On Tuesday the economic news just wouldn’t stop getting uglier. We saw headlines like this all morning:

The number of distressed banks in the U.S. rose to 702 in the fourth quarter, the highest level in sixteen years, according to a report released by the Federal Deposit Insurance Corp. on Tuesday.

Case Schiller report shows housing price falls across most areas represented

So what did today bring us? Just this:

New home sales hit record low in January
New home sales plummet 11.2 percent in January to annual rate of 309,000, lowest on record

Shall I go on? Nah, I don’t need to, you all get the point. The point of course is that as we’ve been saying all along the economy is NOT getting better as the mutants on CNBC try and drum into your head each day. NOT as Obama says over and over how he pulled us from the brink. NOT as the bulk of the economic guru’s say we’re growing out of the hole. Sorry, it’s just not true.

The real fact of the matter is that the "growth" we’ve seen is nothing more than trillions of dollars of Government stimulus, while at the ground level, things are getting scarier by the day. But isn’t that the way it’s supposed to go? Yes it is folks. After the single biggest credit binge in world history, after the housing bubble, after the Gangsta banksta’s went ape with their derivative trading, mother nature decided it was time to stop the madness. Trust me, she will not be denied.

Sure the Fed’s plans can slow the rate of the plunge. Sure we can see corporations make some money as they don’t have any employees any more, and Uncle Sam pushes ever more money into the system to keep things moving along. But unfortunately I have to say, none of it is going to work. We are going to have our "second great depression" with or without their silly stimulus and games.

I think the thing I find most interesting is how "they" whether you classify they as CNBC, the media, or the White house, create numbers that make their little fantasy worlds work. For instance, every 3 months it’s "earnings season" and we hear bogus Proforma numbers from companies, and then outfits post their "p/e" ratio’s. Well what do you hear on TV about P/E ratio’s? Generally you hear something like "the S&P is trading at a 16 time P/E". Well guess what? There’s two kinds of P/E. One is based on "operating earnings" where they can have an orgy of fantasy and exclude just about everything negative from their books. The other would be more along the lines of GAAP or generally accepted accounting principles. Well, guess what the P/E is for the S&P according to the Federal Reserve? It’s at 89.4 Now granted that’s a lot better than back in say August because then it was an astounding 150!!!!!! Have you ever heard a CNBC
talking head tell you the P/E on the S&P is 89? Never. Yet that’s the truth of it all.

The problem as I see it, is that 99% of our population has no idea about the accounting gimmickry they use in virtually every aspect of reporting. For instance, I along with most of the brighter bulbs in the pack have suggested that in 2010 Commercial Real Estate was going to be a massive problem. Yet day by day we hear how it’s looking better, the worst is over, yada yada yada. So what’s the deal? Is Commercial RE imploding or did we blow the call? OF course it’s imploding. But, when Wall street and Obama don’t want you to know it’s in a death spiral they simply "change the rules".

On Oct. 30, bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classify distressed commercial mortgages. Banks can now slice distressed loans into performing and non-performing loans, and institutions will magically be able to reduce the total reserves set aside for non-performing loans. How absurd is that?? But wait, it only gets better – In November, the FDIC circulated new guidelines for bank regulators to streamline and standardize the way banks are examined. One standout feature is that as long as a bank has evaluated the borrower and the asset behind a loan, if they are convinced the borrower can repay the loan, even if they go into a workout with the borrower, the bank does not have to reserve for the loan.

So basically what’s happened is that more and more Commercial RE can basically default, but banks don’t have to mark them down, or build an offsetting reserve for the fallen property. They can just "put it aside" like it doesn’t exist, hoping that one day this whole mess will turn around and they’ll be able to unload them at favorable prices.  Do you hear that on CNBC? Hell no, all you hear is wine and roses about how things don’t look so bad. That Lunatic Cramer actually said "Commercial Real Estate is Red Hot!!" on a recent show. Red hot? Can you explain this to me Mr. Cramer? –

WASHINGTON — A huge wave of mortgage failures on commercial real estate could hit next year, causing banks to lose as much as $300 billion, imperiling lending for small businesses and hindering the economic recovery, a Congressional panel is warning. In a report to be released on Thursday, the Congressional Oversight Panel, which is responsible for reviewing the Treasury’s $700 billion bailout program, said commercial loan losses could jeopardize the stability of many banks, particularly the nation’s midsize and smaller banks, contributing to prolonged weakness throughout the economy.

