The Running Man; A Reality Show?

Today is Veterans Day and I would ask all the readers to take a minute and think about all the men and women that have served in our armed forces over the years and presently. They do not make policy, they carry it out and that is above any partisanship. This site used to have a regular commenter named AnonG who frequented the site. A while back AnonG announced his joining the military. I wish him well and if you are still out there checking in G, I am thinking of you!

A bit short on time but I had a post in mind, so away we go.

Before The Regularly Scheduled Programming
Before tonight's missive I wanted to offer my own 2 cents about the markets in general and specifically ideas about "perma bulls" or "perma bears".

What I would like to say is that I am bearish on many things. Of course I can see a government influenced pop as much as the next person, but that does not change my macro fundamental view. It perhaps changes the timing, but not the end result.

My own words for the "perma bull" types and those that are screaming "look at what the market is telling you bears" or "admit you are just plain out wrong" is the following public service message:

-You need to go over the last year again as I think time and distance had warped your mind. Fundamentals finally trumped collective delusion and things went south in a hurry, and no doubt you were "dollar cost averaging" in the whole way down. No you would have the nerve to try and run a victory lap and taunt those of a different view because of the single greatest financial experiment in the history of the USA? Shame is not an issue for you.

Try and remember something as the S&P 500 rockets higher (as the dollar is dropped in tandem) and know that your only claim to fame is that the government saved you. The FED took your hand when you were lost and crying in the fetal position and the Treasury powdered you backside after your bout with incontinence in the face of the credit crunch. You now rely on their committed support to help you learn to walk again and play the only game you know how to: every asset going up all at once makes investing easy.

Of course if you would like to remove your diapers and make an effort to stand on your own "the fundamentals are improving" two feet I would welcome you in joining me is a call for the immediate end to any and all government support/easy money practices and then we can see where the chips fall.

Oh, you need to go to the bathroom again? Well by all means go ahead, your coddling parents will be here when you get back.

Back to the regular show.

The Running Man; A Reality Show?
A more light hearted post to get a few laughs and maybe inspire some thinking.

I am sure that most readers are familiar with the Arnold Schwarzenegger film "The Running Man". What you may not know is the film was based on a Stephen King short story of the same name which was an excellent piece of writing. Now you know.

Taking great liberties, and having some fun with the dialogue, I will present the show "The Running Man" with an whole new set of players and circumstances.

INTRO
Damon Killian: Hello all the folks at home! Tonight we have a special show for you, one you do not want to miss. But first, who loves you and who do you love?!:

Raucous crowd: YOUOOUIO!!!! (roar)
Killian: YES!!!!:


Killian: As you know we have bad debts, they are bad elements, they hurt us all. Now forget how they happened, it does not matter, what matters is we are going to help those bad debts. Indeed, if these sick players can survive our game for the allotted time frame, they will simply be forgiven! Their debt to society paid in full! What a deal!

Here are your guest runners:
-Housing Market Assistance across all fronts (you know the players)
New item today:
FHA moves to boost condo market
I am sure government backing for buying up Miami condos is rooted in sound policy making.
-Commercial Real Estate Support
New item today:
New Rules and More Lies Hide Cancerous Commercial Real Estate Loans
Extend and Pretend in perhaps it's finest iteration. Unreal.

Back to our host:

Killian: Now these bad debts can either be lost over time to a recovering market, or inflated away by the central bank. But first they will have to survive their time in the game zone, and you know who is hunting them, right?

Raucous crowd: YEESSSSESS! (roar)

Killian: Who?!

Raucous Crowd: The Stalkers!!

Killian: YES!!!:


Killian: Tell em about our stalkers!

Announcer: Leading the league in kills last year is Fireball whose main weapon is his "mark to market" flamethrower which torches accounting tricks, wait, I have just been informed that Fireball's flamethrower has been rendered inactive and thus he cannot participate in the hunt. Never fear, we have a deep stable of stalkers!

Announcer: Next up is "Buzzsaw" whose currency devaluation chainsaw tears away at the dollars value across the world:


Announcer: And finally, we have Professor "Sub Zero" who can chill any countries plans for unlimited funding by freezing a bond sale:


Killian: The rules are simple, all the runners have to do is run out the clock on the stalkers and all will be well. So are you ready? Are you ready?!
Raucous Crowd: YESSSS!!!

Killian: To Extend!!:


And Pretend!!!:


YES!!!!!!!!!!!!!:


Guest Runner Bad Debt: Killian, I'll be back!

Killian: Only in a sovereign default punk! GO!!!!!!!

End Sarcasm.

The entire plan has always been to buy time so that someday, someway these debt will be at par either through some miracle of a real estate mania rebound, or devaluation of the currency in a controlled manner. If you are of the mind that this kind of gamesmanship is both good and needed then you sit across the divide from me.

Have a good night.

How Closely Aligned are Government Policies and the Banking System?

It is now getting dark here at about 4:30pm. I think I run on solar power because when the Sun goes down my energy level plummets. Makes me think of the villain in Superman IV.

