With all of this talk about a V shaped recovery and a complete economic rebound it is amazing to see how many firms are still cost cutting. Of course by cost cutting I really mean firing people in order to improve margins or boost profitability. The question is if we are really in a recovery and everyone is talking about business stabilizing, albeit at lower levels, and there is a return to growth how can firms still be downsizing?

Well, simple there is no V shaped recovery because when you take government heroin out of the equation there is no economic growth. I am fairly certain that Friday’s employment report is showing that firms are not hiring and that employment will continue to “lag” the real economy for some time to come. Not only are firms still firing people, but consumer credit is also being paid down and contracting at a pretty healthy rate, $14B vs. the $10B estimate. Again, I do not want the facts to get in the way of a perfectly bogus recovery story.

If we examine the headlines we see some disturbing trends with top tier firms and their plans to cost cut, fire people. For starters Johnson and Johnson is laying off about 6% of its work force, J&J is a defensive name folks who thrives no matter what the real economy is doing so for them to be laying off so many folks is kind of scary in my book. Moving on, Electronic Arts also reported great earnings and the fact that they are cutting some 1,500 jobs, sounds promising to me. Sprint is another firm who has actually improved its business, but they are now laying off some 2,500 people. Not to mention Microsoft, who makes enough in a month to buy most sports franchises or something crazy like that, is laying off 800 people.

Not all of these firms are in top physical condition, but if we were in a recovery there is no way that these firms would be announcing job cuts now, 4 months after the recovery was announced, supposedly. We have very healthy initial claims reports of over 500K a week and so far, excluding the BLS magic formula, which added 86K jobs last month which means the real official jobs report should have been 276K instead of 190K. That data points to continued weakness in the economy and a lack of hiring by firms and as for the great productivity report I suggest you read the NYT’s article showing that the data is flawed, like I always said it was.

Essentially, employers are getting more out of people at a much lower cost so why in the world would they hire? To put it bluntly, they are not hiring and have no incentive to hire anyone until real orders pick up which, at this rate, should be by 2012 giver or take a few years. It is amazing how hard people will work when they fear losing their jobs and that is exactly what is happening now. I am sorry if I do not see the rose colored news like everyone else, that is what happens when you go below the headlines, but we have real problems here. Even though I am not bullish on US stocks, no one is based on the pathetic volume I might add, I am bullish on the Asian economies and see real value there.

As for the US I think we are still heading for that correction and I am sure we will get it, I am not sure when of course, but it will come. It should have come last week, but it did not and anyone who as traded for any period of time will tell you that something is majorly wrong with this market. No one’s model, except for Goldman Sachs, is working and we continually drift higher on literally no volume. Look at today we traded significantly less shares with a 200 point up day on the Dow? Compare that to last Thursday or even Friday and you will see how weak that volume is. I have no idea why it is behaving like it is, but I do know that whatever the reason it is not natural, again any trader will tell you the same thing if they have been around for more than 10 years.

So, with all of these major firms cutting jobs now instead of 6 months ago how can we say there is a recovery? There is no real evidence to point to, even the ISM reports show serious weakness in the economy, except for government sponsored growth which is fake at best. When defensive names are cutting jobs we should take notice as that is a signal that something is wrong. As for the market it is not a forward looking instrument, it never has been, and the next few days should be interesting. We could hit that 1120 mark on the S&P 500, but I doubt it will hold and even if it does hit that level it does not mean the economy is rebounding, the data would indicate that and the data is weak.

That is exactly what today’s initial claims showed today with a firm number above 500K, likely revised higher next week, and stunning productivity of 9.5% with costs massively declining. As the title suggests, people are working harder for less pay and that is a green shoot, apparently, especially with poor same store sales, sorry, but they were bad. I know, CNBC says that this means that companies will be hiring again because productivity is unsustainable and they might be right, if the productivity calculations were not such a joke.

Considering JNJ, MSFT and a bunch of other defensive names are laying people off just as we are recovering means one thing, this is a statistical recovery. That is not a good sign for employment, in my opinion, not to mention I am willing to bet that local and state governments will trim payrolls, again, as well. I think same store sales shows that the consumer is not back, at all. I know, everyone said they were fantastic today, but they were not, at all. The discounters did OK and Saks did OK, but here is what you have to remember most of these stores closed down their nonperforming stores this year and this was YoY comparisons so it was like comparing someone sleeping to a corpse and the corpse won in some cases.

