This morning the Dow was up a modestly until economic data came in. Housing numbers slumped for the third month in a row and manufacturing index dropped expectantly. Both indicating a continued real erosion of our economy as we slide further into this depression. How does the stock market react to the bad news. A giant jump up of course. Taking on over 100 points to the upside. 


In this bizarro world, bad news is good news. Why?  Because on Friday Ben Bernanke is talking in Jackson Hole and the worse the news is, the better the odds he will come to the rescue and print more money. A sad reality we live in. Fundamentals mean nothing.


This country started as a manufacturing based economy, went to a service based economy, and has fallen to nothing more than a printing press economy. We live and die by the printing press of the federal reserve. 

S&P Board Fires CEO For Telling The Truth, To Be Replaced With COO Of Citibank

Submitted by Tyler Durden on 08/22/2011 21:20 -0400

Following years of pandering to client demands, and assigning trillions of dollars in fixed income securities with whatever rating money bought (among other things, a factor to the credit bubble and its subsequent implosion) S&P finally tried to do the right thing and tell the truth. However in this case it picked if not the worst, then certainly the most hypocriticial credit in the world to expose - the US itself. Sure enough two weeks after the downgrade, someone made the phone call and the CEO Deven Sharma is no more. As for the kick square in the gonads: Sherma will be replaced with the COO of...you know it... the bank which demanded tens of billions in secret Fed bailout loans itself, Citibank, and whose existence is inextricably tied to America not seeing any more downgrades ever again.

As the FT reports, "The McGraw-Hill board made the decision to replace Mr Sharma at a meeting on Monday, where it also discussed an ongoing strategic review." Alas, this is nothing but a case study of modern corporate reality in America: if you are not with the status quo, you are against it, and you are promptly booted out of it: anyone who does not share the visions of one glorious future built on ponzi schemes, houses of cards, and games of three card monte, will be promptly suicided, either physically or professionally.

We expect that this flagrant example of how the powers that be will deal with any dissenters will instill the fear of god in anyone at either Moodys (or the French sycphants from Fitch) and nobody will ever again menton the words "US" and "downgrade" in the same sentence.

From the FT:

Deven Sharma is stepping down as president of Standard & Poor’s only weeks after the rating agency issued an unprecedented downgrade of the credit of the US, according to people familiar with the matter.

 Mr Sharma will remain as an adviser to S&P’s owner, McGraw-Hill, for four months and leave the company at the end of the year, they said.

Mr Sharma will be replaced as S&P president by Douglas Peterson, chief operating officer of Citibank, the banking unit of Citigroup, they said.

As for the official story:

People close to the company said the search for Mr Sharma’s replacement has been going on for six months, and was triggered by the split of its data, pricing and analytics business from its ratings business. The creation of that new group, McGraw-Hill Financial, reduced the scope of Mr Sharma’s oversight, they said.

So let us get this straight: in America when you dare to tell the truth, your career is over, while if you are a corrupt, lying, incompetent tax evader you not only get to be Treasury Secretary but likely will be on for life as long as you do the one duty you are entrusted with: pander to the interests of the Too Big To Fail financial institutions

We should be speechless but at this point we are well beyond the point of even caring.

The only question left in this entire farce is how long before S&P issues the following upgrade of the US:

"Great service, AAA+++ rating, immediate payment, would do business again!!!"

S&P 500 vs High Yield Credit Spreads

FRIDAY, AUGUST 12, 2011 AT 10:04AM

Whenever the equity market is having big moves to the upside or downside, it often helps to compare the move to trends in the credit markets, and more specifically high yield credit spreads.  When the equity market is rising, we should see spreads on high yield bonds contract, and vice versa when the equity market is declining.

With this in mind, the recent widening of spreads in the high yield market is a potential red flag.  According to Merrill Lynch indices, high yield spreads widened out to 739 bps yesterday and took out the highs from last Summer (727 bps).  At the same time, the S&P 500 is still 13% above its lows from last Summer.

This mornings 30 year treasury auction was a train wreak. Weakest purchases by foreign buyers EVER!


There are 3 groups that buy treasury's at the auctions. The direct Bidders, the indirect bidders and finally the FED.


This mornings statistics tell the whole story:


Direct Bidders (US Banks, and US parties) : 19.5%


Indirect Bidders (Foreign Central Banks, Foreign banks, ....) : 11.5%


Leaving a whopping 69% bought by the buyer of last resort. The Federal Reserve.


Can you say Weirmer Republic here we come.......

Tuesday, August 09, 2011



From Bloomberg:

Standard & Poor's lowered the AAA ratings of thousands of municipal bonds tied to the federal government, including housing securities and debt backed by leases, following its Aug. 5 downgrade of the U.S.

