Friday, November 2, 2007

Your're Gonna Need a Bigger Boat

"You're gonna need a bigger boat."
"Thats a thirty footer!"
"Thirty-Five, 3 tons of him." -Crew of the Orca upon seeing the great white shark for the first time in the film "JAWS".

The moment in "Jaws" when the shark is finally seen and the crew realizes the true enormity of the problem they face is easily applied to the current situation facing the US banking industry and the FED. In early summer the rise in foreclosures and falling home values were thought to be contained to the micro niche subprime space. As time wore on, the definition of "subprime" was found to include all kinds of paper that masquerades as prime grade. The accelerating foreclosures and price drops stopped being so contained, and now engulf almost every real estate market in the USA. "Mark to Model" fantasy prices of various mortgage related securities are now being exposed as pure lunacy. I am not going to rehash all the details, you will already know them by now. The point is the banks, hedge funds, mortgage lenders, and the FED thought the problems seemed small and contained. By using old tricks like off balance sheet holding of paper, slight increases in provisions for losses, and FED rate cuts could stop the unravelling in its tracks. Only now do the powers that be see the depths of the rabbit hole that was mortgage lending over the past 3 years. They are going to need a bigger boat.

Merril Lynch and the SIV Minifund
If you are easily amused, check out this headline:
NEW YORK (MarketWatch) -- Shares of Merrill Lynch & Co. fell more than 8% Friday, retreating in the face of a Wall Street Journal report that the company has engaged in deals with hedge funds to delay when it had to record losses on risky mortgage-backed securities.
Seems like Merril had an idea to set up their own mini SIV Superfund. The purposeful mispricing of assets that are shuffled between entities to hide losses is fraud, and it is illegal. Enron accounting it is called. Merril is going to be investigated. They should have waited a bit to join the new SIV Superfund that I have covered in the past. That illegal shuffling has the explicit backing of the Secretary of the Treasury Hanky Paulson. Timing is everything.

Citibank's Weekend Retreat
Not amused yet? here at economic Disconnect I try my best. This is a choice tidbit:
APReport: Citigroup CEO May ResignFriday November 2, 6:52 pm ET
Report: Citigroup CEO Will Offer to Resign Sunday
; Board Expected to Hold Emergency Meeting

An emergency meeting on Sunday? I do not think they are gathering to congratulate themselves on the containment of the mortgage losses. Another CEO resignation? If Ken Lay had only resigned, all would be well in the fraud-o-verse.

Jobs Report is as Real as Unicorns

The jobs report today is as fake as Pamela Anderson from the waist up. The silly birth/death model adjustments are so skewed towards major job creation that the number itself is no longer a valid economic indicator. Mish has a wonderful piece on this, pay attention to the chart he provides:

Please don't comment that you have seen a unicorn lately, we all know they went extinct in the 1700's.

In summary, the week was more funny than anything else. The rising tide of reality is slow and steady. Monday should be interesting, as both Merril and Citi should rocket up from here. In the "all the bad news is already out" mantra, an investigation into financial dealings and a CEO resignation should be worth quite a pop to the upside in this market.

Enough, its Friday!

I will do a complete Patriots vs. Colts preview and prediction tomorrow. Hint: I do not feel it will be all that close a game.

Friday is rock blogging time! In keeping with the ominous news and feelings in the market, I have selected some dark songs that convey the mood. I think I figured out how to embed even!

Black Sabbath's self titled "Black Sabbath". If there is a song that epitomizes evil and conveys a dark mood this classic is it!

AC/Dc with "Hells Bells"

Dio with "Holy Diver"

Have a good night!


Anonymous said...

Yep... The wife and I were coming home from the dentists (and with $250 less in our pockets--for a routine cleaning!-sans dental insurance) and we were listen to NPR. Yep... that job report was given that manufacturing jobs went down the shiza and "Professional Service" jobs were up and actually up beyond expectations. You should have been there to hear all the profanity coming out of the wife's mouth! She was laid off from Motorola in July and replaced by a phone (nice to know your needed) and the new job laid her off last week. Seriously a Multilevel Ponzi Scheme inc. didn't keep her past her 90 days..... Soooo WTF gives? We know first hand the economy is shiza as a fortune 100 dumps their employees and a mom and pop scam shop does the same!