Things Always Change and People move On
I ran across a thoughtful post over at Housing Doom today that I wanted to spend a minute on:

Where Have All the Bubble Bloggers Gone?
It’s been nearly three and a half years since I put up Doom’s first, rather uninspiring post. [In my defense, it was only a test.] We were joining the ranks of a number of "bubble bloggers".

Bubble bloggers were for the most part, regular folks who saw an insane real estate market and said, "It’s going to crash, and someone should say something". Some, like HousingPanic, Ben Jones and Patrick had inspired a national audience, others were smaller and more local. There was a lot of comradery in those days. We’d check each others posts, and add each other to the blogroll. We had fun taking potshots at the likes of Lereah and Mozillo and watched the data in our local markets.

This morning I read Chuck Ponzi’s Top 10 signs you’ve been following the housing bubble too long. Chuck, we’re you writing about me?

10. You kinda miss the days when everyone was still on blogspot. Uh… except for that Ritholtz guy.
9. Everything looks like a bubble now. Even bubbles.
8. Oompa Loompas and “The Tan Man” evoke feelings of intense disgust.
7. You know who Tanta and the Mortgage Pig are and you miss them.
6. You KNOW Neil has got popcorn.
5. The inflation vs. deflation argument was sooo 2007.
4. You wonder if Schiller has a time machine.
3. You know the rental multiplier for your neighborhood.
2. You think the Flying Monkey Warriors vs. Greg Swann battle was epic and you totally know who won.
1. Hoodoodanode?

I can add another to Chuck’s list- you realize that nearly half your blogroll has disappeared. Bloggers have logged off, cease to post, or have sold their name to RE interests or online casinos.

As for John and myself, I don’t think of us as "bubble bloggers" these days. Housing bubble is nearly an outdated term now. Real estate and economic commentators? Nah, that sounds like talking heads from CNBC. I guess we’re just bloggers- and for some amazing reason we’re still here.

In the comments section I chimed in with:

Twist,
Great observations. I think plenty of writers have given up because everything is the same now day in and day out. I know I started my site about 2 years ago hoping to influence the credit bubble and bring more attention to it. Of course everything went as many of us thought, until the government stepped in.
Instead of reform we get bailouts. Instead of a banking system overhaul we get permanent support for failed management. Instead of economic security we get the FED leveraging the entire country to keep Citi in business.
I have a hard time finding things to write about now that any notion of moral hazard was thrown away. Of course the next collapse should be the final one, so there will not be anything to blog about then either.
I appreciate the work this site does and check every day.

It has become a challenge to find writing topics. Every day is the same since about May 2009. Forget anything being changed at the structural level, the plan is clear that permanent support for the banking system is standard policy and there will not be any more thinking about it.

It is discouraging as well to see story after story remarking that this market is clearly a bubble driven by banking liquidity, low volume pump jobs, and a falling dollar as if these things are an acceptable way to operate.

As such, leave topic ideas in the comments section as I have had problems finding much worthy to write about at all.

How Closely Aligned are Government Policies and the Banking System?
I had wanted to spend some time covering an opinion piece by former FED Governor Frederic Mishkin, but once again I am front run before I can get home to write!

There are two excellent articles on this, and if you are so inclined check out Naked Capitalism's takedown as well as Jesse's Cafe walk through.

Still, this story directly confirms a long held belief of this writer so I will cover the Mishkin commentary anyway. I will break the article up into pieces and look at what is relevant.

Not all bubbles present a risk to the economy
There is increasing concern that we may be experiencing another round of asset-price bubbles that could pose great danger to the economy. Does this danger provide a case for the US Federal Reserve to exit from its zero-interest-rate policy sooner rather than later, as many commentators have suggested? The answer is no.

You did not think there would be any circumstances that would require the FED to raise rates ever again did you? Good. Moving on..

Are potential asset-price bubbles always dangerous? Asset-price bubbles can be separated into two categories. The first and dangerous category is one I call “a credit boom bubble”, in which exuberant expectations about economic prospects or structural changes in financial markets lead to a credit boom. The resulting increased demand for some assets raises their price and, in turn, encourages further lending against these assets, increasing demand, and hence their prices, even more, creating a positive feedback loop. This feedback loop involves increasing leverage, further easing of credit standards, then even higher leverage, and the cycle continues.

Eventually, the bubble bursts and asset prices collapse, leading to a reversal of the feedback loop. Loans go sour, the deleveraging begins, demand for the assets declines further and prices drop even more. The resulting loan losses and declines in asset prices erode the balance sheets at financial institutions, further diminishing credit and investment across a broad range of assets. The resulting deleveraging depresses business and household spending, which weakens economic activity and increases macroeconomic risk in credit markets. Indeed, this is what the recent crisis has been all about.

