Kass: More to Consumer Weakness Than Meets the Eye?

These blog posts originally appeared on RealMoney Silver on March 19.

7:43 a.m. EDT

"If they can get you asking the wrong questions, they don't have to worry about answers."

--Thomas Pynchon, Gravity's Rainbow

Two questions have gone unanswered -- and, in some circles, unasked -- in the housing crisis:

1. What portion of past and current delinquencies and foreclosures have been a function of the declining health of the consumer?

2. What portion of future delinquencies and foreclosures will be impacted by future weakness in the consumer?

Many, like Holman Jenkins Jr. in today's Wall Street Journal, are focused on possible formulas for restoring confidence in the securitized mortgage debt market, but they might be missing the real point at the problem's core.

The recent steady continuation of rising inflationary pressures (e.g., gold at $1,000 an ounce, crude oil at $110 a barrel and hookers at $5,000 an hour!), substandard job growth and an already levered consumer balance sheet (with a record burden of debt service) suggest that the mortgage crisis (which has moved up the ladder of credit) has root-cause factors that go beyond mortgage resets, irresponsible (and predatory) lending and the slicing and dicing of mortgages into derivatives within the framework of lower home prices.

To this observer, the answer to these questions will have an important bearing on policy decisions, the duration and depth of the housing market's downturn, the future slope of economic growth and the outlook for the equity markets in the months to come.

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Shorting LEH

8:44 a.m. EDT

I am shorting Lehman Brothers LEH in premarket trading as I think the quality of earnings stunk up the joint.

This is in marked contrast to the Wall Street cheerleading in this morning's research reports.

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A Precipitous Drop in Commodities Around the Corner?

8:57 a.m. EDT

In early March, I suggested that the commodities markets were ready for a fall, coincident with signs of a weakening economic activity.

I believe that we are in the early stages of a precipitous drop in commodities, as witnessed by recent declines in a wide range of "stuff." For example, crude is down by over $2.50 a barrel and gold by nearly $30 per ounce this morning.

More and more, it looks like the crowded commodities long trade was yesterday's business.

I plan to press my Materials Select Sector SPDR XLB short this morning.

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Adding to XLB Short

10:12 a.m. EDT

Commodities take the stairs up and the elevator down.

Watch out below: Gold is down nearly $50 per ounce now.

I am adding to my Materials Select Sector SPDR XLB short.

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Another MER Writedown?

10:16 a.m. EDT

My Gnome is hearing chatter that Merrill Lynch MER faces another consequential writedown -- in the neighborhood of $10 billion -- and is in the process of implementing yet another $5 billion-plus private placement of capital.

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Re-Shorting the TLT

11:16 a.m. EDT

I am re-shorting the iShares Lehman 20+ Year Treasury Bond TLT on this morning's gap.

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Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.