News that Moves: Massive Drop in Consumer Credit, Truth Behind the Employment Figures, Geithner's NY Times Op-Ed

Zero Hedge:

The latest G.19 filing shows a massive drop in both revolving and non-revolving consumer credit, which has fallen to a one year low at $2.551 trillion, an $11 billion reduction sequentially in credit, split about even between revolving and non-revolving. RCM Comment: The government is trying desperately to spend its way out of this recession, but it cannot do it alone. Uncle Sam needs you, the individual credit junky, to fall off the wagon, tap that vein and shoot up by taking on more debt. What the story above shows is that the credit junky is not cooperating. Instead, he is still sequestered at the Betty Ford Clinic continuing to detox. Maybe the story below will help us understand why...

RCM Comment: The equity markets rallied on the employment figures last week as the media outlets and various government officials applauded the numbers. However, a closer inspection, with the help of Market Ticker, will reveal the true essence of the numbers and perhaps give us a hint at the future direction of the equity markets.

Market Ticker:
The advance seasonally adjusted insured unemployment rate was 4.7 percent for the week ending April 18, an increase of 0.1 percentage point from the prior week's unrevised rate of 4.6 percent.

Half of the unemployed are in fact not insured (they've run out of benefits) but the insured percentage as a percentage of the total ticked up this last week.

The important number isn't initial claims; it is continuing claims, as that defines the number of people who got laid off and can't find a replacement job. How's that doing?
The advance number for seasonally adjusted insured unemployment during the week ending April 18 was 6,271,000, an increase of 133,000 from the preceding week's revised level of 6,138,000.

Ah. So the number the market "liked" was down 10,750, but the truth is that 133,000 more people lost their job than found one last week. That's very bad news; those are real people who can't pay their bills and are unable to find a new job to replace the one they lost.

Good luck with that "green shoot" folks.

Most financial markets are still on some form of government life support and the evidence so far is they can't yet function normally on their own - WSJ
WSJ reports for all of the excitement about improving financial markets, most are still on some form of govt life support and the evidence so far is they can't yet function normally on their own. Last fall, markets froze and interest rates soared as investors dumped stocks and corporate bonds and banks cut back on lending to their customers and to each other. In response, the Federal Reserve sharply cut interest rates and established a Scrabble game's worth of acronymic lending and insurance programs to reassure investors and jump-start markets. Those programs have helped return markets to near normal. Lending has resumed, and many key rates are back to where they were before the peak of the crisis. But in cases where the government has pulled back its support, markets have trembled. Given that history, officials will likely err on the side of intervening too much and for too long. (Gold Bullish) "When the recovery is self-reinforcing and cash flow is picking up for companies and banks, then financial assets will grow on their own without any need for government involvement," says Tony Crescenzi, chief bond strategist at Miller Tabak. "We are nowhere near that self-reinforcing state." In one sign of lingering credit-market anxiety, interest rates not under direct Fed control -- corporate bonds, for example -- haven't fallen as sharply as overnight lending rates, over which the Fed has the greatest power.

RCM Comment: Entertaining liar or credulous fool? You be the judge...
NY Times runs op-ed piece from Treasury Secretary Geithner
Geithner writes "This afternoon, Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve will announce the results of an unprecedented review of the capital position of the nation's largest banks. This will be an important step forward in President Obama's program to help repair the financial system, restore the flow of credit and put our nation on the path to economic recovery...

The effect of this capital assessment will be to help replace uncertainty with transparency. It will provide greater clarity about the resources major banks have to absorb future losses. It will also bring more private capital into the financial system, increasing the capacity for future lending; allow investors to differentiate more clearly among banks; and ultimately make it easier for banks to raise enough private capital to repay the money they have already received from the government. The test results will indicate that some banks need to raise additional capital to provide a stronger foundation of resources over and above their current capital ratios. These banks have a range of options to raise capital over six months, including new common equity offerings and the conversion of other forms of capital into common equity...

Some banks will be able to begin returning capital to the government, provided they demonstrate that they can finance themselves without F.D.I.C. guarantees. In fact, we expect banks to repay more than the $25 billion initially estimated..."

RCM Comment: Allow me to cut through the confusion, the hysteria and state a simple fact: The equity markets rally of the last 2+ months has been engineered by the government to facilitate banks' raising of capital. A plethora of smoke and mirrors have been employed. The government can pretend employment is better or Q1 EPS are "better than expected" or foreclosures are down, but they would be painting a surreal picture that would make Dali proud. Beware, a significant wave of supply is about to hit the equity markets and when supply out weighs demand, well....