to bailouts, the madness must end. By allowing failed states or companies to survive when the free market decided otherwise has never worked long-term.

On top of the ridiculous bailout of Greece we now have to worry about the other PIIGS. Are they going to get bailed out? If so the EU and IMF will need another few hundred billion Euro’s. I suspect that Spain and Portugal spreads will widen tonight and tomorrow as the Greek issue is temporarily resolved, but their issues are now at the forefront of concerned world citizens. Bailing out these countries will be a huge mistake as it condones bad behavior. Let them fail or implement an ejection mechanism to the EUM Constitution.

I am sure the markets will be positive tomorrow as the crisis was “averted” and the good times are here again. Although I believe Friday’s selloff was unrelated to the Greek tragedy, but in reality the markets are facing a very overbought situation. Whether you want to believe this or not is your choice, but the markets are not supposed to go up every day or week. In fact, the past 2 months have been very, very abnormal to say the least, but the bulls will disagree, of course, citing some preposterous data point or use a forward looking P/E, which is just dumb I might add. But those of us living in reality know that conditions are not that good and the underlying economic data really does not support a parabolic move in the markets.

However, those in reality will look at the Greek tragedy and say, how can you fix one countries debt load by increasing another countries debt load? It just does not work and eventually we will see defaults. When that will be? I do not know, but soon I am sure. I am also confident that the Greece issue will spread first to Spain and Portugal, then to Italy and finally to France, since no one can bailout all those countries. Where it goes from there, I do not know, but I do know that it will eventually travel around the world as debt crisis usually do. This is why gold is going to go parabolic in the very near future… Got Gold?

Apparently the markets, that wonderful forward looking discounting mechanism, did not see or have fear what is happening in Greece. It is safe to assume that this proves that the markets are not efficient and it fails to see potential problems. What is interesting is that Greece and Portugal were not or should not have been a surprise to the markets since we have all known about the issues with the PIIGS for months now. How anyone could have been surprised by this news today is beyond me. I guess the junk rating on Greece may have been a surprise, but come on, when the 2 year note was yielding 11% how in the world can it be anything other than junk?

The market has gone up for 8 weeks in a row and while the talking heads thought this perpetual “tortoise rally” was normal anyone who has even a little investment experience knew it was not. I still remember Dennis Kneale, last week, calling people who held cash “fraidy cats” because the market is back and it will be a bull market forever. The world does not work like that and the risk trade has been, frankly, out of whack. Money has been pouring in to everything from high yield to emerging markets in the expectation of a steady 1-2% a day. This was verified from mutual fund flow data reported last week which showed investors moved more money into equity funds, for the first time in a longtime, and, in my mind, confirmed we must be near a top, dumb money always moves in after fantastic rallies.

Whether or not this was a top remains to be seen, but it certainly looks like it from my lens. I have been wrong before and might be again, which I admit. However, even though I was wrong it doesn’t mean that the markets were right either. Earnings are better, I still see some misses in revenue though, but the underlying macroeconomic data has merely gone from very bad to just plain bad. When we cheer a 57% confidence reading that is a problem because that it is a horribly low number. The housing data is not verifiably strong when you have, like in October, a rush of people buying for the tax credit right before it expires. If the housing numbers stay “strong” for May then you may say housing is rebounding, but I highly doubt we will see such strong numbers at that time. Housing is a key indicator because it employs so many people and homes were the collateral that were the bad debt sitting on bank balance sheets.

Unemployment remains incredibly high, use the U-6 data not that foolish headline number, which is a severe problem. Given that weekly claims have stabilized at -450K is horrendous at best. That number shows that private employers are still shedding jobs and I am confident that the employment report next week will show “stellar” job creation in the government sector and in the temporary help area, those are not good areas to see growth in. I am a believer that the temporary help is just that, temporary and will not convert into fulltime employment, we would be seeing that conversion by now, but we are not. Housing problems plus high unemployment will keep the economy down for some time.

On top of the squishy soft economic data being heralded as a full blown recovery, don’t get me wrong less bad is a welcomed improvement, we have a sovereign debt crisis. People claim that Greece is only 2% of Europe’s GDP and dismiss their troubles. That is a bad idea because while they are right about Greece they conveniently forget that all the PIIGS account for some 13% of Europe’s GDP and they are all in trouble. Spanish and Italy’s bonds have been trading lower pushing their yields up over 4% and Portugal was officially downgraded, that is all really bad news. Each country, individually, is not a big deal, but combined we are talking about the potential to default on hundreds of billions of dollars worth of sovereign debt.

