Market Recap For Last Week

Last week showed further deterioration beneath the surface. In fact, right down to the foundation. The credit crunch has gotten somewhat worse in that, Commercial paper and Asset Backed mortgages contracted a further $30 Billion for the week. We are very close to this sector going "exponential" to the downside. The auction rate municipals had 480 "failed" auctions in one day. In 24 years there have been a total of only 44 until now. California has about a month to go to remedy a $16 Billion deficit. We had several Banks admit to more "hung deals". And...... the biggest news of all that got no press, attention, reaction, nothing, was KKR. KKR [Kohlberg, Kravis, Roberts] announced that they were having problems refinancing current debt outstanding. This is HUGE! KKR has been one of, if not the premier buyout firm for the last 20 years. For them to have a problem with financing is astonishing. What does this really mean? What it means is that deals cannot be done. If KKR cannot refinance or get financing for new deals, virtually no one can. If new deals can't be financed, then what business does the stock market have being at these levels? Back in 1989, United Airlines had a deal that fell through. The stock market fell about 7% on the day of the announcement. The public has their collective heads in the sand, hoping that all of this will blow over. The PPT [Plunge Protection Team] keeps propping up the market so the public doesn't panic. This has worked to a degree because the public watches the Dow Jones and not the "guts" of the credit markets. The rub here is that the "guts" of the credit markets are what makes the world go round. NO CREDIT, NO ECONOMY! Plain and simple. The real economy is going off a cliff here and now, and the stock market has a bid under it by "The Presidents Working Group on Financial Markets". Wonderful!

Northern Rock, the British bank was nationalized, several German state owned banks are on the verge of collapse, our banking system is frozen solid, credit markets of all types in the US are in shambles, inflation is exploding while credits and the real economy are imploding. It is all perception until it is not, or until perceptions change Change they will! We also had a 200+ point rally Friday afternoon because AMBAC announced that they were close to a deal to raise $2.5 Billion. What a joke. They have a market capitalization of about $1 Billion, insure $700 Billion of munis, and Lord knows how much in Credit Default Swaps, and $2.5 Billion will solve all problems and save the world!

Two or 3 weeks ago the government said they would stop reporting a slew of economic numbers because it just cost too much to prepare these reports. Under great pressure they have relented. What gives? Are we supposed to invest our capital in the worlds' most "free" and "transparent" market while not having a clue what the money supply, inflation, unemployment, housing, etc. numbers are? Another shocker last week was the talk of no more certificates. The talk is, we will only have 2 options in the future. Either hold your securities in "street name" with a broker , or at the transfer agent on their computer books. NO MORE CERTIFICATES! They don't want certificates around because it's easier to manipulate the markets without them.

The public will keep their heads in the sand until they don't. More than likely, when they collectively lift their heads to look around it will be too late. While the public slept, they had their collective A$$E$ shot off. They will then panic, after it is too late. This is for all the marbles! All the financial marbles will will be in the "real" bag, the "paper" bags will be empty. As I see it, much if not all of the "paper" created over the last 25 years or so, will blow away. We will restart, rebuild, rethink, everything financial, starting from a solid foundation. Metals, or other real goods will back money, debt will be backed by real properties with real appraisals. When it comes to money, plain and simple trumps bells and whistles.