I know, there is going to be an inventory build, right? This pipe dream has been fed to us for 5 months now and the ISM shows inventories declining, still. So where is the inventory build, are we going to even have it that is the question at hand. However, has anyone ever considered the fact that businesses will intentionally keep inventories low for some time to come?

Here is why I am pretty sure this will be the case. Inventories are usually bought on credit, no one is extending any credit to anyone right now (see the Federal Reserve data for proof). People are simply not buying things the way they used to so stores will keep less on hand than they did in the past, go to any Best Buy and look in the computer section for evidence of that. Companies are finding they can deliver their products with current employment levels, which is bad and dismisses the claim about future hiring and the productivity and cost of employment is proof of that statement. If this inventory build was coming, like it was promised months ago, then it would be reflected in some data point, but I digress.

Frankly, 512K initial claims is a terrible number, still! That puts us on pace for another 2M initial claims this month, again. Ongoing claims did drop, but that is because this is the month when unemployment benefits were going to start to anyhow because people cannot collect it any longer, remember? However, that changed as Congress passed another extension of benefits so this number will climb, very, very soon, but let’s not let get those pesky facts get in the way of a recovery story. Until that weekly number gets below 500K, far below, only then will we have a recovery in the employment sector.

Somewhere someone sent me a comment that in a V shaped recovery employment does not rebound until well into the statistical recovery. The person referred to the 1982 recession when it took 6 months for employment to drop below 500K a week. That is great, but here is the thing we are now entering the fourth month of the supposed recovery and unemployment has not changed much. Here is the other important thing to remember, we had a vastly different recession then and political landscape. Reagan was elected, he dropped the IBM anti-trust suit and immediately began implementing business friendly legislation.

I am sorry, but whatever you think of Obama, he is no Reagan. He has raised tariffs on Chinese goods which has basically started a trade war, yes it is raging you just don’t hear about it, for example there s now a huge tariff on seamless steel pipes, nice job. Obama is not business friendly at all, unless you are a bank or have union employees, and is doing exactly the opposite of what Reagan did. I am sorry, but to draw a comparison to 1982 is a bit dumb given the current political environment. I hope we do recover and I think you would be hard pressed to find anyone who does not want us to get out of this mess, but given what the government is doing and the Fed I think they are making it worse. Pumping up bad assets through easy money does no one any good and will eventually fail one way or the other.

Proof of that is WFC and Fannie Mae with their recent actions with mortgages. WFC is switching to interest only loans for 10 years on a bunch of mortgages, probably the Pick-a-Payment loans, which have an average LTV of 105%. While that might work out over the long-term no one really knows what will happen and that is pretty risky. Although I do see the genius behind it as it keeps inventory off their books and the real estate market, but it is a huge risk nonetheless. Fannie is now allowing people to turn over the deed to their home and the owner can then rent it out. That is unreal to think that they are letting this happen, but again it is only to support the real estate market and is a horrible business decision. Let’s not forget that Fannie also reported a loss of $18B which may be increased by $5B if the tax credits are not sold to Goldman and Buffet while asking for another $15B from Uncle Sam.

I know, I speak blasphemy about the markets and the country as all I see is doom and gloom! That is not true, well, it’s not totally true. I just see all of this happening and everyone thinks things are just fine and that is not the case. I know things are getting better, I never said it wasn’t, but stocks are ahead of themselves and clearly the economy is not that healthy, take another look at the underlying GDP data for proof. Without Uncle Sam this thing would go down the tubes and the problem with that is all the borrowing we did to boost GDP is going to cost us a bloody fortune. Going deeper into debt to encourage more debt is just crazy and we are blowing bubbles with consequences. While I do not know exactly when the consequences will have to be paid I am sure it is relatively soon.

What started out as a huge bull run today floundered big time by the end of the day which is a sign of something big to come, in my opinion. At first I actually thought that the Fed might tighten by .25%, why not rates are at .13% at it would merely be a ceremonial move, but most thought I was nuts as it was a black swan event. Not only that, but any rate increase would mean the Fed would actually be interested in defending the dollar and we know that will never happen. However, I was wrong, but I knew one thing was going to happen, the market was not going to like what it heard no matter what.

I was not 100% sure I was going to be right so it is not as if I doubled down or anything, but initially I was right and the market sank. That turned and reversed course, for whatever reason, only to have the most spectacular close in a long time and a close that should make anyone long a little nervous. To have a reversal of that magnitude on news that would keep the reflation trade going is not good news. In fact, the dollar sank and stocks reversed this also happened yesterday as well. Yesterday the dollar had some strength, somewhat at least, but stocks reversed higher by the end of the day, for the most part.