And here we get the first piece of the puzzle. Mishkin thinks a credit driven bubble is dangerous because when it goes bad, the financial institutions take a hit. This will be important in a moment, but back to the article:

The second category of bubble, what I call the “pure irrational exuberance bubble”, is far less dangerous because it does not involve the cycle of leveraging against higher asset values. Without a credit boom, the bursting of the bubble does not cause the financial system to seize up and so does much less damage. For example, the bubble in technology stocks in the late 1990s was not fuelled by a feedback loop between bank lending and rising equity values; indeed, the bursting of the tech-stock bubble was not accompanied by a marked deterioration in bank balance sheets. This is one of the key reasons that the bursting of the bubble was followed by a relatively mild recession. Similarly, the bubble that burst in the stock market in 1987 did not put the financial system under great stress and the economy fared well in its aftermath.

Here the translation is that any bubble that does not harm the banking system is really ok, creative destruction and all that. Who cares about bagholders of Pets.com, the banks unloaded all their shares and scooped a huge fee for the IPO. If Pets.com goes bust only retail traders will be hit, and at last check they are unable to deploy "tanks in the street" in financial Armageddon. Moving on:

Because the second category of bubble does not present the same dangers to the economy as a credit boom bubble, the case for tightening monetary policy to restrain a pure irrational exuberance bubble is much weaker. Asset-price bubbles of this type are hard to identify: after the fact is easy, but beforehand is not. (If policymakers were that smart, why aren’t they rich?) Tightening monetary policy to restrain a bubble that does not materialise will lead to much weaker economic growth than is warranted. Monetary policymakers, just like doctors, need to take a Hippocratic Oath to “do no harm”.

This guy is a gem in the rough I tell you. The old "how could we have known?" defense. Add to this Mishkins own statement that if economic heads at the FED were smart at all they would be rich. I think they are all indeed filthy rich, but what's the point? As for doing no harm, what US institution did the following:
-goosed the money supply before the Y2K hoax which led to a spectacular blow off top in the stock indices?
-goosed the money supply in response to said blow up in an attempt to mop up their own mess
-goosed the money supply in such a way that has never been seen before in the history of the USA in order to mop up the mess from the goosing from the last time

The answer is the US FED, so it is clear they tend to do a bit of damage. I will gladly accept the dissolution of the FED so that they in fact "do no harm". More from the piece:

Nonetheless, if a bubble poses a sufficient danger to the economy as credit boom bubbles do, there might be a case for monetary policy to step in. However, there are also strong arguments against doing so, which is why there are active debates in academia and central banks about whether monetary policy should be used to restrain asset-price bubbles.

But if bubbles are a possibility now, does it look like they are of the dangerous, credit boom variety? At least in the US and Europe, the answer is clearly no. Our problem is not a credit boom, but that the deleveraging process has not fully ended. Credit markets are still tight and are presenting a serious drag on the economy.

Tightening monetary policy in the US or Europe to restrain a possible bubble makes no sense at the current juncture. The Fed decision to retain the language that the funds rate will be kept “exceptionally low” for an “extended period” makes sense given the tentativeness of the recovery, the enormous slack in the economy, current low inflation rates and stable inflation expectations. At this critical juncture, the Fed must not take its eye off the ball by focusing on possible asset-price bubbles that are not of the dangerous, credit boom variety.

So should the FED target asset bubbles? Mishkin says maybe they should, but then again plenty of people in the halls of universities say no, so we will just leave it at that. Cannot argue with that logic!

I have written before that the technology stock bust focused it's losses on the individual by wiping out their stock portfolios. The banks made cash on the way up and down raking in transaction fees and IPO floats. The banks were not impacted by the bust to any major degree. In response, the FED lowered rates to try and put a floor under the stock market, and then lowered rates again after 9/11 to support markets even more.

But the stock games were done. Nobody wanted to replay that ride. And it is here that things get interesting. Banks went crazy with real estate loans and engineered whole new ways to expand residential lending to never before seen levels.

Of course we already know what has happened. The difference this time is that the banks themselves are sitting on the losses, not your average retail stock holder. It was almost as if the average joe wanted to get back at Wall Street for selling them RedHat at $500! The only problem is that the banks will not have to sustain these losses like regular people, on the contrary, the regular taxpayer will now pay for the banking losses via bailouts and backstops.

It truly is a case where the banks cannot lose. If nobody can see the embedded problem of such an arrangement, then they need help.

So Mishkin can speak about things in the abstract all he likes, as if there are no real world examples he could gleam some facts from. The FED is filled with others that think just like him. This is what passes for government leadership these days.

Mishkins entire opinion piece is wrong. This equates to defense of the FED's inability to get anything right for over 15 years and running instead of a serious look in the mirror and thoughts about change.

Have a good night.

NFL 2009 Week 9 Recap

NFL 2009 Week 9 Recap
I hope everyone liked the cartoons form the Depression era.

Some serious football was played today with some surprises.

