Is it Real?

by Larry Levin

Chairman of the Federal Reserve, Ben "Zimbabwe" Bernanke, said today that the economy is in great shape. So much so, that the economy is essentially out of recession.

To Congress he said the following today: "Supported by stimulative monetary and fiscal policies and the concerted efforts of policymakers to stabilize the financial system, a recovery in economic activity appears to have begun in the second half of last year...On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters. Consumer spending continued to increase in the first two months of this year and has now risen at an annual rate of about 2-1/2 percent in real terms since the middle of 2009."

STIMULATIVE monetary and fiscal policies indeed, but increasing real consumer spending? Not so much.

Well, if you only looked at the headlines, you would agree with "Sir Prints A Lot;" however, details are getting in the way. I have written many times that the US mega-banks are not taking down the current insanely high values of their real estate portfolios because that would immediately reveal the truth: insolvency. However, there is a type of symbiotic relationship that is allowing the banks to fraudulently stay solvent while people live in their homes without paying the mortgage, which means the banks do not have to reveal the truth of insolvency and (in the crazy world we live in) the result is higher retail sales and GDP.

So one wonders (although presumably Sir Prints A Lot does not) - is it real?

According to the Charlotte Observer (http://www.charlotteobserver.com/2010/04/13/1373260/bofa-to-detail-loan-aid-before.html) the Bank of America has hundreds of thousands of customers that have not made a single mortgage payment in OVER A YEAR. The article goes on to say "Perhaps one of the most telling signs: The bank is fielding more than 125,000 calls a day from people seeking mortgage help. Bank of America expects a "considerable number" of customers to lose their homes in the next two years because of unemployment and the large number of homes now worth less than the balance on their mortgages, known as being "underwater." Nationwide, some 11 million homeowners fall into this group.

The entire article revolves around how the banks will - or should - reduce people's mortgage amounts but that's not the point I am getting to. The reason why this hasn't happened yet and probably won't is because modifications could lead to approximately $448 BILLION in primary and SECONDARY (HELOC) loan losses in just the four mega-banks. The loan modifications, like foreclosures & evictions, will lead to the END of the bank lies that their loan portfolios are still worth 95% of the original values. Of course the current values are complete bull$#!t, but they are trying to stay solvent so obfuscation is fine with them and CONgress.

This is a big reason why GDP and retail sales have performed better than many expected. If hundreds of thousands (500,000) of customers from just one bank are not paying their $1,500 per month mortgage, that is a LOT of newly found spending money for the newly released iPad. I believe it is reasonable to say the current number of the four mega banks combined is close to, if not more than, 1 million. The article believes the amount will be 11 million folks "underwater" in just a few years, which makes the mortgage-free "homeowner" pool much, MUCH, larger in a short time.

If one runs the numbers, $1,500/month x 1,000,000 = $1.5 billion of newly found consumer spending power. Moreover, since the bank executive freely admits they have allowed this to happen for LONGER than 1 year, the annual "spending" power of this scam is $18,000,000,000.00!

So again I have to ask Ben "Sir Prints A Lot" Bernanke - are GDP and retail sales increases real?



Previous Day's Trading Room Results:

Trade Date: 4/14/10

E-Mini S&P Trades*
(before fees and commissions):

1) No "Secret's" trades filled today.

2) Algorithm positions (2)

3) ?Reading the Tape? positions (10) ?combined Secret?s, Algo, & ?Reading the Tape? total?+5.75



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