“It Is Failing: ALL OF IT” By Karl Denninger

By Daniel at 27 May, 2009, 10:00 pm

“I have tried to warn people since the summer of 2007 that you cannot “print” your way out of a credit over-expansion, nor can you deny the ultimate contraction in the economy and assets.

Bernanke and other policymakers, including both the Bush and Obama Administrations, have tried to deny reality.

You can’t.

The Bond Market has had it with the games, and despite a “good” auction today signaled its disgust with the lies, the unending deficits and both bonds and stocks sold off at the same time:

I know I keep pointing out this chart, and what it means, but you can’t ignore it. It is, in fact, everything.

This chart is not signaling economic recovery when on the same day the TNX jumps by 5% the market declines by 100 DOW points.

Guys, this is the start of the bond market dislocation that I have written about for the last two years. It may stop or it may accelerate, but this much is certain - even if it stops here the dream of a 4% mortgage that Bernanke has hawked as the “key” to housing stabilization is not going to happen.

When we got down into the mid 4s I told people close to me to either lock or refinance and do it now. Some did, some were holding out for that 4% number.

How’s that look now?

Let me show you what happened on eRATE’s real-time mortgage rate quoter this afternoon: [Chart in actual article - see link below]

This was precipitated by a near-collapse in MBS paper about the same time the /ZN (10 year Treasury futures) took a huge dump.

You saw that right - the 30/fixed is now being quoted at 6.5%, up nearly 30% in one day.

I’m sure this will “settle down” a bit, but that sort of dislocation is what happens when you transfer the risk of insolvency to the Federal Balance Sheet and start playing games at The Federal Reserve.

By the way, this makes the payment for a $200,000 note at 5% worth only $170,000 at 6.5%.

Bluntly: Bernanke’s screwing around just cost you 15% of the value of your house IN ONE DAY.

When the Treasury Market dislocates risk premiums go to the moon and EVERY sort of duration credit gets more expensive all at once.

The market calls all bets, Bernanke went all-in with 2-7 off suit, the flop came up A-A-K and the bond market is grinning.

Anyone care to bet what the bond market has for hole cards?

This will translate into corporate funding costs and when it does you’re going to see a staggering impact on Corporate America, triggering another monstrous wave of bankruptcies.

THE GOVERNMENT MUST STOP THE STUPIDITY NOW; WE ARE HEADED FOR A NEAR-EXACT REPEAT OF THE 1930s WHEN FUNDING ESSENTIALLY DISAPPEARS.

BERNANKE’S TAMPERING HAS DONE NOTHING BUT MAKE THE PROBLEM WORSE!”

The full article is at:
http://market-ticker.denninger.net/archives/1066-It-Is-Failing-ALL-OF-IT.html