I am with USER:Kevin and ready to get a ranch somewhere for cheap and just hide out!

Great post. Funny we don't have the same taste in sports or music but your blog is right on target!


PS Have a great weekend! Gold is over $800/oz now!!!

Anonymous said...

I am with USER:Kevin and ready to get a ranch somewhere for cheap and just hide out!

Here you go G there are places all over here and other states in the Mid-West that a cheap when compared to CA or any states near the coast. I paid 25% less then the ask price for my farm, and at some of the auctions out here in some of these towns I have seen older homes go for as little as 5K.

I was looking at these places for over a year before I retired and that farm had been for sale for 3 years before I bought it so the guy had an incentive to cut the price. I also had what he wanted an all cash deal. Look up a state that you think you might be interested in living and type in land auctions.

It's not for everyone and I would think real hard before I made that decision also make sure your wife is on board. Happy wife is happy life.


getyourselfconnected said...

Kevin and AnonG thanks for checking in. Can you make a reasonable living farming? I do not mean big bucks, but enough to support costs if you had enough put away to cover other expenses? Also, what are the winters like? What do you grow or farm? Theres a little part in everyone I imagine that would love to leave the city areas behind forever.

Anonymous said...

I am just fantasizing about living off grid. ;)-< You know the more I am hearing how this generation will be unable to cope with a depression or how we are now more city/suburban vs rural I serious doubt our survivability. Not to be pessimistic but after the 4 hours of this week I am feeling even more ill (compounding the flu). You know, they asked a really good question on their show about Rome and who/what contributed to it's fall as a Republic. Guys it's eerie but I don't see this ending well because the powers that be wont allow the "FREE" market to correct itself when shiza investments go south. Did anyone read about the outcome of the CITI bank meeting this weekend?

The Still Sick G 8^X

PS: Docs gonna love me on Monday!

Anonymous said...

Anonymous said...


I use my farm for my own consumption and give away a large part of the produce as I'm not dependent on it for income. My neighbor does some of the ground preparation in exchange for use of my pastures for his horses a couple of month out of the year which I guess one could consider as bargaining.
The guy's that seem most successfully doing it for a living out here are a combination of farmer and rancher. A lot of these guys are multimillionaires. They raise corn and soybeans and hay the pasture grass for their cattle for the winter months. A lot of them use the futures markets to hedge. The biggest cost out here for them is petroleum to run their farm equipment and the engines for irrigation systems. We don't get enough rainfall and this is sandy soil so the cost of irrigation is high.
Having a mechanical and electrical background are beneficial as something always needs to be repaired. Some of the smaller farmers I know raise produce and sell it at weekly farmers markets around the area and they seem to do fairly we'll.
Here is a list of what I grow.

Bell Peppers
Brussels Sprouts
Butternut Squash
Anaheim Peppers
JalapeƱo Pepper
Lima Beans
Onion (white bunching)
Onion Granex Hybrid
Radish (white)
Roc D'or Beans
Scarlet Runner Beans
Swiss Chard
White Bush Scallop Squash
Yellow Crookneck Squash

I think a guy could do fairly well on a small acreage say about 10 in some of the niche produce markets like everything your success would probably be more dependent on your adaptability and attitude. I happen to like Butternut squash as they keep for 165 days at 55 degrees after a 10 to 20 day curring at 75 degrees. Butternuts sell well in this area which is something else on has to learn. I have started to experiment with Garlic which I just planted a couple of weeks ago and will be ready for harvest in July, so far, so good. Some of this ground can have quit different growing qualities within a half section. I live in a small town about 10 miles from my farm currently and I grow a garden here and the ground has vastly different yields on the same type of plants. Some do better here and some do better at the farm.

Winters can be nasty, our low will be 20 tomorrow and we'll most likely have snow around Thanksgiving and I don't care for snow but life has it's trade offs and I am far freer and happier here.