The Fat Lady Ain't Singing Anymore

Hey, Kudlow, Kramer, and the plethora of bubble heads on Bloomberg and CNBC - the last rally in the stock markets was a classical bear market rally fueled by even more Government meddling into your beloved not-so-free markets.

Now, us growing poorer every day "investor once a member of the middle class, now descending into Dante's inferno faster that a kid on a greased skateboard, are pulling what's left of our money out of value-oriented mutual funds (401Ks, IRAs, etc.)

In the language of the funds, this is called big-time redemptions. And coming only a few weeks before the September 30 fund accounting closing date means the funds are scrambling to raise cash, and that means they are selling whatever they can.

Since many of the "value" funds are overly loaded up on financials already, this is yet another case of a lot of big elephants stampeding towards the tiny exit, and presto the Dow drops another 200 points in a "quiet" day.

Worse yet, the reality is that there is simply no way to reach a solid conclusion about the book value of the banks and financial companies, and without a rational book value, the stock value is essentially unknown.

Housing price compression is still very much in progress, and by some estimates we are only half way to the bottom.

Most investors (and all of the financial media bubble heads) don't grasp the reality of the situation. That the banks still have a pile of dirty laundry to deal with.

Last week, Bank of America marked it's newly acquired Countrywide assets to market, resulting in a 15% cut in Countrywide's value. Because of the huge leverage at Countrywide, this move nearly wiped out the firm's book value.

If other leading mortgage holders get to half that rate, we would see Citi, JP Mogan Chase, Merrill Lynch and Lehman, that hold more than a trillion dollars in mortgages experience another 30% to 50% destruction in their book value.

The book-value destruction will pulverize bank values as reality further hits the loan-loss-reserves at the holders of America's home equity loans, Alt-A and subprime mortgages. If Fannie and Freddie get incredibly lucky (fat chance IMO) and only write off 3% of their mortgages, they will have $150 billion in net worth destruction and be broke.

Where will the money come from to pay back the bond holders who funded these loans? Us taxpayers, of course.

If the tax credits that are held on the books of Fannie and Freddie at around $30 billion get valued at their true value (remember, with their loss-carry forwards from written-off loans, Fannie and Freddie will not be able to use any tax credits for a decade or more!), they are bankrupt already.

Opera anyone?

The Best Money Guy

For honest home mortgages at the lowest rates and costs go to http://www.bestmoneyguy.com/ Don't waste your time with low ball bogus quotes designed to lure you into a bad surprise at closing. We deliver what we quote and always show you the wholesale rates and costs.