Looking behind the numbers.

The Stock Market.

Most eyes are riveted on the DOW trading around 10,000, but what is the context? The DOW reached its top at 14,000, dropped to 6,500 last year and recovered half of its loss since it topped out.

The Baltic Dry Index.

Like the Stock Market, the Baltic Dry Index had a good run last year. So, what is the context for that? The high for the Index was 11,798 in 2008 then it dropped to 772 and recovered in 2009 to 2658. A few days ago it stood at 2571. Again, recovery is only halfway.

Bonds: the canary in the financial mine.

States, cities and counties issue municipal bonds. These are investments for many and safe investments at that. The default rates for munies was 0.04%, compared to 9.8% for industrial bonds. But this is changing. Forty eight of our fifty states are facing deficits. This year this shortfall amounts to $178B (26% of the budget). Next years cumulative deficit (i.e. including this year's) will be $350. Obama's stimulus plan covered some $150B, far short to cover the entire shortfall. The cities of Vallejo (CA) and Harrisburg (PA) have already thrown in the towel and budgeted nothing for bond payments for this year. More will follow.

Treasuries.

The US Treasury has already defaulted. About 11% of newly issued Treasuries are bought by the FED with money it prints. In addition, there is a growing suspicion that of the 40% of the Treasuries where the buyer is unknown, some of it might be the FED as well. The Chinese have stopped buying Treasuries.

Unemployment continues to go up, so revenues are not increasing. A half a million jobs were lost in January.

What does this add up to? Not hard to figure.