New England Patriots 27, Miami Dolphins 17
The Patriots played pretty good defense and overcame another offensive so so game to beat the Dolphins. Randy Moss was all over the rookie Miami corners. Joey porter finally had nothing to say. I would warn Matt Light that he is in serious danger of losing his starting spot as the backup S. Vollmer was amazing. The Patriots now firmly command the AFC east and travel to play the undefeated Colts next week. Advice for the Pats; you will need to score 30 plus points to win next week.

Cincinnati Bengals 17, Baltimore Ravens 7
A shocking result. The Bengals sweep the series vs. Baltimore and are in first place. The Bengals are for real and their young defense continues to impress. What has happened to Baltimore? Their defense has been middle of the road in recent weeks and their offense seems very out of sync. Their season is not over, but it is getting close. Next week brings the Bengals-Steelers rematch with the AFC North title on the line.
Extra: Ocho Cinco playfully tries to bribe the official during a replay review, hilarious.

New Orleans Saints 30, Carolina Panthers 20
Even with several major injury losses, the Saints defense was too much for the Panthers. Another slow start and turnover problems for the Saints, yet they win anyway. I would have preferred them to lose as they are showing some bad habits that are being masked by winning the games, but which will hurt them against top flight teams.

Indianapolis Colts 20, Houston Texans 17
Peyton Manning continues his evil ways by leading a late game winning touchdown drive. The look on the Texan bench after the go ahead score was very sad. The Texans just cannot beat the Colts. Indianapolis has some injury issues on defense, but the unit got the job done today. Next weeks monster game against the Patriots should be an exciting contest.

Other Games
-The Tennessee Titans win again as they seem to be putting the pieces back together.
-The Arizona Cardinals cannot lose on the road it seems.
-The New York Giants are a team in trouble after losing to the San Diego Chargers.
-Tampa Bay wins their first game of the year as the Packers are fading out.
-Atlanta rebounds beating the hapless Redskins.
-The Jaguars are quietly playing much better football.

The night game is a big one as the Dallas Cowboys travel to Philadelphia to play the Eagles. Economic Disconnects pick of the week: The Cowboys pull off the stunner and win in Philly.

Have a good night.

Cartoons from Depression History

I was taken with the cartoon I had posted on Thursday about the Panic of 1837. Along this line I trolled the Internet for some Great Depression era cartoons and have put together a few interesting ones:

This one is actually from 1875, but a good one:


I found the following set at this site:

Caption Reads: Remember the days when you used to go thru my pockets?


Caption Reads: I got the damdest luck! I found a recipe for home brew and I aint got no home!


Caption Reads: Isnt the machine age marvelous honey? All papa does is talk into the Dictaphone and presto - a hundred men are laid off!

The next couple come from this site, and one is funny and one is so very sad:
Funny

Caption Reads: Just think Mike, if we was outside we'd probably be unemployed.

Sad

Caption Reads: Mama it's so nice to have Daddy home all the time now.
The mother looks especially sad.

The last 3 come from the site Bearish News:
Title: Recovery Package


Title: Billions of Deficit, Billions of Government Spending


No Title, but obviously looking to avoid a deflationary spiral:

Caption Reads: With this depression on, Maria, I s’pose we ought to go out tonight and consume something.

Very interesting. If you know where I can find some more, let me know.

Addendum:
I almost forgot the solutions to "Name that Film" from last night.
1) "1970 Pontiac Firebird. The car I've always wanted and now I have it. I rule!"
American Beauty (good catch Watchtower!)
2) "The wine has no taste. The food sickens you. There seems no reason for any of it, does there? But what if I could give it back to you? Pluck out the pain and give you another life?"
Interview with the Vampire
3) "A guy once told me, "Do not have any attachments, do not have anything in your life you are not willing to walk out on in 30 seconds flat if you spot the heat around the corner."
Heat
4) Dialogue:
Person A: In my business you prepare for the unexpected.
Person B: And what business is that?
A: I help people with problems.
B: Problem solver.
A: More of a problem eliminator.
License to Kill
5) "...you dropped a hundred and fifty grand on a fuckin’ education you coulda' got for a dollar fifty in late charges at the Public Library."
Good Will Hunting
6) Dialogue:
Person A: You can break a man's skull. You can arrest him. You can throw him into a dungeon. But how do you fight an idea?
Person B: Sir, you ask how to fight an idea. Well, I'll tell you how... with another idea!
Ben-Hur

Have a good night.

Friday Night Cool Down Lap

Another busy week and perhaps the most news filled week in a while. At least things are not boring. A few topics and then some relax time. For those of you still stopping in (all 3 of you, LOL) enjoy the show.

Unemployment Numbers Mean More Easy Money and Delayed Exit Strategy
It seems the "exit strategy" talk will have to be pushed bask once again, not that it was ever really in play. Today's upside (downside?) surprise in the jobless numbers means a print over 10% for unemployment.

Not to worry, as Wall Street likes these numbers. As long as liquidity is ample, the dollar carry trade is alive and well, and banks can sit on reserves or deploy them into the stock indices jobs are sort of a drag anyway. Wall Street can make plenty of money while the masses are jobless. It is not as bad as the Great Depression because there are no foodlines is the common line, but what do you call the highest number of Americans ever on extended unemployment? That is not a bread line?

