See what "excess liquidity" gets you? Speculative bubbles. Like, oh, in food:

BENTONVILLE, Ark. - The two biggest U.S. warehouse retail chains are limiting how much rice customers can buy because of what Sam's Club, a division of Wal-Mart Stores Inc., called on Wednesday 'recent supply and demand trends.'"

Thanks Ben.

You know, this would be amusing except it isn't in significant parts of the world. Like those where there are a lot of truly poor people (that, by the way, does not describe the US. If you want to see "poor" - truly poor - you are going to have to travel internationally.)

One of the major reasons we had a Depression in the 30s was that the government tried to step in and prevent the recession that was bound to occur as the overly-easy credit of the 20s was unwound.

They (world governments) produced a Depression instead through their combined machinations.

We may be headed for something that would arguably be even worse - major outbreaks of famine - that could ultimately be traced to The Fed trying to meddle with what should have been a swift and violent unwind to the credit bubble that destroyed the money for speculating.

I didn't think it was possible to have a worse place for that "hot money" to go than into housing.

I was wrong.

Food is a far more destructive place to have a speculative bubble, because instead of foreclosures and bankruptcies people actually die from that one.

No, not in the US - in places like Haiti.

The only good news is that this sort of game doesn't last long at all because the pitchforks and torches tend to come out real fast when you're starving.

Then there's this:

"April 23 (Bloomberg) -- Canadian Finance Minister Jim Flaherty said currency markets appear to have ignored a Group of Seven statement expressing concern about the decline in the U.S. dollar."

That's because the fix for this problem is to drain about $150 billion in excess liquidity (return the slosh to "normal" levels around $50 billion) and, as a consequence, let interest rates rise.

Materially.

Absent that The Dollar is not going significantly higher unless some other nation collapses first.

Given that the ECB seems to "get it", as rhetoric coming from there is attempting to demonstrate, I wouldn't take the bet on them self-immolating to try to "save the USA" (at the expense of their own hides.)

And oh by the way, the longer BenDover Bernanke waits, the longer and deeper the recession we are in now will be. The more games he plays, the bigger and deeper the hole.

The first rule when you find yourself in a hole is to stop digging!

If that's not enough stupidity, we have this from Chris Cox:

"The SEC is focused on 'requirements that will increase resiliency' when investment banks can't easily secure funding, Cox said. Any change may crimp Wall Street profits, because firms would have to hold more cash and low-yielding securities instead of lending money or making investments."

Gee Chris, where the hell were you for the last year and change? You know, like back in August when this first started? You don't read The Ticker do you - I predicted at least one major investment bank going under, and gee, do you think some supervision of Bear might have been appropriate given their fantastic hedge fund disclosure and resulting lawsuits alleging various forms of nefarious conduct?

Never mind that what I don't hear is a proposal to bar this off-exchange CDS garbage in the first place, which would have left you free to let Bear Stearns fail.

There was much crooning originally over Apple's earnings announcement, but one ought to read the whole thing. Margins are compressing which is never good, and while sales exceeded forecasts for their Macs one has to wonder if that can continue. They're more expensive and the majority of their market is the consumer.

Does Chucky have any money?

Amazon's numbers were a solid beat but the market didn't think it was very positive. Neither do I, to be frank - the issue there is margins, and to be blunt - they suck.

Think that LBOs from last year and before were a good investment? Maybe not:

"Rather than receiving the historical average recovery of 42 cents on the dollar in a default, owners of a third of high- yield, high-risk bonds rated B+ or lower may get no more than 10 cents, according to New York-based Fitch Ratings. About 22 percent are likely to get 11 cents to 30 cents."

That's gonna leave a mark (on your account balance.)

Oh, and does anyone remember me talking about fraud being the 900lb gorilla that would void some of these mortgage "deals" (both in CDOs and otherwise) in April of last year?

Well guess what the cat dragged in....

"Some of the factors the company will examine include loan-level document review and a review of legal documents "focusing on representations and warranties," Wallis said. "Hypotheses are being built which involve fraudulent activity in various guises.""

Did 'ya falsify your income on that "Stated" product? Didja? Hoh Hoh Hoh..... bet this isn't the last time you hear about this particular line of attack.

Let me note that every investment bank and most of the big commercial banks have their nuts laying bare on the table on this issue, and the buyers and guarantors of that debt are wielding claw hammers.

If the banks are lucky they'll use the striking end and not the claw.

A year ago I wrote on this because I detected that it was THE 900lb Gorilla that would destroy the game.

I'm not a rocket scientist but I have run a business in one form or another for more than 20 years. Fraud is the one thing that strikes fear into the heart of all executives, irrespective of their field of work, because you can't negotiate it off in a contract.

You can try, but it won't hold up in court.

Ever.

It is the one "bad thing" that, if you do it, will come back to bite you - even if it takes years for the fraud to be discovered. It is the one thing that can operate to rescind any and all contracts, any and all payments, any and all protections you think you bought or sold. It is one of the very few things you can do that has no statute of limitations, and no "safe harbor."