The rating company assigned AA+ scores to securities in the $2.9 trillion municipal bond market including school-construction bonds in Irving, Texas; debt backed by a federal lease in Miami; and a bond series for multifamily housing in Oceanside, California. Olayinka Fadahunsi, an S&P spokesman, said he couldn't provide a dollar figure on the affected debt.

S&P also cut ratings on securities backed by Fannie Mae and Freddie Mac, prerefunded issues and munis repaid by using federal assets, also known as defeased or escrow bonds. No state general-obligation ratings were affected and the company said some may remain unchanged.

"It's expected, but nobody is happy about it," Bud Byrnes, chief executive officer of Encino, California-based RH Investment Corp., said in a telephone interview. "No one that I know thinks it was justified to cut the U.S. bonds to AA+. Once that happened, you knew that any prerefunded bonds or escrowed bonds would be downgraded too. It's a domino effect."

Byrnes said funds required to invest in AAA bonds would be most affected by the downgrades and may be forced to liquidate some holdings. "They will have a hard time replacing that yield," he said.

'Logical and Coherent'

Chris Mier, a managing director at Loop Capital Markets LLC in Chicago who follows the municipal bond market, said the downgrades made sense, given the federal rating cut.

"In order to keep the system logical and coherent, there are going to be a lot of downgrades," Mier said in a conference call with reporters and clients.

Matt Fabian, a managing director of Concord, Massachusetts-based Municipal Market Advisors, a financial research company, said in a telephone interview that he expected "hundreds and hundreds of municipal downgrades," which may hurt investor confidence.

"Treasurys may be able to shake off a real impact from the downgrade," he said. "Munis, I'm less sure about."

S&P cited politics in negotiations to increase the debt ceiling and said lawmakers failed to reduce spending enough.

'Least Disruptive'

The company said on July 21 that a U.S. downgrade based on a failure to come up with a "realistic and credible" plan to reduce the budget deficit would be the "least disruptive" scenario for municipal ratings. That's because it would mean Congress avoided making significant cuts to the funding of municipal credits not directly linked to the federal government, S&P said.

Top-rated state and local governments wouldn't automatically lose their top scores, the company said. It rates the general-obligation debt of nine states AAA. The country's "decentralized governmental structure" calls for an independent review of state and local government credits, 3.9 percent of which have AAA ratings, S&P said in a report.

State and municipal governments that depend less on the national government for revenue and that manage their own books well enough to weather declines in federal funding may retain AAA ratings, S&P said. The company didn't name such states or municipal governments in the report.
Issuance Slows

Municipal issuance has fallen amid the U.S. debt-ceiling impasse. The slump and signs of a slowing economy helped drive tax-exempt yields to the lowest this year. Scheduled debt sales total about $2.8 billion this week, the slowest August week since 2003, according to data compiled by Bloomberg.

For the municipal market, "the key is supply and demand," more than ratings downgrades, said Ed Reinoso, chief executive officer of Castleton Partners in New York, which manages about $250 million for individuals.

The S&P action itself "was almost cosmetic," he said in a telephone interview. "It doesn't seem to have much impact."

Yields on top-rated 10-year tax-exempt debt fell to 2.39 percent, the lowest since October, according to a Bloomberg Valuation index.

S&P, in lowering the U.S. from AAA on Aug. 5, cited the nation's political process and said lawmakers failed to reduce spending enough in their deal to raise the debt ceiling. Moody's Investors Service and Fitch Ratings affirmed their top ratings on Aug. 2, the day President Barack Obama signed the bill raising the debt ceiling and avoiding a default.
Similar to Moody's

Any state and local government downgrades from S&P may be similar to potential rating cuts Moody's mapped out last month, DeGroot said in his report. Moody's on July 13 said a possible U.S. downgrade would affect 7,000 municipal credits totaling $130 billion that are directly linked to U.S. credit.

Moody's also said it would review indirectly linked debt and last month said it may downgrade five of the 15 states it ranks Aaa because of their vulnerability to cuts in federal spending. The company wound up reaffirming those top ratings last week, assigning a negative outlook.

Officials in Maryland and Virginia, two states with economies tightly bound to the federal government, said they hadn't heard from S&P since the U.S. downgrade and didn't think any moves were imminent.

Patti Konrad, the director of debt management for Maryland, said it's unclear what risks any federal budget cuts would deal to her state's economy.

"I would think S&P would want to take some time," she said. "We haven't heard anything from them."

Ric Brown, Virginia's finance secretary, said his office hasn't spoken to S&P in the wake of the U.S. credit rating cut. He said he anticipates that any move affecting the state would be based on how federal budget cuts would ripple through the economy, rather than any automatic triggers.

"It's probably going to take a little bit of a while until they know specifically what's on the table to assess that," he said.