Of course easy money is all fun until it is not. When do you get into trouble? When you lose your credibility on repayment. Some economists like Paul Krugman think the way out of this mess (and the way out of everything for that matter) is t appear a little reckless with monetary policy to scare up some inflation. This chart from Eric Janzen of Itulip show just how disciplined in regards to deficit spending the USA has been over 19 years:

4 wins and 15 losses for fiscal sanity. We will really stop doing this world, we promise, just a bit longer and what's 50 years between friends anyway?

On the "Exit Strategy" page, there is a report out tonight on Zero Hedge which is important to this discussion:

Reverse Repo Failure Confirmation, Primary Dealers Want Exemption From Tier One Capital Requirements To Do Reverse Repos
A few weeks ago we speculated that the Federal Reserve's attempt to conduct a reverse repo test as part of a liquidity drainage failed. In a stunning piece of news, Zero Hedge friend Jim Bianco sent us the following. Little commentary is necessary: the banks are about to unleash the massive leverage ploy all over again, this time with the pretext that they are happy to soak up liquidity, yet in the same time, their stupidity and inability to gauge risk will blow up the financial system once again when Tier One ratios for dealers are allowed to go back to 100:1. Zero Hedge will forward this information to all of our correspondents in Washington as what the Primary Dealer community is doing is extortion, pure and simple, and it is likely to be endorsed by their cronies at the Federal Reserve (which, in turn, has already received a carte blanche to do so by its purported master, Goldman Sachs)

. Read the whole thing.

I wrote about the money market angle that the FED was looking to use for reverse repo's a while ago. It seems the primary dealers see yet another way to game a system and this will need watching.

I had a bunch of other stuff I wanted to cover, but I am lacking in motivation.

Friday Night Entertainment
A little of this, a little of that for entertainment purposes only.

Name That Film
Some select quotes from various films, I supply the line, you supply the film. Test your knowledge of useless information!:

1) "1970 Pontiac Firebird. The car I've always wanted and now I have it. I rule!"
2) "The wine has no taste. The food sickens you. There seems no reason for any of it, does there? But what if I could give it back to you? Pluck out the pain and give you another life?"
3) "A guy once told me, "Do not have any attachments, do not have anything in your life you are not willing to walk out on in 30 seconds flat if you spot the heat around the corner."
4) Dialogue:
Person A: In my business you prepare for the unexpected.
Person B: And what business is that?
A: I help people with problems.
B: Problem solver.
A: More of a problem eliminator.
5) "...you dropped a hundred and fifty grand on a fuckin’ education you coulda' got for a dollar fifty in late charges at the Public Library."
6) Dialogue:
Person A: You can break a man's skull. You can arrest him. You can throw him into a dungeon. But how do you fight an idea?
Person B: Sir, you ask how to fight an idea. Well, I'll tell you how... with another idea!

Fail Blog
Another great Fail Blog Post, you know how we all hate those verification words for comments:

see more Epic Fails
That's wrong on so many levels.

Unbridled Violence
As a fan of boxing I have seen over 5,000 fights and the vicious activity in this College Women's Soccer game is as bad as any fight I have seen. ESPN video here, but here is a Youtube (less quality):

Number 15 belongs in the NHL! (hat tip to my good friend NG)

Rock Blogging
Friday night video fights is on hiatus due to lack of interest. Just some things to listen to.

I remember when Bon Jovi and Sugarland opened the Daytona 500 with "Who Says You Can't go Home":


A little Danzig and "How the Gods Kill":


Unleash your inner mayhem, and channel the freak inside with Rage Against the Machine and a live version of "Bulls on Parade" from Grand Olympic Auditorium:

I love YouTube.

Enjoy a little Ska and Rocksteady fusion with Bob Marley and "Could You be Loved":


Last Call!

Economic Disconnects favorite Journey song is "Wheel in the Sky" and I was able to dig up a live version through the magic of YouTube that is just very special indeed, live from the New York Palladium club 1978:

Amazing.

Have a good night.

Tangible Assets For Thursday

Plenty to get to this evening, but I think everyone should take a moment to think about the people that have been attacked at Ft. Hood in Texas. The details are slow to come out, and all are bad, so please keep the military and non military folks at Ft. Hood in your thoughts tonight.

As an aside, I think my posts have been missing at Seeking Alpha because they are hard to categorize as I tend to cover a ton of ground. I hope the followers over at SA continue to find the site here at the main ground.

Ford Favorable Rating Through the Roof Due to Handout Refusal
Nobody likes a loser and nobody can stand a loser that get bailed out. Consider the case of Ford (F) motor vehicles and their latest showing in a Rasmussen poll:

Ford Favor ables Continue to Rise As GM, Chrysler Slip
On the heels of Ford’s better-than-expected third quarter profits and its promise of solid profitability by 2011, 68% of Americans adults hold a favorable opinion of the one company that passed on a government bailout. Ford continues to far outdistance public perceptions of General Motors and Chrysler.

