Wednesday, December 31, 2008

New Years Eve

Snowstorm dropped another 7 inches on us today. At least it was the light fluffy stuff that you can move easily enough. I usually stay in for New Years; it is both cheaper drink wise and safer road travel wise.

Looking Back on 2008
New Years Eve is all about reflection and then hope for the new year. 2008 was filled with drama (both economic and personal) and excitement (again both economic and personal). I have marvelled at how fast things came unglued after the August Bear Stearns debacle. I have been equally amazed at pundits that assured things were just great now come out and say the same thing. Fortunately for them public memory is either short lived or non existent so they can keep their jobs.

This blog had a busy year with 197 posts (WOW! That many?). I am thankful for the wonderful readers that take a minute to check out my small piece of the web (Kevin, G, Watchtower, Lisa and others) and add comments and discussion. I was happy to be added to the Seeking Alpha watch list, I guess my stuff cannot be totally bad!

I will have a bit more forward looking posts up over the next couple of weeks as we move into 2009. This evening I want to wish everyone a happy, healthy, and safe 2009. I will be covering in real time what promises to be one of the more interesting years in modern history on almost any level you want to look at (politically, economics, social issues). Raise a glass and give a toast for 2009!

Have a good night.

Tuesday, December 30, 2008

GMAC Ready to Lend Taxpayer Money to "Good People"

Another snow storm on tap for the entire day tomorrow. Well that's just aces! You all know how much I do love the wintertime.

GMAC Ready to Lend Taxpayer Money to "Good People"
While housing issues are correctly tapped as the major culprit in the credit bust, there are so many other areas that were grossly inflated during the credit boom. Think about home improvements, vacation destinations, Las Vegas traffic, and many other spaces where free credit via home refinancing spurred spending that was illusionary. Another key facet of the credit boom was the absurdly high new vehicle sales pace. All these things are now deflating and you the tax payer have been tapped for footing the bill for it all.

Today's news that GMAC, the financing wing of GM, was thrown a lifeline to the tune of around 6 Billion dollars was greeted warmly. Another day, another bailout. I know it gets repetitive and boring but this story has some choice words that warrant our review.
GMAC loosens credit to make vehicles easier to buy
Tuesday December 30, 6:04 pm ET
By Bree Fowler, AP Auto Writer
GMAC uses $5B in aid to loosen credit for auto loans in effort to rev up sales
NEW YORK (AP) -- A $5 billion government bailout aimed at reviving General Motors Corp.'s ability to make car and truck loans has dealers hopeful that cash-strapped consumers will return to their showrooms.
GMAC Financial Services, the automaker's troubled financing arm, on Tuesday loosened its tight lending standards, which in recent months have made it more difficult for would-be car buyers to get loans. GMAC's move marks the first time that a financial institution has said it will use money from the $700 billion bank bailout to offer more affordable credit to consumers.
Michael Martin, who owns Chevrolet and Saturn brand dealerships in Manassas, Va., said he thinks the loans will be key to turning around the auto industry, adding that GMAC's lifting of credit restrictions sets an example for banks that have yet to use their bailout funding to free up consumer loans.
"I think these things really spur consumer confidence too," said Martin, who had already seen customer traffic pickup at his dealerships on Tuesday. "People are saying it's good to see GMAC back in the marketplace. Whether it's just a euphoric feeling or not, at least it's a positive."
GMAC said Tuesday that as a result of the government aid it will resume offering automotive financing to customers with credit scores as low as 621, eliminating restrictions put in place two months ago as a result of the tight credit markets that mandated a minimum score of 700.
Marc Cannon, a spokesman for AutoNation Inc., a Fort Lauderdale, Fla.-based auto retailer that encompasses 264 dealerships including 73 GM franchises, noted that consumers can faithfully pay their bills for years, but if they miss one or two payments along the way, their credit score can drop into the 600s.
"They're not lowering standards, they're bringing more people into the game," Cannon said of GMAC. "These people are still customers and they're still good people you want to help get into the right vehicle."