To put this into prospective, France owns some $781B of PIIGS debt, if they all default what will happen to France? They will be in trouble, of course. Then there is Germany, how much PIIGS and French debt do they have? I do not know, but I assume a lot. What will happen to Germany if they get stuck with declining value of all that paper? They will have to bailout their banks, I assume France would have to do the same for their banks as well. That, basically, puts the banking system in jeopardy again, in less than 2 years. What I am explaining, probably in a horrible way, is what contagion looks like and it doesn’t end there either. The U.K. has exposure to all these countries and they are already in horrible financial shape and the series discussed above makes the U.K. susceptible to the contagion.

U.S. banks have exposure to both European banks and sovereign debt which means out fragile banking system could face another challenge. Let us not forget that the U.S. is also heavily indebted, along with Japan, and people may start to question the safety of U.S. Treasury debt, as they should I might add. From my lens, in a worst case scenario, meaning this all happens, it would be a coin toss as to which country goes next, either Japan or the U.S. given their immense debt loads. This scenario is unlikely or has a low probability of happening, but it is possible and it could trigger a global currency crisis.

This explains why gold went up today in the face of a stronger dollar and a rush of selling from the market. Even silver held its own today in the face of dollar strength. This shows that gold is still a flight to quality, it is also in a bull market as well, and it is a trusted currency. In fact, gold’s rally today is why I think it is possible for a global currency crisis because if this was another credit crisis, like 2008, it would have sold off for liquidity, but it did not. I am not sure if I would be buying gold right now because I already own a position, but if I did not own any gold I would be a buyer.

All is not well in the global markets and people should stay nimble as to where to put their assets until things settle down. I would say this decline is extremely bearish and way overdue, the higher the market went the worse the selloff would be, which could make it worse. It was insane to think that volatility would not comeback and that people went from sheer panic a year ago to such utter complacency this year. The worst part about all of this is if this does trigger another crisis what can the Fed or the governments do to calm the markets or remedy the situation? Nothing, they already spent all their ammo and they even had to borrow some to boot. I am not saying this will trigger another crisis, but it certainly has all the ingredients for one, if you look at the big picture.

Bad things often happen to good people, but why would anyone take advice from a guy who is bankrupt? Lenny Dykstra famously lost his house and fortune last year in a very public bankruptcy and at one point the judge ordered a trustee to take control of Dykstra’s assets because Lenny seemed a bit, um, well, aloof. Lenny claimed that he got bad advice from a mortgage broker and was a victim of fraud. I do not know if the allegations are true or not, but one thing I do know is that you do not buy a house you cannot afford, he clearly could not afford it, and then claim fraud.

Lenny famously wrote for the TheStreet.com under the watchful (?) eye of Jim Cramer who had nothing but praise for Lenny. That is, of course, right up until his bankruptcy hearing when he was quickly and quietly let go from Cramer’s outfit. You would think after such a public display of horrors Lenny would simply just go away to rebuild his life somewhere, but that is not to be. Apparently Dykstra decided that he needs to get back up on that horse and has started a website to sell his top picks.

The service for Lenny’s top picks range from $899 to $1548 a year, depending if you pay monthly or all upfront. For this service you get access to Lenny and a signed baseball as a value add proposition, ever hear of Ebay? Regardless, his website mainly brags about his baseball achievements and his prowess as a deep in the money option player, but you have to pay to find out how good he is. What his site leave out is the facts regarding his own personal financial problems.

While I could never hold a personal financial issue over someone’s head or a string of bad luck, maybe he was a victim of fraud, but to omit such information is sketchy to me. If he was so good at picking winners, he boasts a track record of 140-0, how could you lose your home? I honestly wish Lenny the best, but why anyone would trust his picks or why he would omit his public financial problems is just dirty pool, in my opinion. Everyone is entitled to make a living doing what they do best and, in this case, perhaps Lenny should go back to something baseball related instead.