This is both expected and welcome.

Ratings Breakdown
FORD: Favorable 68% Unfavorable 24%
GM: Favorable 34% Unfavorable 56%
Chrysler: Favorable 29% Unfavorable 63%

Ford has a unique chance here to capture the hearts and minds of the American auto market. By refusing a bailout they will command brand loyalty and pride of prospective buyers. If you recall I wrote a promotional piece for Ford a while back:

"Ford Motor Company has long been a leader in US automobile manufacturing. While the entire industry has fallen on hard times, we at Ford want the American public to know that we stand behind our products and our warranties without the help from an already stressed taxpayer. Ford has long built the best selling truck on Earth, the F-150, which has served as the American workhorse over the years. Ford has also introduced new age vehicles for the new consumer including the Ford Focus, Ford Fusion, and the Ford Edge all of which are rated competitively across the industry. We at Ford do not want a handout, but we would appreciate your consideration when buying a vehicle. As always, Ford is tough."

A possible problem for Ford could that Ford Credit (their financing wing) will have to battle perpetual basket case GMAC on uneven terms. Even in the face of this I think Ford is in good shape. I believe people would pay a little more for a car from a company that is not on the government handout sheet. Here's hoping for Ford.
Disclosure: No position in any stock mentioned

Fannie Mae and the Policy of "Extend and Pretend"
I have spilled enough pixels highlighting (lowlighting?) the various shortcomings of Fannie Mae (FNM). Tonight lets take a loo at their latest losses and plans for the future.

First up, Fannie earnings, or lack thereof (via Zero Hedge):

Fannie Mae Reports Massive Q3 Loss, Asks For Another $15 Billion From Government As It Is Set To Become Largest US Landlord
The latest particular does of lunacy and economic calamity coming out of the intellectual midgets at Fannie and the FHA should be sufficient to push the market well into 1,100 territory tomorrow. FNM's loss for Q3 is $18.9 billion, up from $14.8 billion in Q2, a time when the market was up a good 15%: ever wonder who keeps on subsidizing those gain? That's right - you. Credit-related expenses increased to $22 billion in Q3 from $18.8 billion in Q2. Oh, and Fannie now wants another $15 billion rescue from the Treasury (which is having some troubles with getting that pesky debt ceiling raised to one googol) so it can continue with its plan of keeping shadow inventory away from the market, rent foreclosed houses to their owners at staggeringly low rates, and continue the pretence that bank's balance sheets are well capitalized. Seriously, is the twilight zone any more palatable if one just drinks the Kool Aid or takes some crazy/stupid pills? We are ready and willing for the plunge.

For more on the Fannie rental plans:

Fannie Mae to rent out homes instead foreclosing
The rental program is designed to help homeowners who don't qualify for a loan modification under the Obama administration's plan, but still want to remain in their homes. Fannie Mae is not planning to market the homes for sale during the one-year rental period.

Fannie Mae has hired an outside company, which officials declined to identify, to manage the properties.

To qualify, homeowners have to live in the home as their primary residence and prove that they can afford the market rent, which would be determined by the management company. The rent can't be more than 31 percent of their pretax income.

Unreal. Just Unreal. Did you know that in most states Fannie rental is in fact illegal? (sarcasm on)

A company that cannot manage risk will be able to manage rental units no doubt. 31% pretax income on rent? Only nuts will go for this as rents are nowhere near that level. Have we discovered a cute way to circumvent the owners equivalent rent component of the CPI?

I will be honest, I had planned to write about this story all night, but Karl Denninger at Market Ticker has said everything I had thought about all day so well it is really not worth doing another run down. Hazards of having to work all day, you get to the party late! From Karl:

-This has exactly nothing to do with helping "homeowners." It is entirely about Fannie not having to recognize the written-down value of these houses - that is, allowing them to hold the "mark" on the loan at it's original value, rather than recognize the loss.
-Oh, so the rent can't be more than 31% of their pretax income, but the original note's payment was, right? After all, if it wasn't then the homeowner wouldn't have been in foreclosure in the first place!
-That's the key paragraph, and tells you that:
This is simply an attempt to avoid mark-to-market on the properties.
The rent charged will be insufficient to meet the PITI (Principal, Interest, Taxes and Insurance) on the original note, as by definition if it could the "homeowner" wouldn't have defaulted in the first place!

That covers it!

So as the housing market "rebounds" and excess inventory is "worked off" you will at least be of the understanding that there are two worlds out there, the real one and the projected one.
Disclosure: Never have and never will hold any FNM related stocks or anything related to it.

Tangible Assets
With the markets on fire since March and the calls for recovery singing loud and proud, what is the move in gold trying to say?

I have written before about the Repudiation of US Financial Engineering and it applies across the pond as well.

