Can We Trust This Rally?

Wall Street's rally was short-lived as the markets returned to grim
reality Monday.
Dylan Ratigan, the moderator of CNBC's "Fast Money" TV show, noted the
markets fell for the first time in five days.

Still, Guy Adami was optimistic, saying the S&P looks technically
fine. Karen Finerman said today's market is not much different from a
week ago. She said the economy is deteriorating further, and she's
worried about a "bad" jobless number on Friday.

Joe Terranova agreed, saying people are going to sit back and wait in
this "cautious investing environment." "You've got to get some
conviction beyond Friday that we can stay above 8,900."

Ratigan said there appears to be an "obsession with risk and unknown
variables for months to come." That means there's a lot more reason
for investors to sit back and take limited risk as opposed to trying
to jump back in, he said.

Jeff Macke said that line of thinking leads you to a trader's market,
in which investors will be taking gains in companies that they
wouldn't be expecting moves in.

Ratigan asked Terranova on his thoughts on crude oil, which was up for
the third consecutive day. Terranova said today's rise was tied to the
fact that U.S. government saying it is going to purchase 12 million
barrels of oil on the open market.

Terranova said oil is not going to surge above $100 a barrel. Rather,
he said, it's going to be one of tactical trading in which investors
see a little bit of rally alternating with a little pullback.

Terranova said he didn't think the current Israeli incursion into Gaza
as something investors use to go long on oil. That's because the
conflict is part of something that has been going on politically for
three decades, he said.
On the other hand, he said there is a good fundamental reason to get
behind natural gas as a result of Russia's quarrel with Ukraine over
natural gas prices. "That's certainly a more tradable theme than oil,"
he said.

Ratigan asked the panel to comment on the dismal auto sales in
December, with General Motors(GM Quote - Cramer on GM - Stock Picks),
showing a 31% drop and Chrysler a 53% drop. Terranova said people
simply are not going to go out and make a "risky" purchase. Finerman
said the auto stocks are headed lower because "the debt is telling you
they're going under."

Ratigan then read a list of 2009 surprises from Byron Wien, of Pequot
Capital Management. They include the S&P rising 30% to 1,200, gold
heading up to $1,200, oil rising to $80 a barrel, a serious downward
slide in the dollar and NY state threatening bankruptcy.

The forecasts drew skeptical comments from the panelists. Adami and
Finerman had their doubts about gold heading up to $1,200,while
Terranova questioned the slide in the greenback.

Ratigan asked Arthur Laffer, the noted supply-side economist, to
comment on reports of Obama's stimulus plan, including a proposal for
a huge tax cut for individuals and businesses.

Laffer said there has to be tax rate reductions for tax cuts to be
meaningful. He also did not see much of a stimulus in Obama's proposed
tax rebates for previous taxes paid.

He said the stimulus package is going to hurt the economy because it
will result in a higher tax burden for the populace.

Ratigan talked with chartist Carter Worth, from Oppenheimer, to get
his take on the new year. Worth said he expects the S&P to trade in a
30% range for the year. In this kind of market, he said investors will
be selling into rallies and buying stocks that are being sold off.

$189,156.00 per household USA in debt

Taken from mint.com

Most Americans have debt.  Mortgages aside,  43% of US households spend more than they earn in a year.  It is no wonder that the median household has a balance of over $2,000 on their credit cards.  The average balance is over $8,000, but that is skewed by a small number of less-than-thrifty individuals.

The US government also spends more than it earns.  Whether this is an extension of its electorate or the setting of a bad example, the country as a whole is in worse shape than the sum of its parts.

We could go on about the trillions of dollars in debt, but numbers that large can feel really abstract. So,  let’s take the nation’s spending down to the household scale.  The median household pulls in $50,233 per year, the federal government around $3 trillion.  Some basic arithmetic will put them in scale.

Now let’s look at our lenders.  The majority of the Uncle Sam household debt is owed to the people of the United States.  We can let this slide for now and focus on the foreign lenders, who represent one quarter of the total debt.

Below are the top seven foreign lenders, visualized as credit cards, while the image at the top shows the total of  foreign lending.  All numbers have been brought down to the U.S. median household scale.  Just imagine your household with these balances and you will have a better perspective on just how large these debts really are.

The End of Wall Street's Boom

The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.

Photoillustration by: Ji Lee

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue. 

Read more at portfolio.com.

700 Bill Government Bailout

With total U.S. non-government debt of close to $40T, if only 10% of all outstanding loans default we're still looking at a $4T price tag. In time, some say, Paulson's $700B will look like duck soup.

To put the problem into perspective, let’s just consider some base statistics.
The publicly issued debt of the Unites States was, until very recently, a massive $5.3 trillion. The total debt, including non-public IOU’s and unfunded obligations including social security and Medicare, is now a staggering $50 trillion! The total annual wealth generation, or GDP of America, is some $14 trillion.

Contrast those figures with the current debt problem ascribed to the reckless pursuit of predatory lending. Incidentally, predatory lending was made illegal in most states until overridden by President Bush to protect Wall Street profit opportunities.

The U.S. mortgage holdings are some $14.8 trillion, including some $3 trillion of commercial mortgages. Local government debt is some $3 trillion. But, even these gigantic figures pale in comparison beside the $20.4 trillion of consumer and corporate debt. Therefore, the total of non-Federal Government debt is some $38 trillion!

Of course, not all of it will default. All things being equal, possibly only a small proportion will fail, at least initially. But today, all things are not equal. We know that we are heading into a recession. This means that increasing amounts of debts will default.

The main problem is that predatory lending incurs a high default rate. So if only 10 percent of outstanding loans default, the Government will have to raise some $4 trillion, or more than 5 times what Congress is being asked. It will increase the U.S. Government public debt by some 80 percent.