First, I believe we are at the point were too much of a good thing is just that. We all like candy, but if you eat too much you are going to get sick and I think this is the markets issue with just stupid low interest rates and reckless monetary policy. I also believe we are diverging from the weak dollar, strong stock trade which is really all the bulls had, besides mildly better economic data, anemic data at best. This could prove disastrous for the markets as it will end the carry trade, possibly, simply because of this divergence.

Second, the transports had zero follow through today which is not good. Sure, the index was saved by Mr. Buffet’s bold buying spree yesterday, but Con-Way quickly brought reality back to that index, the economy stinks. The theory is as goes the transports goes the rest of the markets and guess what happened today? The transports spent most of the day negative and the markets followed by the end of the day. Tech stocks are also struggling as the NASDAQ closed negative, that was the bulls leadership, but Cisco released good earnings, I am sure most of the positive growth was from Asia, but somehow that is a US green shoot.

Third, the technicals look pretty terrible, to me at least, with the S&P 500 rejected at 1061, multiple times, it eventually rejected 1052 and even 1047. That is not good news at all for the bulls, baring any really good news of course, as it looks like the S&P 500 will test 1021 soon, but only time will tell. Of course, the NASDAQ looks terrible as do the transports, so pick your poison as to what will weigh down the market. What really caught my eye today was Goldman, it got clobbered today which caused further bleeding in the financials, SKF did very well actually. I am not sure what caused them to decline almost 2 points, but that is another leader gone, for now.

The market looks and is acting toppy and failed to hold a rally on, presumably, good news. If that is not a warning sign than I do not know what is, but it could reverse with a good initial claims report tomorrow, doubtful though. I also fully expect the employment report, depending what kind of magic the BLS works into it, will be higher than expected, perhaps +210K for October with a revision up for September, which is far above estimates. Watch for Goldman’s last minute employment revision tomorrow, they blew it with the GDP, but they are great with the employment report. If they up their estimates, I would run for the hills because that will push the market lower, in my opinion.

The bottom line is that today was as bearish as you can get there is no other way to describe it. That was a huge reversal in 22 minutes I might add which is reminiscent of how things traded last year, but I guess last year never happened. Perhaps it was the FHA news in the WSJ that has people concerned or the fact the WFC is turning a ton of upside down loans into interest only loans for 10 years, smart move guys! Who knows what the reason is, but the one thing that is for sure is that this reversal plays into the bears favor and, although it was a whacky call, I was kind of right, even though I had no real conviction.

Disclaimer: I own various puts on the S&P 500, SDS and SKF.

This has been speculated for some time now, but a WSJ article highlights a report showing that the FHA reserves has fallen below federally mandated levels. The reason for the levels falling below the minimums is because Congress made the agency fill in for private banks in 2007-2008 when banks began to pull out of the market. Of course there was a fair amount of fraud involved, because the government can never figure out how to rid itself of fraudulent behavior, but at the end of the day the firm took on risky borrowers.

Not to mention that Congress has literally no one to blame but themselves for this fiasco as they pressured the agency themselves. I am confident that they will find a scapegoat within the agency as Congress refuses to accept any responsibility for their own behavior. According to the WSJ the FHA will suffer some significant losses from loans written from 2007/08 because they had loosened their standards. The percentage of losses is pretty significant, from my perspective, but when you know there are 350M taxpayers behind you, well what is a little risk?

Here is what the WSJ said:

“Although the FHA has tightened credit standards, many of the 2007 and early 2008 mortgages are going bad. The agency expects defaults on 24% of all loans insured in 2007, and 20% of those backed in 2008.”

The article went on to say:

“This month, the FHA is to release the findings of its annual audit, which will show that the projected value of the agency’s reserves has fallen below a federally mandated level, raising concerns that the FHA may need taxpayer money for the first time in its 75-year history. FHA officials say the agency has enough capital to withstand expected losses.”

The loans being hit the hardest are the refinancing loans, of course, which are a double whammy as the asset value is now worth much less than the loan value. The most shocking portion of the report, besides the fact that the FHA will more than likely need capital, is that loans written in 2007 for people with credit scores of less than 600 rose to 37% of the loans written. That is almost 4 out of every 10 borrowers had a credit score so low they probably could not get a secured credit card, but a mortgage, no problem. Of course the firm tightened standards after the collapse and now works with firms who implement their own minimum standards, but the damage is done.

