Monday, October 8th, 2007 at 12:27 AM

Read the following facts at your own financial peril. The truth must now come with a red pill warning label, and I hesitate to give it you. You may best be advised to stay in The Matrix.

First off we have a job report Friday that kicked off another monster rally in stocks and things. At first blush 110,000 supposed new jobs can hardly be construed as much of a big deal, but who’s counting? A glance at the September Daily Treasury Statement data hints that once again even this modest increase is likely to be false and bogus in reality. DTS on wages withheld was 129,269 versus 126,537 year over year, up an almost inconsequential 2%. All the hallmarks of a punk economy, and even more is coming soon enough if the GM pact is any indication. Use this DTS number in lieu of the Ministry of Truth’s concoctions at your gravest peril.

I don’t think it’s any surprise that financial firms are at last being forced to acknowledge at least some of their losses on fictitious capital. Although the dollars involved are looking quite substantial, it appears these “drop in the bucket portfolio revaluations” might be on the order of only 2-3%, see comment 2 below.

Merrill said it expected to lose up to 50 cents a share for the quarter, compared with a profit of $3.17 a share, or $3 billion, for the quarter a year ago. The size of the write-down was second only to one for $5.9 billion taken by Citigroup, which is three and a half times the size of Merrill. Two ratings agencies, Moody’s and Fitch, quickly downgraded Merrill’s long-term debt outlook to negative from stable. Moody’s said the write-down, which had been forecast at about $4 billion, exceeded expectations. “As a result, Moody’s assessment of the quality of risk management at Merrill Lynch has diminished.”

Investors reacted by pushing up the stock, relieved that Merrill had provided information about its problems and a belief that the worst was over. Shares rose $1.89, to $76.67. Mr. Bove questioned that reasoning. “These companies are not going to see their markets jump back immediately,” he said. “The theory that if the company writes off $2 billion it should see its stock price up $1 and if it writes off $6 billion the stock should jump $3 is not one I can embrace.”

Yesterday’s warning was the latest among banks as they try to deal with the fallout from losses in the origination and packaging of subprime loans as well as lending to private equity firms. UBS has announced a $3.4 billion write-down, and Deutsche Bank, $3.1 billion. And Washington Mutual, the savings bank, warned that third-quarter income would decline 75 percent. More bad news is expected. Analysts at Sanford C. Bernstein & Company said yesterday that they expected JPMorgan Chase to write down about $2 billion, and the Bank of America Corporation about $1 billion.

Regular Winter Watch readers should nod knowingly at this one. Just to show how audacious sleazy quasi-criminal behavior has become, they are all but using a variation of my Milky Way term. The Boyz should be hitting my tip jar hard for the concept, surely it’s mine? Use this information cautiously though as some how it might be construed as bullish in the Matrix.

All you have to do is leverage up the leverage, by creating a new vehicle – call it a UFO (or Unidentified Financing Object). These have a standard Collateralised Loan Obligation (CLO) structure but remain private and are controlled by the banks and designed to help shift the catalogue of leveraged loans stuck on their balance sheets from financing deals. Here’s how they work. The bank holding the loans teams up with a hedge fund, or a buy-out group. Together, they create a UFO to buy selective loans at the current market discount, say 96 cents in the dollar, from themselves.

More background on WaMu which may be joining Countrywide in experiencing liquidity problems.

Contrary Investor has an interesting chart you should also look at your own peril. Warning label to ignore as it shows the correlation to PCE (personal consumption expenditures) and the NAHB housing index going back a few decades. Of course the PCE is another bogus Fed created indicator as there is plenty of evidence (for instance the home decor bust) that has already fallen off a cliff, at least outside the Land of Oz.

Read and interpret this chart at your peril, Christmas is coming but Joe Ultra Light Six Pack has no friggin’ money in his demand deposit accounts. Is this what the end of mortgage equity extraction looks like? To make up for the lack of real money, JULS took on $12.2 billion in extra debt, mostly in credit cards and non-mortgage sources.

I’ve always felt gasoline consumption was a good real time consumer indicator. That’s because there is a portion of it that is discretionary: trips to the malls, restaurants, road trips (usually involving more consumption). Lately gas consumption is running about even with last year. When adjusted for new households it’s down. Use at your peril.

More and more signs of fictitious capital being liquidated in big price mark downs. Bloomberg reports on various homebuilder sales and auctions, with prices tumbling 30-40%. Read this fact at your financial peril.

Read this at your financial peril, as it now appears 2007 vintage subprimes are performing even worse than 2006. In otherwords Wile E Coyote just kept making the loans until the music completely stopped. Short of sounds like the stock market now?

Despite the so called strong jobs report, the USD gave up early gains and sold off. This explains why? The truth may be most evident in the foreign central banks custodial report this week showing more lack of interest with purchases of only $1.1 billion in US securities. This is the true message of US liquidity and today is no higher than it was twelve weeks ago. In otherwords a complete FCB buyer’s strike for three months. Read this truth at your financial peril.

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