Everyone remembers the aftermath of 9/11/01 and how horrible those days were, but what sticks out in my mind, after the obvious, was what happened after words. The President said to get out and shop, and boy did we, but the thing most do not recall is what the auto industry did to boost sales, 0% financing. This was the beginning of the end for the auto industry simply because how can you ever raise financing costs after you go to 0%. The demand that 0% financing created meant that the automakers would have a heck of a time raising those rates and they needed the sales. It essentially created a major problem for the industry which help speed its way into bankruptcy.

We are seeing the same thing happen in housing with all the government help being injected into the market. We have tax credits to encourage buying, but we also see what the market looks like without those credits, see recent home sales data, and we have the Fed lowering mortgage rates like mad with QE. What happens when/if these programs stop? It will get ugly, just like when the automakers tried to stop 0% financing. If you do not let the markets work their magic, i.e. stop malinvestments, the pain is just prolonged. GM and Chrysler should have gone out of business a few years ago but that 0% financing helped keep them around, however it could not stop the inevitable.

The mistakes made by the automakers are being made by the government with the housing market. Homeowners already enjoy a ton of tax breaks, mortgage interest deductions, property tax deductions, etc. and the last thing they really needed was a tax credit to buy a home. It has helped, the data shows that, but the problem is these programs have to end and then what happens? As we have seen already, with limited data of course, is that housing does not move without that tax credit. Sure we can blame the weather or whatever external force we want, but that is ignoring the obvious, housing wants to go lower. That leads me to believe that more tax credits are on the way and QE is a permanent fixture at the Fed, see Japan.

When you incentivize buying to such a degree you create a major problem for yourself, or the country in this case, as you boost expectations on false hope. Once you remove those incentives and reality sets in you are stuck with doing nothing, clearly something government does not want to do now, or let the market sort things out, what should happen. Because the government has created false hope for a housing recovery they have created more problems than they solved. The sales we do see now are false demand, meaning it is only there because of the rich incentives, which means that many economists and market participants are creating strategies or projections around numbers that are not real. The fact is that without a natural housing recovery the economy cannot recover.

While the insane 0% financing hastened the decline of the automakers into bankruptcy, in my opinion, the government is simply slowing the fall of housing or kicking the can down the road a bit. The good news is that at least the incentives will not cause the government to go into bankruptcy, well on their own at least, but it is an enormous waste of money. The government should step back and stop what they are doing and the Fed needs to stop its QE program. If neither stop and they continue doing this the next leg down will be ugly and, the reality is, we do not need more incentives to buy houses, look at the tax breaks you get now. False demand creates false hope which lures investors into investments they ordinarily would not buy. When that false demand and hope disappear those investments decline in value, investors are being suckered.

It is very convenient to just assume all of the problems that plague the US economy have just disappeared. With all of this talk about the recession easing or ending, as some commentators contend, it is tough to take an objective look at what is going on around us. There is some hope that the recession is ending, I even fall in that camp, but I am more grounded and expect it to last until year end, however there is a higher possibility that CIT Group may still be filing for bankruptcy protection.

Many have assumed that this problem has been fixed, but it has not. The firm recently delayed its quarterly filing and new rumors are forming about a potential bankruptcy in the very near future. Even though the firm has received money from its bondholders it was not enough to make the problems disappear and it is suffering from, as the WSJ put it, a severe liquidity problem.

If CIT fails it, combined with 72 bank failures, a massive increase in personal bankruptcy and pick any other issue of the minute, is evidence of the continuing credit problems that plague or economy. These issues are not exactly systemic risks individually, but combined it is a direct indication of the problems we face. Of course, a great productivity report this morning is sure to make people feel better, even though the report just shows we are squeezing more out of less people.

Our troubles have simply been postponed or buried to a future date and it is my opinion that government intervention is going to prolong our problems, not fix them. No one ever wants to hear, hi, I am from the government and I am here to help, because the government only makes things worse. However, we are closer to the end than we are to the beginning of this thing and we will come out of it, but it is important to recognize the problems that are still there so you do not get sucked in to believing everything is OK right now.

There is no question that the consumer is struggling, personal income is down and now savings are taking a hit based on, presumably, the high rate of unemployment. The really bad part about those filing for bankruptcy is that before 2005 it was a good option for Americans, but since the reform it is a less attractive option for Americans.