What is not attached to the article is the exact dollar figure for these loans, but by the looks of the chart provided it is clearly substantial. It is becoming more apparent that the FHA is in or in the beginning stages of a major problem. Whether or not anyone cares about this problem is also another story, but this is a major deal as it puts the taxpayer on the hook again. Not only that, but it also proves that this mess is not over and the problems are still with us today, regardless of what we are being told by the Fed and other cheerleaders.

Thanks to the bankruptcy reform of 2005, brought to you by too big to fail organizations, debt collectors and Joe Biden via his lobbyist son, which makes filing for protection very difficult, expensive and a general waste of time for most as you must qualify now filings plummeted. That is until now while the economy is supposedly on the mend there is one number on the rise that is unquestionable, bankruptcies.

More Americans filed for bankruptcy in October than in any other month since the 2005 reform. The number of bankruptcy filings increased by 25% to 131,200 during October 2009 as compared to October of 2008. So far during the year of 2009 there have been a total of 1.2 million bankruptcy filings which surpasses all of 2008 1.1 million filings. Clearly this is an issue as there are so many claims that we are rebounding or turning the corner in the economy. If that were true why is it that the bankruptcy and employment numbers continue to climb, to disturbing levels.

It is also not just people filing for protection, but businesses as well with the number climbing some 30% from October of 2008. The most common form of bankruptcy for businesses is chapter 11 which rose the most in 4 months to 1,327 in October alone. Again, with things looking so good, according to economists, Politian’s or anyone else with a vested interest in talking up the economy, why is it that these businesses are failing? Clearly it is because things are not as rosy as we are being told.

To illustrate how bad this situation is going to get the estimate for Americans filing for bankruptcy this year is 1.4 million, there is only 2 months left in the year. Given how difficult it is to file for bankruptcy this shows how difficult the real world is for regular Americans. It makes me wonder if any economist or politician is paying attention to any of this at all. This is no longer a Republican or Democrat issue, but an American issue. While the banks got their bailouts and bonuses I think the regular people deserve something, besides a 1,990 page health care bill that no one will read and will do squat to improve anyone’s life.

With numbers like these and with, more than likely, an ugly employment report due this Friday it is time to get our priorities straight. The people need jobs, but the question is how do we get them since government spending destroys wealth and doesn’t create it. I would suggest some sort of long-term tax credit for hiring employees, not a onetime $3,000 who cares credit, but something with teeth. Better yet, let’s take TARP back and just cut everyone a check, they are not going to ever get rid of it anyhow, so if we are going to pay for it we might as well get the actual dollars.

I was excited to see The Hartford had turned the corner to profitability, until I realized that they only had positive earnings if you excluded the losses. I am sorry, but that is accounting profits, not actual profits. Without the losses the firm posted a whopping $1.56 per share, but including the losses the firm lost $.79 per share. Of course, no one is going to look under the hood at the balance sheet in the media, so come with me for a ride at looking at an insurance company’s balance sheet.

First, let’s take a look at this statement about these quarters’ results:

“Impairments were $536 million, pre-tax, in the third quarter of 2009. The majority of impairments were related to potential future credit losses on certain structured securities.

Net unrealized losses on investments were $5.8 billion, pre-tax, as of September 30, 2009, compared with $13.2 billion as of December 31, 2008. The improvement was driven by significant spread tightening across virtually all fixed maturity asset classes in the second and third quarter of 2009, partially offset by the implementation of new impairment accounting guidance.“

So, there is still $5.8B in losses on the books, that will have to be realized because everything is catching a bid nowadays. However, what caught my eye was new impairment accounting guidance. That is the fabled market-to-fantasy land issue that we have all been talking about. What would happen if we did not have that rule in place? I am sure you know that that $5.8B would go way up, but that must be good news, somehow.

The firm did not enjoy prosperous growth across its business lines, its P&C business was down pretty much across the board. Its variable annuity business had significant net outflows, its fixed annuities had less than $1B in net inflows. The mutual fund arm of the firm did have strong inflows of about $2.7B, but it is a low profit margin product. Its group benefits did OK with $4.4B and its individual life has margins of about 4%. Overall, it is not that strong of a report in my view as its core business were way down.

If you actually look at the balance sheet there is simply nothing to really like. Every division, except for the P&C division lost money, but had a credit from previous losses which offset the loss and made it a gain. This is a paper gain, not an actual gain at all. For example, The Hartford had a loss of ($323M) in its core life business, but Less: Net realized capital losses of $822M and what do you know, you have a profit of $499M. I know, I am being picky, why argue with a profit, right? Sorry, but a profit is something you earn, not carry forward credits or offset losses. I am not saying that The Hartford’s earnings are not legitimate, but I am saying it is just accounting.