All that is wrong with the financial world is covered by this article. The colossal debt load of the average US citizen has crested to a point that even shopaholics are cutting back on consumption. While this should be seen as both necessary and long overdue we have the Treasury and FED machines doing everything in their power to get people spending money they do not have. A 6 Billion dollar cash giveaway to GM will not be used to restructure or revamp the company, but instead it will be used to make car loans to "subprime" credit rated consumers tempted by the zero percent finance car game. We must keep in mind that anyone can have a credit issue, and that spotty payment history is no reason to deny credit to "good people".

Banks right now are averse to lending to just about anyone. The US government has now become the only player in regards to home loans, and now it appears they will be the only player in the game for car loans as well. The powers that be are handing over our tax money to make aggressive loans in terrible economy. The thought process by which anyone thinks this will end well is lost on me.

The feverish pace of activity by the government should give us all pause. They must know something we don't to be chasing consumption regardless of the costs. I have always felt that stupid behavior and desperate acts are always the result of some kind of fear. What exactly is it that the US government is afraid of?

There are deep currents unseen that will need to be known soon. Whether China has something up it's sleeve is my guess. The people at the Treasury and the FED certainly are scared of something. Just what that is will become clear in 2009 I think. Any guesses?
Full Disclosure: I have no position in GM or any other automotive stock.

Have a good night.

Monday, December 29, 2008

Making Sense of Circular Logic

I trust all the readers had a great holiday. Things were pretty hectic around here, but at least the weather was reasonable. Had a big Christmas Dinner here at the house and my pug dog made out the best. Now my dog is not very bright, in fact he is pretty stupid. Problem solving has never been his strength. I have to tell you that he underwent an evolution! It seems that a plate of crackers and cheese was on a table (too high for him to get near) but he could smell the goods. The dog figured out that he could jump up onto a nearby couch and stretch his way over to the table and have full access to the food! I mean he had a revelation! It was like in the film 2001: A Space Odyssey when the monkeys figure out how to use bones as weapons. Soon after I caught him trying the same thing using chairs, short tables, anything he could climb to try and get to food. I so much prefer cats.

The COMEX Bust That Wasn't
I spent a bit of time discussing the possibility that the Gold COMEX market could get busted this month. Things appear to be just fine with only 2 days to go. While I never really believed that the COMEX would fail, I did hope! So much for that idea. Gold and silver still seem to be holding up well, with gold even seeing some strength. With the long term picture of dollar printing and reflation attempts galore I expect that will continue.
Full Disclosure: I own positions in gold miners GG and KGC.

Making Sense of Circular Logic
When I came across this Bloomberg story I must have spent over an hour just rereading it and trying to figure out just what the heck this Japanese credit ratings agency guy was trying to say. I am still confused. Full story here, it is a must read.
Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says
By Stanley White and Shigeki Nozawa
Dec. 24 (Bloomberg) -- Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.
The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.
It’s difficult for the U.S. to borrow its way out of this problem,” Mikuni, 69, said in an interview with Bloomberg Television broadcast today. “Japan can help by extending debt cancellations.”

Mr. Mikuni correctly observes that the US may have an issue borrowing it's way out of this mess. His proposal is to simply cancel debt that Japan holds to help. What a guy. So if the US cannot borrow out of trouble, what can the US do? Back to the piece:
Marshall Plan
Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade, Mikuni said.
Japan’s exports fell 26.7 percent in November from a year earlier, the Finance Ministry said on Dec. 22. That was the biggest decline on record as shipments of cars and electronics collapsed.
Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.
“U.S. households simply won’t have the same access to credit that they’ve enjoyed in the past,” he said. “Their demand for all products, including imports, will suffer unless something is done.”

Japan is going to buy the US new roads and bridges? At least they would build them right. I wonder how great a thing it is that foreign countries like Japan think the US needs a "Marshall Plan" to get out of a recession.

The main thing I take away from this article is the crazy circular logic that it uses. The US is in debt that it cannot pay back. A country like Japan could forgive a load of that debt and offer money to build infrastructure to maintain employment. This would allow debt strapped US consumers to, you guessed it, buy more crap from Japan with the very money they get from the Japanese cash infusions! Amazing and simple, why didn't anyone think of this before?