There is no question that people took advantage of the bankruptcy laws prior to its “reform” in 2005, but not all people are guilty of that. Based on aggressive lobbying by credit card companies and banks the new reforms made it impossible for a quick filing or for judges to modify mortgages on top of making it very expensive and the fact that you have to attempt to payback your debt before you could actual be approved for liquidation. The irony is that Joe Biden’s son was a lobbyist for MBIA who was one of the more aggressive lobbyists for the reform somehow won favor with Joe Biden who was credited for persuading Democrats to approve the new rules, so much for fighting for the little guy.

The further travesty of the bankruptcy reform was that judges could not modify mortgages along with more expensive filing fees and the new rule saying you had to attempt to repay creditors before you could be approved makes bankruptcy not only embarrassing, but painstaking and very unfair to the individuals. I would actually say that if that reform never took place then most of the problems over the past year could have been mitigated, to a certain degree. Instead, Congress sided with the folks paying their bills, banks, and essentially saying that the people they are supposed to represent do not matter.

Even with the terms of bankruptcy being more difficult and unfairly in favor of creditors, who already had ample rights under the law, new filings are at a new high. In July there were 126,434 filings which is a 34% increase year-over-year and an 8% increase from June of 2009. This is certainly no green shoot and a sign of the times with consumers drowning in debt and unable to repay their creditors. Simply put, filings will continue to go higher as unemployment increases and house prices decrease.

Congress should be acting to help its constituents and suspend the 2005 reform in order to help reduce the problem, over the long-term, and expedite the carnage. Since the only thing that has gone in the consumers favor is “cash for clunkers” it is high time Congress helps bailout the little guy, now. Another report out this morning was the fact that these same banks who destroyed out financial system and received billions in TARP funds are now bilking the hardest hit in America for a total of $38 billion in total overdraft fees.

I think we are at a point were enough is enough and without a bailout of the consumer we have little chance of a real recovery. There needs to be an emergency bankruptcy provision that should allow for the 2005 reform to be suspended, but also enact a shorter time on individuals credit reports. This will allow for the worst of the indebted people to file and start over again. The banks have already benefited tremendously off the backs of taxpayers and the current bankruptcy laws continue to favor banks while we double pay them back on our debt and with our tax dollars.

We all know there are problems within the banking sector from lack of lending, whether it is demand or banks unwillingness to lend is a matter of debate, and continuing credit losses. Banks are continuing to set aside more money for potential credit losses which indicates the road to recovery is still not clear yet. Not to mention the building commercial real estate issue which has yet to fully rear its ugly head yet, but recent numbers show commercial real estate delinquencies are up 585% over last year at this time.

However, what are not receiving much publicity is bank closures by the FDIC, which we post every Friday night when the report is issued in our piece called Friday Night Fun at the FDIC. One would think that seizures by the FDIC would have abated us by now with the massive bank bailouts which have cost us an estimated $3 trillion and has a projected cost of $23 trillion if things get really bad again.

Last year the US saw 25 banks closed through brokered deals by the FDIC with the most notable being Washington Mutual and Indy Mac. After those two closures we heard bits and pieces of other closures, but the news of closures began to dissipate at the early part of 2009. I suspect the media assumed that most banks worth saving had already been saved or they a carelessly overlooking the continuing problem.

I understand the “too big to fail” theory, but I disagreed with it in 1999 as much as I do today. In fact the greatest betrayal of our government and what is directly responsible for our current troubles was the dissolution of the Glass-Steagall Act which kept banks and investment firms separated in order to control risk. Because of the too big to fail theory those banks were saved first and very little rescue went out to smaller institutions.

As a result we have seen a tremendous increase in bank closures over the past 7 months. In fact, the closure rate is alarmingly high and accelerating every month. To date we have had 69, exhibit 1-1, banks fail in 2009 which is 276% more banks than last year and at the current rate it will double by the end of the year. Keeping in mind that in July alone we have had 24 banks closed by the FDIC which is almost 100% of all of last years closures, all were merged into new entities.

Exhibit 1-1

This should trouble you as it has an impact to the availability of credit in smaller communities. Even though most banks are merged with others having less competition could mean less credit if the new owner tightens lending standards or practices. This could also mean less jobs as many branches do get closed in these brokered deals mostly because of overlap or poor profit margins.