This type of accounting realized losses were on every line of the earnings statement, which makes me think that the $.79 loss is the only number to go with here. I know we are all looking for good numbers and good news, but accounting profits are just that and not real. What happens when you have no more losses to offset anything or the rules get changed, I hope, back to mark-to-market? The Hartford is a good firm and I know they will be fine, but I do not like this quarter’s earnings at all. I do not own any long or short positions in The Hartford and I encourage you to look for yourself at the earnings report and judge it for yourself.

Here is the earnings report HERE

According to Business Week, Goldman Sachs requested and received the swine flu vaccine while the regular people riot over it in the streets.  According to the story, Goldman, Citi and other TBTF organizations are receiving the vaccine before others. Not to worry because they plan to abide by the CDC rules of pregnant women, children and those with serious health conditions, you know a typical Goldman trader, will only receive the vaccine.

How can this be you ask? Well, don’t ask me, ask the government who is in charge of distribution for the vaccine. However, it seems clear that Washington is more aligned with Wall Street than Main Street as Goldman requested, and we assume received, 5,300 doses of the vaccine that people must wait in lines for if they are not part of the elite inside.

Here is what the story says:

According to the city, Goldman has requested 5,300 doses. Only the company’s two Manhattan locations are eligible to receive the vaccine because Goldman’s other regional offices lack on-site health units, the spokesperson said. So far, only the 85 Broad St. location has received vaccine. The spokeswoman said the company knows of no employee who has fallen ill with swine flu, “but obviously you have to be prepared.”

Like many large employers, Goldman Sachs has been preparing to deal with swine flu for months. “In addition to the internal planning effort, we have been actively engaged with key firms in our supply chain, industry peers, regulators and exchanges, and local health authorities to ensure mutual support and coordination of efforts,” the company said in a public statement on May 6.

“It’s not that they received it over someone else, it’s that they placed an order…This is not out of the ordinary,” says Scaperotti of the city’s health office. “A lot of businesses hold vaccination programs for their employees. These locations are important vehicles for vaccinating people.”

They placed an order, right. So did thousands of doctors who do not have the vaccine, but they are not Goldman or Citi of course, so who cares. Just how many under 6 year old children work at Goldman exactly? I am sure there are pregnant women, but 5,300? Right, sure. Let’s face it, the American people come last in line versus TBTF or high donors to Congressional candidates. This story is absurd to say the least.

Hey Lloyd, this does not look good for you guys. I mean, how ridiculous can a company look after being bailed out, denying they needed it, paying record bonuses and then screaming racism at the criticism. What are you going to claim the reason for this backlash? Swine Flu Vaccine jealousy? Perhaps, but you see, when you are a regular person who has to wait in line versus a firm who gets everything handed to them, well maybe you could understand why we do not like you.

Read the Story HERE

It is kind of crazy to think that someone would shell out billions in this environment to buy a railroad when loads are way down. This purchase also saved the transports index from a complete breakdown which would have, according to Dow Theorists, a broad decline in all of the markets. Whether or not this was a good move, I do not know since I do not follow the railroads, but I do know that it temporarily saved the transport index as it is up pretty big today.

If one wants to draw a conspiracy theory to all of this, they could very easily. After all, Mr. Buffet is very close to the Obama administration and he did invest heavily last year knowing things were very bad, worse than he let on. He also did this on the day that the transports were about to meltdown as well, so, as I said one could very easily draw conspiracy theories from this purchase. However, I believe the transports will still meltdown, it will just take a bit longer than expected.

As for the ISM data yester, as David Rosenberg put it, you got 55.9 from all those regional readings. Right, that is believable. Rosenberg also called into question the GDP number as well, which I did as well, as we had a decrease in hours worked, but a 3.5% print. Well, with the government steroids, sure it is possible, but if you knock out government forget it as the historical average is -.5% GDP growth with that type of hours worked. However, that ISM number did scare this bull and I did knock out my January puts, at only a 205 profit, only to have a reversal in the market.

So, my point is if this market was for real it would have rallied on yesterday’s huge ISM number and what happened? It fizzled out and almost posted a negative day, that should scare you if you are long. As for the rest of the week, the FOMC might change its language in its decision, but other than that don’t get too excited. The ADP number will give you insight into Friday’s number, but when Friday comes around, check out the BLS.gov’s birth/death model to see what voodoo they added to the number, I know the government never would stretch the truth or anything. Thursday, if we do not crack below that 500K initial claims, there is no recovery, sorry.