In my last post "US Consumption Worth More Than All the Gold in the World" I opined that the need of export nations for US consumption was worth more than gold to this country. It seems I was thinking along the right lines. Here we have Akio Mikuni, president of credit ratings agency Mikuni & Co., basically saying that Japan should just give money to the US so the US can import more stuff from Japan with money they just gave us. It doesn't get any better. Maybe we can get China and Taiwan into the game. Just think of it, they are going to give us money to buy their stuff so their economy grows!

I think you can see why I am a little confused. It is this kind of mental monetary gymnastics that has allowed things to get as bad as they are. This article is a great highlight of current fiscal insanity. Discuss this one in the comments section, I would be interested in your opinions.

Mish on Fire as of Late
I have to say that Mish has been on fire lately. Professor Shedlock has hit the nail directly on the head so many times over the past 2 weeks I cannot recount all the great insight in one paragraph. Take a read over the past 2 weeks worth of posts and you will see what I mean.

Tonight is another great one, full article here.
Goodbye Yellow Brick Road
The "Yellow Brick Road" theory of the global economy was based on three foolish ideas.
1. The US consumer could consume beyond his means for perpetuity.
2. China could decouple from the global economy and grow its GDP forever at an 11% clip by taking workers from the farms and moving them to cities.
3. It is possible for a county to spend its way to prosperity.
The Yellow Brick Road Theory is rapidly flying apart. US consumers aren't consuming, protectionist tensions are rising, and Chinese workers are leaving the cities, headed back to the plough. Yet in spite of massive logic and evidence to the contrary, Keynesians are still sticking with the belief it's possible to spend one's way to prosperity.

Again, the theme of borrowing and spending more money to fix a problem brought about by that very activity will be a major plot line for the drama that will be the year 2009.

Have a good night.

Tuesday, December 23, 2008

US Consumption Worth More Than All the Gold in the World

After a few days of trying to dig out of two foot plus snows and now battling a middle ear infection that requires antibiotic treatment I have had no time or energy to post. Sorry for the meager material, but the last 2 weeks have been a trying time. I wish all the loyal readers the best possible holiday, and I thank you for another great year of discussion, sarcasm, and fun. My best to Watchtower, Kevin, G, and Lisa for all of their input. I have the entire next two weeks off, so I should be posting pretty heavy after the holiday.

The Front Loading of Demand as Told by Mish
One of may favorite themes was the heavy duty front loading of home buying demand due to psychology, poor lending standards, and ultra low rates. This fact is completely lost on the FED and government as they try to reignite demand that was fake to begin with. Mish had yet another must read post up today where he touches on this key point.
"Hundreds, if not thousands of of auto dealerships will fail. They will fail because they over-expanded in response to fake economic signals coming from the Fed, just as the auto manufacturers did and the housing industry did.
Housing purchases that could have and should have taken place over a period of a couple of decades were crammed into a few short years as lending standards dropped to keep the Ponzi scheme going. Flush with the feeling of fake prosperity from rising home prices, consumers bought cars, trucks, and SUVs with the same reckless abandon as they bought houses.
Dealerships wanting their fair share of the action, rushed into floor plan decisions and made car loans with the same subprime characteristics as did the mortgage brokers. Those dealerships are now flooded with cars that nobody wants, just as housing inventory is stacked a mile high with pent-up selling demand from those praying that prices rise."

Entire article is a homework assignment, so check it out here.

No "Pork Barrel Spending" Except for the Pork Barrel Spending
Had to chuckle when I came across this one today:
Biden nixes idea of pet projects in stimulus bill
Tuesday December 23, 2:58 pm ET
By Jennifer Loven, AP White House Correspondent
Veep-elect Biden rules out pet projects, other pork-barrel spending, in coming stimulus plan
WASHINGTON (AP) -- Vice President-elect Joe Biden said Tuesday that people expecting a bounty of pet projects in a new, massive multibillion-dollar economic stimulus plan should think again.
"It's important for the American taxpayer to know that this is not going to be politics as usual and we will not tolerate business as usual in Washington," Biden said at the start of a meeting at transition headquarters of Obama's top economic staff.
I know it's Christmas, and I know it's the Christmas season," he said, "but President-elect Obama and I are absolutely, absolutely determined that this economic recovery plan will not become a Christmas tree."
Biden said "there will be no earmarks" in the proposal -- referring to the sort of special-interest projects that members of Congress often attach to various pieces of legislation.