Last April I predicted that this would be the element that would ultimately blow this entire mortgage game straight to Hell, and that when it struck and finally "got legs" it would ravage everyone involved.

This is such easy picking for the lawyers that they'd be nuts not to head straight here, once a few of them woke up.

I have sat back and wondered when it would start, because for a year, it hadn't. My opinion of the IQ of the legal community had been on a slow but relentless slide for the last year as a consequence.

Well, now it appears they have woken up, and like a bleeding swimmer in the water the landsharks now smell blood. Once the first suit is filed and the first criminal investigations are announced we're going to see the feeding frenzy really take hold, and from that point forward there will be no hiding - and no escape - for any of the "bad actors."

The list there, unfortunately, includes essentially all investment and commercial banks involved in the housing boom. It also includes virtually all of the independent mortgage shops, most of which are already gone (thus preventing the banks from trying to push the trouble through to them.) You can bet that the AEs and Brokers who were involved in this will get tagged to the extent they can be - if I was one of those folks, unemployed or not at this point, I would not be sleeping well at night and fearing the doorbell, lest it be a process server - huge numbers of these folks will get personally attacked, likely forcing nearly all who are into personal bankruptcy.

Go long lawyers.

You want the really bad news?

It appears that the bond market is reacting to this, and may be front-running it. The market is down materially yet the entire curve is shifting higher, a clear indication of flight out of Treasuries. I am particularly worried by the reaction in the TNX today, up 1.72% as I write this while the SPX is down almost 9 handles.

That's backwards - the curve should be shifting downward on a selloff, not upward.

If the bond market deduces that treasuries have been contaminated due to The Fed taking fraudulently-originated bonds onto its books then the risk of a bond market dislocation goes to the moon.

Down that road lies a re-run of the 1930s with certainty.

Not a "possibility" - a certainty.

Bull or Bear, this is not a scenario you want to play out.

If there is a time for Bernanke to "man up" and force all that MBS garbage off The Fed's balance sheet, "right now" would be that time. This is a risk that Ben cannot afford to take. He is far ahead of the game to torpedo all the players who are too heavily-geared in the MBS space than to risk a bond market implosion, because the latter, once it happens, can't be recovered from. It will have to work itself out, and will take a long time - many years - ending only when all of the inappropriate leverage has been removed from the system.

Just like the 1930s.

Got your tin cup ready for the soup line?

While I hate to be a purveyor or doom and gloom there is a real possibility you may need it, because I just don't see Bernanke having the 'nads to rescind MBS acceptance at The Fed.

Yet if I'm reading the tea leaves right, he has to, and very soon.

Durable Goods down 0.3%, which was a huge miss (expected +0.3%), jobless claims 342,000, down 30,000, but continuing claims near 3 million (which is the number that matters overall.)

Further, we keep looking at the jobless numbers through some rose-colored glasses, mostly because this last "recovery" from 2003 to 07 featured huge hiring of illegals (best estimate is 2 million) to build all those houses, and none of those people were counted as "employed."

They thus don't count as "unemployed" either. What works against you on one side of the curve works for you on the other.

Further, I've yet to see the layoffs in NY and other money centers hit the numbers yet, mostly because of the impact of severance payments, which keep people from filing unemployment for a while - typically 3-6 months - beyond their termination date. The problem for most of these people is that jobs in that field are basically gone, so finding a replacement job "in field" is unlikely.

This may keep them from registering as "unemployed" but it will show up in their income, which of course hits consumption 6-12 months down the road.

Overall however the futures liked these numbers a lot, taking back their losses before the data release and then extending gains. Whether that will bleed through into the daily market action is another matter - how you can look past the durables number and reports from actual companies in the durables sector and trade the unemployment numbers is beyond me, but it is what it is.

Upcoming major earnings releases include Microsoft, which is widely expected to be a blowout. This, once again, sets up a potential disappointment in the market, but we shall see.

You want to see the real impact of the durables slowdown? Take a look at Whirlpool (NYSE: WHR):

"Whirlpool announced a 24% decline in first-quarter earnings from continuing operations to $94 million or $1.22 per share from $124 million, or $1.55 per share last year. Net earnings available to common shareholders came in at $94 million compared to $117 million in the prior year."

Oh, and they're buying back shares in a vain attempt to keep their stock from collapsing. Say, are you using debt to do that? One would hope not, but you can never count out the stupidity of executives.

SYSCO (the food company, not the router company of course) is seeing about 6% inflation over the last five quarters. Yeah, cost-push price inflation into an economic slowdown at restaurants is great for their earnings.

Irrational reaction in the futures this morning?

You be the judge - early action says "yep!"

Trade the tape you get.

New Home Sales down huge month/over/month, which is monster bad, with prices down 13% as well. Price drops didn't help and this is the spring selling season - where m/o/m comparisons should be rising, not falling.

The Bull Case is falling apart fast.