The UK seems eager and ready to depress the "print" button by Quantitative Easing (QE) in an all out effort to get some kind of economic activity going that will magically pay for all the magic money:

Bank of England expands money-printing programme to £200bn to fight downturn
The unconventional plan, which is known as quantitative easing (QE) and was first adopted by the MPC in March, will now see the Bank buy a total of £200bn of UK government bonds, or gilts, and other assets from from financial institutions in the hope the money spent will be invested in the wider economy. Some economists expected the programme to be increased to £225bn.

Experts admit that it's hard to judge whether the policy is working, but with the economy still languishing in recession last quarter, most reckon it's worth expanding.

British manufacturing output bounces back "The UK economy is still in the High Dependency Unit, but without QE it might have been in Intensive Care, or worse," said Stephen Boyle, head of economics at Royal Bank of Scotland. "The extension of the Bank's asset purchase scheme today reminds us that the risks of doing too little considerably outweigh the risks of doing too much."

Choice quotes!
No idea if it's working, but whatever, it's worth doing more of it just to see what happens. Hard to argue with that logic.

Now just in case you think there are no sharp observers on CNBC, you just have to be awake at the right time.

As I was sipping my one 1/2 cup of coffee of the day this morning at 5am, I flipped to CNBC and heard rays of light an sense being spoken! The speaker was Stephen Gallo from Schneider Foreign Exchange and this guy pulled no punches on the money printing presses running the world over, no embed, sorry but go here. Stephen Gallo is my new hero!

How about fraud? It was all cleaned up right? Not so much:
More Insider Trading (UUP Options)
The Insider Trading Alarm Bells Grow Louder
Hint: Anytime you want more, it will be there.

Gold is not fungible, and as I and my friend at The Golden Truth observed in India comments about gold as the "Ultimate Currency".

But gold is in a bubble phase, right? Jesse's Americain Cafe reminds us what a bubble looks like:

How Can You Tell When Gold is in a Bubble?
When the junior miners start showing these kinds of returns, you might be in a bubble.
We're nowhere near that point yet:

Not really there yet!

As a molecular biologist I have a special affinity for gold and silver. No two other metals have the ability to be used in biological settings as these two. The reasons are many and suffice to say there will not be replacements.

An example of the kind of results I have seen in scientific journals and research reports for biotechnology concerning gold and silver applications:

Golden Nanocages Could Deliver Cancer Drugs to Tumors
Cancer treatment in the future could have dramatically reduced side effects if new nanotechnology research proves useful. Heat-sensitive nanoparticles might be able to deliver drugs to a targeted location in the body—to a tumor, say—and release them on cue, a sought-after goal of biomedical research.

One research team has developed nanoparticle cages that can be stuffed with tiny amounts of drugs that are only released on demand. These “nanocages” are cubes of gold, with sides about 50-billionths of a meter long and holes at each corner. They are easily made, using silver particles as a mold, and then coated with strands of a smart polymer. The polymer strands are normally extended and bushy and cover the holes in the cube. But when heated the strands collapse, leaving the holes open and allowing the drug inside to escape [The New York Times]. The researchers say they can engineer the nanocages to stick to tumors.

Now Discover magazine is not a high end science journal but I would not bore you with a PNAS submission or worse a PUBMED article.
Disclosure: Positions in GLD, SLV and physical gold and silver bullion.

Unemployment Numbers
Tomorrow is the latest UE numbers which are expected to show great progress in job losses of only about 175k. Great if you are not number 174,999 I guess!

I was thinking why not count the extended benefit UE users as "government employees" and then UE really drops!

I found this cartoon on the Wikipedia entry for Unemployment circa 1837:

the words are very hard to make out, but my best guess from left to right:
-"I have no money and cannot get any work" (Man in green)
-"Father cant I have a piece of bread?" (girl in yellow dress)
-"I say Father can you get some specie claws" (boy in blue and I have no ideas????)
-"I am so hungry" (boy in brown)
-"My dear cannot you contrive to get some feed for the children, I care not for myself" (Lady in red with baby)
-"I say Sam I wonder where we are to get out COSTS (bold)" (Men in Blue with RENT signs, ominous, no way!!!)

Really puts things in perspective, no?

Have a good night.

Do Not Settle for Shades of Gray

It is now officially that time of year when it is night time dark when I leave for work in the morning, and night time dark when I return home. This is also known as "Economic Disconnect Solar Deprivation Depression Season". At least football is on.

Cause It's too Late Baby, Now It's Too Late
While it may be hard to believe, there still exists a large proportion of financial observers that think more government regulation will both protect normal people and affect the behavior of the banking system. This line of thinking assumes two huge things:
-The banking system would accept any regulation that may hurt them
-The banking system will not side step such regulations
I would add there are plenty of regulations as is, but zero enforcement, so why not add another layer or two for show?

Today's example of wasting both time and my patience is the quickly passed credit card protection bill which may have been useful a while ago and if it had any teeth. Take a look:

House OKs expedited effective date for credit card rules
The House voted 331-92 to move up the effective date of recently approved restrictions on credit card companies from the current February, 2010, deadline of the law. The credit card law limits the ability of banks to hike interest rates and bans deceptive practices.

