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Bernanke and the Fed insist on fighting the market forces, but the market just delivered a swift kick in the Jimmy to Bernank, his cronies, and the American people.  So much for those artificial 4.5% mortgage rates that were supposed to save the housing market.  What’s the next trick of stupidity that Bernanke will pull from his sleeve to combat the market?

From The Wall Street Journal:

Bond markets continued to gyrate Thursday after a sharp run-up in 10-year Treasury yields the day before. The bond market pushed yields of 10-year Treasurys down to 3.674% from 3.70% Wednesday, but they remain well over mid-March’s 2.5% level. Yields on mortgage-backed securities continued to climb, pushing 30-year fixed-rate mortgages to 5.44%, the highest since early February.

The market has spoken, and it has clearly said that it wants higher yields from ALL BONDS.  If the government insists on printing more money and thus increasing the risk of default, then the market demands  a higher yield for loaning out that money.  And those higher yields translate into the mortgage market as much as the treasury market.

Anyone care to guess what will happen when mortgage rates continue rising, and lending standards remain tight?

• A)  Loosen lending standards and resume making $500,000 no money down, negative amortization, option arm loans to McDonald’s Fry cook’s everywhere.
• B)  Watch as bankers everywhere resume their bailout begging when the value of their mortgage backed holdings continue to dwindle, as home prices accelerate their downward spiral – especially on the coasts and big cities.
• C) Social unrest in the U.S. as more and more home “owners” are thrown into the street.
• D) Social unrest in the U.S. as more and more responsible renters get stuck with the bill for their irresponsible neighbors mortgage bills.

Stay tuned…

John Bogle, the founder and retired CEO of The Vanguard Group, has just released a new book called Enough- True Measures of Money, Business and Life.   Mr. Bogle is one of the few people on Wall Street with any sense of ethics.  Watch the video below, and then click on and buy his new book.

Enough: True Measures of Money, Business, and Life by John C. Bogle

If there is one thing certain, it’s that Obama’s record setting budget deficits can not continue indefinitely without serious consequences.  Eventually one of two things will happen – either correcting the ship of recklessness or facing the consequences of a Zimbabwe like hyperinflation and social unrest.  If Senator Conrad has his way, then we may just attempt to plug the flood of red ink with a new nationwide VAT tax.

From the LA Times:

At a White House conference this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

“There is a growing awareness of the need for fundamental tax reform,” Sen. Kent Conrad (D-N.D.) said. “I think a VAT and a high-end income tax have got to be on the table.”

A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, including a carton of eggs and a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for healthcare for every American — a tangible benefit that would be highly valuable to low-income families.

How safe is your money under your mattress?  How safe is your money when it is FDIC insured?  According to this Yahoo article, the FDIC insurance program that is designed to protect your bank deposits, is dangerously close to becoming insolvent.

As the FDIC has had to step in to take over more and more insolvent banks, the fund has dwindled to dangerously low levels. At the same time, the number of problem banks continues to grow at a rapid pace…

At the end of the first quarter there were 305 ‘problem institutions’ with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.

According to investor Marc Faber, who publishes the “Boom, Gloom and Doom Report”, the United States is destined to follow in the footsteps of Zimbabwe hyperinflation.  Excerpts from a recent Bloomberg article follow.

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Also see:

• Zimbabwe Creates 10 Trillion Dollar Bill
• The United States Has Not Had A Balanced Budget Since 1957!
• Overbought And Oversold Stochastic Indicators
• Covered Calls – Scottrade, Tradeking, Fidelity

According to the latest CNBC slideshow on the “World’s biggest debtor nations“, Ireland tops the list as the most fiscally reckless nation.   Ireland’s external debt as a percentage of their GDP is a staggering 811%.  Their 2008 GDP was $285 billion and their total external debt as of Q4 2008 was $2.311 trillion.

Other nations in the top 16 list:

• United Kingdom – 336%
• Belgium – 327%
• Hong Kong – 295%
• Netherlands – 268%
• Switzerland – 264%
• Austria – 191%
• France – 168%
• Denmark – 159%
• Germany 137.5%
• Spain – 137.5%
• Sweden – 129%
• Finland – 116%
• Norway – 114%
• United States – 95.09%

Barry Ritholz was on Fast Money today speaking about the reality of housing, and the lack of any bottom any time soon.