Most of the banks failing are “hot money” banks who dealt in brokered CD’s which offer higher paying yields than traditional brick and mortar bank CD’s. Since the bank pays more interest on these CD’s they must make higher risk loans to keep profitability intact. Most acquiring banks, especially lately, had declined these brokered CD’s leaving the FDIC on the hook for repayment from the asset sales or to make whole if not enough money was raised through liquidation of remaining assets. This costs you, the tax payer, money eventually and this is why the FDIC raised its premiums earlier this year.

Costs of Closures

Not only is the pace of closures accelerating, but the cost of the closures is also increasing at a much higher rate than you might think. Last year the loss of Washington Mutual was nothing to the FDIC, but who knows what guarantees or funding the Fed offered that we do not know about, but other closures did cost a significant amount of money to the FDIC totaling some $14.9 billion for 2008. We calculated the cost to the FDIC according to the higher end of their estimates and included all loss-sharing agreements.

During 2008 we had a real crisis with major institutions failing, but we have been told that this year things are much better and our banking system is safe. That may be true for firms such as JP Morgan and Goldman Sachs, but the truth of the matter is we have had bank failures almost every week this year. The banks are smaller, most are below $3 billion, but the net result is astonishing with the total projected costs reaching $13.5 billion, there were not even calculations of estimates in some of the FDIC press releases so we still do not have a real number. See exhibit 1-2 for a chart of the cost of bank failures

Exhibit 1-2

How can things be getting better when the banks are failing at an astonishing rate and the cost of the failures are going to surpass 2008 when we just crossed the half way point in the year. The fact that the media is not reporting on this is obscene and a disservice to the American people. The major media outlets are more interested in hearing the latest Obama speech or picking out the sparse pieces of good news proclaiming that the recession and the crisis is over all while ignoring this information.

These same pundits are also claiming we are in a new bull market and everything is just fine, but there is no mention of bank closures, none. Worse yet, we watched as many TV personalities pointed to a 3 month rise in the durable goods orders as bullish, but then turned around and said that the last report was too volatile, it is truly baffling that anyone takes these people seriously anymore.

The Bottom Line

The crisis is still here it has just been buried by the very same people you may trust on the TV. Anyone looking at these numbers, plus other evidence of the true health of the economy would not be calling for a bull market with another 20%+ to run.

You should be questioning everything from the falling dollar, which is the real reason for the bull rally besides an oversold situation, the lack of coverage of bank failures, the 35% reduced earnings expectations which were easily beat, with no top line earnings growth, unemployment is a lagging indicator, it is not in this case, and the record number of insiders selling their stock. Like it or not this time it is different than almost any other time in history because we do not loose major players like Lehman, Bear, Stearns and Washington Mutual in an average recessions.

Without questioning these things you are simply sticking your head in the sand and pretending that everything is OK, when we still have significant problems that remain unresolved. It is imperative that you do research before committing your capital to the equity markets and look at what is really going on otherwise you will get burned. If you want to hope everything is fine that is fine by me because, if the truth be known, I hope everything gets better soon as well, but do not hang your financial future on hope, that’s just crazy talk.

The CIT Group news is weighing on the markets this morning as the Fed’s have decided they will receive no help. There is no systemic impact from the firms failure, but it will cause issues within the banking sector. If you were with CIT Group and have not made alternative funding arrangements then clearly you would be at fault for not knowing the firm was in trouble.

I am pleased there will not be a bailout, firms need to go under to really have a recovery. However, I do feel that this is a test, kind of like how they let Bear Sterns and Lehman go, to see how the markets react. While this may be a test it is seems unlikely that the firm will actually go to bankruptcy court as the government will implement a shotgun marriage of some kind. This is based on testimony from Paulson yesterday who brazenly said that Lewis was threatened to do the deal and he made no apologies.

The question is who would be forced to buy them? I think it would be JP Morgan, US Bank or another large institution. It will be interesting to see how this plays out and the effect it will have on the markets. This also shows the weakness of the banking sector as well and things are not “stellar” as some people believe.

Do you see something wrong with this guy? Admittedly, I know nothing about baseball and never heard of this guy until yesterday. It seems unlikely that he is as successful as he says he is, especially when you hear his story and what he said and how he said it, it just looks sketchy.

The kicker is I guess he is selling investments to athletes to guarantee income, but he is filing bankruptcy. How ironic. I have to say that I do not know anyone who is 111-0 in the options market, but hey thats just the people I know. Anyhow, check out the video and see for yourself.