Archive for the ‘Citi’ Category

The “real economy” is still very messed up: a super weak and declining dollar, double digit unemployment, and a housing market saddled with inventory and foreclosures (and soon-to-be foreclosures). So why is the stock market rising? Does this make sense?

When in doubt, consider the possibility of a bubble. Goldman Sachs and Wall Street has been fueled with government money, both directly and through the AIG bailout which prevented any of the MBS bond-holders from taking a haircut on their bad investments. The Federal Reserve balance sheet has exploded, and its exposure to the housing market remains significant. It’s overall asset sheet (which translates into money in supply) is 2X what it was in August of 2008. Incidentally, I don’t believe they’ve taken their MBS assets and “marked them to market”; they’re valued at “coupon value,” which is an implicitly subsidy to the entire housing market.

This seems why we’re finally seeing reality hitting the banks; broke, unemployed people don’t pay their bills, don’t pay back their loans, get kicked out of their houses, and don’t make deposits with which banks can make loans. Citi declared a loss. BofA missed its earnings report. This is called a reality check.

The 10,000 Dow seems to show two things. One, that dollar deflation is masking the real decline in the Dow. And, two, this is an asset bubble driven by cheap, government-subsidized bailout money. Like the housing bubble, it’s all dependent ultimately on a projected robust real economy, investments in real businesses, and cash flows at the consumer level, all of which are in the dumps and will remain so for the foreseeable future.

The huge national deficit and the dubious Keynesian theories of Obama and company likely will slow down the recovery, create additional short-lived bubbles, and I am not encouraged by the good news that so excites the cheerleaders at CNBC.

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