While I excerpted this piece one may notice that there are no clauses which will undo the already implemented rate hikes of around 20-30% for most large banking credit cards.

Many legislators were all proud of themselves for getting this done, thinking they have helped pressured consumers. Well, "Bzzzt. Sorry Hans, wrong guess. Would you like to go for Double Jeopardy where the scores can really change?"

Thanks to John McClane from Diehard for the quote inspiration.

Bloggers In Washington Follow Up
Checking over the blogger posts about the Treasury visit was a let down. Most did not really have much to say about the whole thing. The one exception was Kid Dynamite's World. I would point you there to read his tale, it has a bit more detail and interplay than the other summaries I have seen.

As an aside, the site itself is very good, and the author is a poker player! I have no idea how I missed that site, but I have added it to the blogroll so I can get caught up.

Political Arena
I try and stay away from politics here for all the usual reasons. I will venture in if the political has bearing on the financial, and that is the case tonight.

There were a number of elections last night, and quite a few incumbents got bounced. I will not recount the democrat/republican slant on things, as you all know I am anti-incumbent and very anti-anyone that voted for TARP/Housing Tax Credit I and II, etc whatever side they fall on.

What is important is that all the exit polls I saw rated the economy as their number one issue. Health care scored a distant 3rd or 4th place. Add to this that it is not only jobs that are a major driver for voters right now, but items like the deficit, bailout backlash, and anger over banking issues (obscene bonuses, high rates while banks borrow cheap) are really moving voters. In this perhaps there could be a chance for change. Economic Disconnect's slogan for the next election is:
"Vote, And Hope You Still Have Some Change Left in Your Pocket!"

Do Not Settle for Shades of Gray
In direct opposition to what may have been the signal sent in last night's election, the handouts and taxpayer leveraging continues unabated:
Congress Poised to Keep Homebuyers’ Tax Credit
I will not cover again the expansion program, by now you all know the deal.

It is known this program is wasteful, full of fraud, and a direct handout to the realty/banking lobby. The government insists upon doing wrong things in the hopes of having some kind of a good effect. this is where I am going to get a little philosophical, so bear with me.

It is not acceptable to do "wrong" things to end up with a "right" result. Now I am well aware in this day and age there is no "Black and White" but only shades of gray for most denizens of the planet. I reject this.

All efforts to "save" housing may be in good faith, but you cannot target and punish the majority to prop up the few. The major argument is "if this is not done, many more will suffer even worse" but that argument is empty. Things happen. Home prices go up, and they go down. Sometimes life is, gasp, rough. Lowering rates across the spectrum, adding all kinds of incentives to buy houses, and bailing out banks that lent money foolishly outweighs the benefit of a slightly more valuable home on face, and it is wrong in principle.

I will use one example couple, John and Jane, and apply the current actions of the government and how it affects them.

John and Jane are a young professional couple, recently married (2004), and looking to buy a home in 2005. After seeing open houses that looked like Walmart the Friday after Thanksgiving the couple slow down and look at things. They notice that home prices are not even affordable for them even thought they both make great money. They notice the houses they are looking at were selling for less than half of the 2006 prices in 2002. To top it off, a known high school drop out (but casual friend) from Johns old school was bidding on a home they were, and he has no job. Clearly something is wrong.

The couple do some study, and decide a crash is in the works. They decide to save money and wait for the price rocket to come down.

And it begins.

By 2008 the couple are seeing what they have waited years for: dropping prices. While putting off a home purchase and the possibility of having kids to wait things out, they now are inspired that their efforts will be rewarded.

And then the government steps in.

The lowering of rates kills the savings return the couple was seeing, even severely dropping their CD rates as well. The FED goes to 0%, just like Japan:


Next up, mortgage re-works for fools that bought too much house, effectively giving those irresponsible buyers a new lease on life in their home until they default again.

Tax credits have given low end buyers (where John and Jane are looking to enter) who now have renewed vigor to use the free money no down payment FHA program to get into homes they will default on anyway.

I could go on, but where exactly is John and Jane's bailout? How are they served by all these actions? In what way have they been helped?

For being prudent they have been assailed at all sides.

As an extreme example, consider this:
You could solve unemployment in one month. Have all the unemployment receivers go to the main office to pick their check. Load them all into cargo ships and drop them off in Antarctica. Say "Have at it" and leave them there.

Presto! Unemployment just went to zero in a month!

So I ask, is doing "wrong" to get a "right" still ok?

If you answered "No", and unless you are a Keynesian to whom people are numbers and lines on a chart so you may not really care, why are other "wrongs" ok?

Is it scale? Are we arguing semantics? What is the difference?

When you lose sight of "right and wrong" then all bets are off. The greater good is nice in theory, but usually the greater good in today's mess are the banks and their entrenched hold on politics.

Have a good night.