Red hot? With the banking commission FDIC now saying 702 more banks are on the endangered species list?? It’s almost criminal what financial TV is allowed to regurgitate to people. I wonder how many people lose their fortunes because of one sided TV such as that? Where’s the investigation into that practice? Can this mutant tell me why the FDIC now has "negative funds" and must draw on banks to prepay 13 quarters of insurance rates? Or why yet another five regionals blew up on Friday?

The propaganda being fed to people is so overwhelming that Joseff Goebells of Nazi fame would be proud. There is virtually NO economic reports that are spoon fed to you, that I cannot dug under and get the real truth. But no one hears the real truth because it’s so ugly people would panic. That’s why they do their media spin, to keep people thinking things are just fine. But meanwhile, I do NOT think this push for ever bigger banker bonuses is just more greed coming to surface. I truly believe they know the system is doomed and they are just in a major grab to get all they can before this whole house of cards collapses.

I have told you all for a long long time ( 10+ years) that gold was the place to be. It’s done very well. Now of course since it’s not soaring higher every day, all the so called know it alls are screaming that it’s overdone, junk, a relic. Well You know what’s funny? Ever hear of George soros? In January at the grand meeting of all the poobah’s in Davos Switzerland, he declared Gold to be in the biggest of all bubbles, and hardly worth a look. Yet the facts show he bought millions upon millions of it via the GLD fund in December. Interesting eh?

All I can tell you in this little Wednesday update letter is that we still have a date with a depression. They are trying to put it off, kick the can down the road and they will buy time, no doubt. But like the rubber band stretched too far, it will snap and the snapback will be vicious. Have I given up on Gold? Not on your life. I just want to buy more when it fails 1000, or exceeds the all time high. In between, it’s just chopping around, building a base. Yes I’m still a monster Gold bull. Sunday I’ll explain why silver is probably more important to own for the future. Stay tuned

Now for our market.

A common pattern took place this week. We call it the Wednesday reversal. If you watch the market long enough you’ll start to find a pattern where what ever the market did on Monday and Tuesday, it gets reversed on Wed. So, if Mon/Tues were big up days, you can guess Wed, is a sell day. Naturally the opposite is true. If Mon/Tuesday were red, then Wed, is more often green. Well we just saw that play out perfectly once again as Monday and Tuesday were down days, and today we ended the session with a 91 point gain. The question however is, can it last?

We ended the day at DOW 10,374. In technical terms, 10,478 and then again at 10500 is our next areas of decent resistance. So, it’s quite possible that those levels are in our near future. Then if we can surmount those, our next stop In my opinion would be the 10,600 level before we run out of gas. Yet is there any real reason for the market to get up and over these levels? Unfortunately no. You see the real headlines I post. Sure they can run the market on hype and hope, and "hidden futures buys" but even that can only go so far.

The problem is that until we break free of the real recent high at 10,723, all this between here and there is noise. Chop. No mans land. If we were to bust that old high, then we’d probably see 11K very quickly. But what is the catalyst for a move like that? Unemployment isn’t getting solved, housing isn’t solved, Commerical isn’t solved, and yet Benji keeps talking about removing stimulus, trying to save face with the International community.

I think we will not be busting the 10,723 highs. I think we do try and get there, but we come up short. That’s the only reason I’m selecting 10,600 as a likely area for any of this bounce to carry to. But frankly, we could roll right over tomorrow and I will NOT be surprised. The market doesn’t belong bouncing it belongs heading to DOW 7000, but "they" are doing all they can to support it.

In a market like this all you can do is take profits quickly. We entered two positions today, sold half for nice gains and then "slithered" away as the market put in a soggy dip. It’s insane to try and buy and hold something for very long, since the support in this market could wither at any second and we’re down 150 points. So, all we’re doing is picking off trades, waiting for the next "big trend" to form. If we can get to 10,600ish, I’ll start shorting. But right now we’ll "lean long and keep a finger near the sell button".

See you all on Sunday