Again, nice play Mr. Buffet.

The ISM is due tomorrow at 10:00 AM and this is a pretty important number because it may confirm whether or not we are seeing economic expansion or not. The estimates are for a print of 53, but many are expecting a number below that print. I am in the camp of a number below 53, perhaps closer to 50, but any number above 50 is considered economic expansion. However, if we get a print below 52 it will show a downward trend since the cash for clunkers program ended and proof that without government intervention the economy cannot stand on its own.

I urge everyone to read beyond the headline number when the report comes out, regardless of the number. The underlying data is important since it will give you a gauge of employment, orders, inventory and a bunch of other important information that will help you figure out what is going on in the real economy. My feeling is that if this number disappoints it will not be good for the markets and, in my opinion, even if the number is met it may not be good enough because of the lofty valuation of equity prices.

On Friday there were several people on the TV saying how healthy this correction is for the “new bull market” and they are right about the correction being healthy. However, I disagree on the whole new bull market theory simply because of a lack of participation from retail investors and the weak volume we have seen all the way up. Even if you look at GDP estimates moving forward you will see that 3Q09 is the best that most economists expect and from here until 4Q10 they expect GDP to decline into a negative number once again, even Goldman expects this to happen.

No one knows what will happen in the future, but what we do know is that the foundation for a meaningful recovery is not here yet. Credit is contracting, not expanding, unemployment has leveled off at severely negative levels and that is not good and is a leading indicator. The only thing that was positive in 3Q09 was earnings and all the growth was from overseas which proves the US is in poor shape at best. If things were getting better the Fed would raise rates to at least .25%, but they cannot because that will kill banks who are buying treasuries right now. If you are an economist I guess statistically things look OK, but the problem with economists is they are terrible at real world observations and see what they want to see.

In the real world, things are very bad and the recession is not abating in any way shape or form. In fact, from the folks I talk to most feel this is a depression, not a recession. This is confirmed by the recent consumer sentiment numbers that came out last week as well, again if things were so good why did the sentiment index fall so much? If you have a secure job things are great I am sure, but if you are a regular person or your firm depends on financing from CIT, well, too bad because you are too small to save, sorry. I guess you should have given more to the winning political party or unionize to win favor and get a seat at the table with the big boys. Oh, let us not forget that an astounding 40% of some $7T in US debt has to be rolled next year on top of the new debt we need to issue to keep the lights on. Regardless of that ISM number I am staying short.

As if the market needs anymore bad news on top of last week the CIT reorganization should have a negative impact on the market. How much of an impact is the question as most already knew the filing was coming. On the bright side, CIT thinks bondholders will receive $.70 on the dollar of their old debt, but the equity will be wiped out.

The company expects to continue operations during bankruptcy proceedings and established loan facilities before the filing. This filing goes to show that the crisis may not be front and center in the market, but it still lingers in the background. Not only is this filing proof of the difficulties facing firms, but the news that Citi may have further write downs is also a reminder that liquidity and printing money will only temporarily fix the problems that face the banking system, but longer term the real issues are still there.

Whether or not this news will impact the market is unknown tonight as the premarket futures are thinly traded, but by tomorrow we will have a firmer grasp of the situation. After that, the ISM data will be the driver of the market unless the sellers come out in force in the morning again to clear their long positions, which is what I expect. I do not think the “buy on the dip” crowd exists because all the big up days in the market lacked volume while all the down days had tremendous volume. Not only that, but on a valuation basis we are just so overpriced it is not even funny.

How overpriced? That depends on who you listen to, but I hear ultra bears who say 150 on the S&P 500 while others feel 850-900 is fair value. I am in the camp of the 850-900 area in the short-term and longer term I can see us testing the lows again, but that is my opinion and is worth whatever my opinion is worth. The reason I feel we can test the lows is simple, all the growth is government spending which we have to pay for. Government spending is a drain on society and creates nothing and this is especially true when we were already running deficits.

We also have credit contracting with banks buying treasuries, not lending money, and climbing unemployment which means higher delinquencies for outstanding bank loans. All of this points to lower spending and lower earnings for businesses, but hey, let’s not let the facts get in the way of bullish spin on the data. The question is, will CIT lead to more problems or is this it? I am not sure if any one really knows, but after 9 bank failures on Friday, 115 for the year, and now this I think we are still in for a lot more bad news.