Earmarks and pork bills that are attached to legislation usually include such things as bridge repair/contruction, school "improvement", road repair/construction, park and monument construction, you get the idea. So what kinds of thing can we expect from an Obama/Biden "recovery" package rumored to be about $850 Billion dollars? Here you go from the same article:
The plan is expected to significantly increase federal spending on health care, education, infrastructure like roads and bridges, aid to states, and energy. Ideas include weatherizing 1 million homes, shifting to a paperless health system, investing in disease prevention and modernizing schools.
Biden said that "every dollar will be watched" to see it is spent effectively, that only what is needed to turn the economy around will be spent "and no more" and that "make-work" projects will not be allowed.

So basically it is a bunch of pork, but it is pork for progress so it is ok. That last line about every dollar being watched and that there will be no "make work" projects will bite him later I think.

US Consumption Worth More Than All the Gold in the World
Who can forget the James Bond film "Goldfinger" where the arch villain attempts to render all the gold held at Fort Know radioactive in order to make gold skyrocket in price as he has a large gold position? Great film.

I was thinking about that today as I read another "Mogambo Guru" article over at "The Daily Reckoning". While the writer Richard Daughty is always hilarious and informative, he had this little tidbit today that was pretty good:
"I was slurring my words pretty badly, and I forget where I saw it because it mysteriously disappeared in a frenzy of cutting and pasting back at the office, but I'm telling the bartender that some bozo was saying that if the Treasury's gold (or the Fed's gold, depending on who you figure has it) was revalued up from its current and historical book value of $42 an ounce, then the financial picture of the United States doesn't look so bad! Hahahaha!
I can tell by the look on his face that he is not a big fan of economic humor, and must be pretty much "all business" by the way he keeps repeating, "That'll be $6.50 for the drink, pal."
Cleverly, I reply, "I don't know if you are aware of it or not, my dear fellow, but the total amount of gold held by the government/Fed is only about 261 million ounces! That's all! Less than one ounce per person in the USA!"
He looked at me again and repeated, "That'll be $6.50, pal."
Undaunted, I went on, "And at $800 an ounce, that 261 million ounces comes to a value of $209 billion! Hahaha! A lousy $209 billion! Hahahaha!"
At this, I stand up and address the other patrons of the bar, saying, "And already something like $8.5 trillion over the next years in new spending/guarantees have been proposed! Not to mention the original $700 billion in TARP scams and schemes already spent, and more hundreds of billions in bailouts of every kind every day!"
Really warming up to it, I bellow, "Hell, the projected federal budget deficit for next year alone is upwards of a trillion dollars, almost 5 times as much as the total value of all the gold we have as a nation! And this is just the budget deficit! Hahaha! We're freaking doomed!"

So all the Gold held by the US is fair valued at a whopping $209 Billion. That is not even an AIG bailout, let alone a 1 Trillion dollar stimulus plan! Figure in all the other debt the US has and you can see ther is not much backing our currency.

So how does America do it? How is it that we can spend all we want, and then spend even more while we have nothing intrinsic or put back anything of value into the world? The answer is one word: CONSUMPTION.

The US has become the world's mega consumer. Japan, China, and many others rely entirley on US consumption to keep their economies going. If US consumption falls, those countries face severe issues. And thus this is how we have arrived at the obscene reality of the current day: The US spends all the money they have on consumption, then other foreign buyers buy a bunch of our debt to fuel even more consumption. The US makes out because we can do whatever we want, and the foreign countries pretend the money they lend us that we use for consumption is really flowing back into their economies. Sounds wonderful.

I have been perplexed at how long this has gone on and why it has not broken down by now. There seems to be no easy answer. I think things will carry on unless acted upon by an "outside" event. By this I mean a major world war or a conflict that is costly in terms of hard assets.