Ritholz also has a new book out entitled Bailout Nation

The proshares ultrashort treasury etf (symbol TBT) is gaining a lot of attention lately.  The theory is that as the government recklessly runs up larger and larger deficits, the borrowing costs to the government will go up, in the form of higher interest rates.  Bond prices behave inversely to interest rates, so as interest rates go up, the bond prices should go down.  When treasury bond prices go down, the investment vehicle that has short exposure to the treasuries will go up.

Read the excerpt from a recent Bloomberg article below:

Yields on 10-year notes climbed above 3.4 percent for the first time since November as investors also raised concern about the possibility that record supply of Treasuries to pay for a mounting budget deficit may jeopardize the U.S.’s AAA credit rating.

And here is a chart of the TBT ultrashort treasury profund.

But before you start listening to the 1000 idiots on CNBC, you should consider this before racing to buy into the TBT:

• The government has already declared it won’t be constrained by higher interest rates, and will simply sell the bonds that it can sell at reasonable rates, and just wildly print money out of thin air for bonds that it can not sell, which artificially manipulates the long term treasury rates.
• The Proshares TBT fund is a giant black hole of complex derivatives that few people understand
• The Proshares TBT has significant risks

From the Proshares TBT prospectus:

Proshares Ultrashort 20+ Year is subject to the following risks – Ttreasury Aggressive Investment Technique, Risk Correlation Risk, Counterparty Risk, Credit Risk, Debt instrument Risk, Interest Rate Risk, Inverse Correlation Risk, Investment Company and Exchange Traded Fund Risk, Liquidity Risk, Market Price Variance Risk, Market Risk, Non-Diversification Risk, Portfolio Turnover Risk, Short Sale Risk and Valuation Time Risk.  The Fund may be subject to risks in addition to those identified as principal risks.

To breakdown just two of these risks in layman’s terms:

• Risk correlation risk – This essentially means that despite what the objective is (inverse performance of the treasuries), there are no guarantees to matching that objective, or even coming close to that objective.  It’s quite possible that treasury yields could go up at the same time that the ultrashort treasuries (TBT) could go down.
• Counterparty risk – The instrument is a complex mix of derivatives that few people understand.  Derivative contracts have two parties and the other party will not be disclosed.  Further, the other party, whoever it is, may go bankrupt (Hint:  Lehman Brothers, Bear Stearns) and render those complex derivatives that make up TBT entirely worthless.

Bottom Line: If you are interested in TBT, you may want to consider it for a quick trade only.  Holding on to this one for the long haul may yield unintended and non desirable consequences!

HR 1207 calls for a full audit of the federal reserve, something that has never been done before.

Dennis Cardoza, representative of California’s 18th district, has one thing right, and that’s the fact that some areas of the country have been harder hit by the housing crisis than others.  His congressional website mentions that he is pushing HUD secretary Donovan to recognize that California needs more help (translation: more bailouts for irresponsible government and mortgage borrowers)  than the rest of the country.

President Obama will go down in history as Mr. Bailout, presiding over and supporting uncountable bailout initiatives to reckless speculators of every kind.  Dennis Cardoza desperately wants Ovama to add another notch to his bailout belt, another notch that will undoubtedly be paid for by the Chineese or Saudi government.  Or perhaps the foreign bond holders have had enough, and the Fed will step in, yet again, to monetize the debt – essentially printing whatever it wants without regard to accounting for the total.

With the Home Act, Dennis Cardoza does *NOT* want affordable housing.  Instead, he calls for more reckless lending and reckless re-financing to people who gambled on insane home price appreciation.  He does not recognize that underwater and tapped out home “owners” would be better off renting much more affordable apartments.  Instead, he calls for:

• Artificially low teaser mortgage rates of below 4% to spur a renewal of reckless lending
• Loan guarantees by insolvent and now government (taxpayer) owned Freddie Mac and Fannie Mae
• Unaffordable housing and artificial “floors” in home prices to keep would be responsible borrowers on the sidelines
• Doing whatever it takes to ignite an artificial and unsustainable new bubble in home prices
• Lengthening the average fixed mortgage term from the current 30 years (perhaps 100 years?)

Here are the exact words from his irresponsible Home Act:

This home purchase and refinance program will use the conservatorship of Freddie Mac and Fannie Mae to stabilize the housing market.  From the date of enactment until Dec. 2010, Freddie and Fannie will guarantee to lenders that they will purchase any mortgage meeting the stipulated qualifications (4% or better interest rate and a fixed term of at least 30 years)… This activity in the housing market will create a floor for home prices and trigger a stabilization and subsequent increase of home prices.