Consider that the US has no real oil reserves, no gold or silver, little gas refining ability, and no manufacturing base. If a major conflict broke out, how could the US pay if suppliers demanded hard assets? If major asian counteies were more worried about being invaded and less concerned with growing a middle class based on US consumption, might they stop playing the "cash recycle" game with the US?

The US does indeed have massive military holdings as well as nuclear materials. I guess that is something. While I cannot envision a scenario like this happening, it is an object lesson just to consider. US consumption is worth more right now than real money or gold. For as long as the semblance of the status quo can be maintained this will be enough. If things were to change, it would change overnight. Food for thought.

Have a good night.

Friday, December 19, 2008

Total Loss of Fiscal Inhibitions

What a LONG week I have had. I am glad it is Friday at last and that both the heat and electricity are on. It is snowing very hard right now, an estimated 10 inches for tonight. Let's hope nothing else goes wrong.

Site News
A little while ago I completed the paper work to have my site included on the Seeking Alpha contributor list. Since then my last two blog posts have made it on the site! I am excited that this site may be getting a bit more readership. Thanks to the crew at Seeking Alpha as they made the whole process very easy. You can see my articles on the site here. Hopefully I can finally break the top 100 economic sites for the next ranking due out in January. As always thanks to all that come here to read and leave comments.

Total Loss of Fiscal Inhibitions
The current economic doldrums seem to have caused a loss of all fiscal inhibitions across the world. Facing a recession and widespread credit contraction, countries and central banks from all over the globe are in a state of panic. This panic has broken down the barriers to government intervention in markets and spending on scales never seen before. Consider the following news items:
Japan plans to buy $227 billion in shares to boost market
By Michael Kitchen
NEW YORK (MarketWatch) -- Japan's government said Thursday it is submitting a bill to parliament allowing for the purchase of 20 trillion yen ($227 billion) in stock to help stabilize the Japanese stock market, Kyodo news reported. Under the bill, the Banks' Shareholding Acquisition Corporation, originally created in January 2002, would resume buying shares from banks and other entities, the Japanese news agency reported. The bill would be introduced early next month "with an eye to implementing the measure by the end of March," the report quoted lawmakers as saying. The Liberal Democratic Party had initially considered just 10 trillion in stock purchases, but the size was roughly doubled to 20 trillion yen at the request of its ruling coalition partner, the New Komeito party, the report said.

227 Billion in stock market buys from Japan. The original plan called for half that amount, but then was DOUBLED for good measure. Japan also made a monster interest rate cut from a rate of 0.3% down to 0.1%. That is not a misprint. A whole 0.2% cut should make all the difference!

Business News Network via Mish
Bank of Canada has prepared range of options
Heather Scoffield, The Globe and Mail
December 17, 2008
Bank of Canada governor Mark Carney says the central bank has prepared a range of options, beyond interest rate cuts, to stimulate the Canadian economy, but says it's "premature" to put any such plans into action right now.
As the financial crisis deepens, the Bank of Canada needs to become more aggressive, by taking on high-risk collateral from commercial banks, and even consider buying equities, added Nicholas Rowe, economics professor at Carleton University and a member of the C.D. Howe Institute's shadow monetary policy council.
The central bank's current measures to keep money markets moving have helped somewhat, he said, but the commercial banks are still shouldering all the risk, and that makes them reluctant to lend. The Bank of Canada could alleviate the risk by becoming "a pawnbroker of last resort" and accepting high-risk loans as collateral. "I think they could be a lot more aggressive .... Let's go crazy and go into markets and buy the index of stocks."

So the Canadian government sees that commercial banks that have to handle loan loss risks are reluctant to extend credit in an economic slowdown. While for all of history this had made sense, in the current environment it is not acceptable. The government and by extension the taxpayer should shoulder all that risk. Why stop with lending risk? Some in Canada think now is the time to "Go Crazy" in the stock market with taxpayer money.

Paulson: Congress needs to release second $350B
Friday December 19, 12:25 pm ET
By Martin Crutsinger, AP Economics Writer
WASHINGTON (AP) -- Treasury Secretary Henry Paulson said Friday that Congress will need to release the last half of the $700 billion rescue fund because the first $350 billion has been committed.
Paulson said the use of the rescue fund to provide loans to the auto industry along with all the other rescue efforts for the financial system meant that the administration has now basically allocated the first half of the largest government bailout program in history.
House Financial Services Committee Chairman Barney Frank, D-Mass., has said the administration must allocate some of the new money for borrowers facing foreclosure, and impose more conditions to make sure banks use their rescue funds to increase lending.
"They're not going to get the (money) unless they get very serious about the foreclosure modifications and showing us how we're going to get some lending out of the banks," Frank said earlier this month.

So the second half of TARP was not needed, but now it is. Even though there were two lawsuits that tried to pry any information about how the TARP money was being used (FEDs say they cannot say due to "stability" issues) we can feel confident that Barney Frank will be on the case this time around.

These three stories highlight the reckless abandon with which central banks and governments are operating right now. Flying by the seat of their pants major long term decisions are rushed into action. No explanations. No transparency. No detail on just how the governments will, if ever, be able to extricate themselves from the markets. It seems we will need the "jaws of life" to cut government out of the free markets in the future.

Taken in as a whole, what this all means to me is that the stock markets, currency markets, bond markets, just about any market cannot be trusted. There is so much blatant manipulation going on that one cannot use any standard metric to judge much of anything. The goal of all this intervention was supposed to be some kind of stability. The very stability the central banks are trying to engender is a false one based upon government backing of all things financial. By definition then, they simply cannot exit the markets anytime soon. I do not feel the markets have accepted this fact as of yet. I also do not think the markets understand the price the government will eventually extract as their "fair return" if things get going again.

Think about social security needs, public pension needs, etc. If the economy turns around and the markets go up, why would the government not step in and take a huge cut for themselves? After all, they saved the markets. I think this is not discounted in the current thinking.

Friday Night Entertainment
After this week, I need some fun and games!

Book and Film
Over the past 2 weeks between various places I read Frank Herbert's immortal novel "Dune". The book certainly has more depth and wonder than the 1984 film, but the film was pretty good. I found the old theatrical trailer:

Rock Blogging
In honor of tonight's snowstorm, I offer Black Sabbath with "Snowblind", one of my favorite songs:

I feel like it would be cool if magically this song would play whenver I enter a room:

Back when MTv used to only play music, this classic from Pat Benatar was on all the time. Listen to "Promises in the Dark":

As I had to stay at hotels this week or with relatives, at times I felt like a refugee. So take a listen to Tom Petty and "Refugee":

Have a good night.

Thursday, December 18, 2008

Stock Treasure at the Bottom of the Ocean?

As a very special parting shot from the ice storm of last Friday, two of my heating system water pipes broke and the heat was lost for the second floor of the house yesterday! I was able to get a crew in yesterday and those guys worked all day and most of today to fix the problem. Excellent service and they were real professionals. Hopefully that will be all for the drama department until the new year, but you never know!

Stock Treasure at the Bottom of the Ocean?
A while back I had mentioned a book I read called "Lost Gold of the Republic" by Priit J. Vesilind. The novel chronicles the search for and eventual recovery of the SS Republic, a steamship that was carrying a large shipment of gold and silver coins. This money was destined for the city of New Orleans after the Civil War to act as aid in reconstruction. The ship was lost off the coast of Georgia in a hurricane. The novel is great as it details not only the search for a long lost ship and all that entails, but it also sketches out the experience of many people that were on that fateful voyage.

Economic Disconnect focuses on the macro picture for the most part. I feel that if you have the tide figured correctly, finding stocks to buy is easier. I hardly ever disclose personal trades or ideas on particular stocks. I will this time so you can see how I think in a more short term sense.

The company I took a position in is called Odyssey Marine Expeditions, Inc (OMEX). This firm is the company that found the SS Republic, and has located many other ships that may harbor valued salvage. If you read the book you can appreciate just how good these guys are. The stock itself trades at about $3 today, and shows a market cap of $158 million. The stock trades pretty thin with average volume of 242k shares daily. (All data from Yahoo Finance Ticker report)

As I see it, OMEX is a lottery ticket. The stock is one lawsuit gone wrong on a claim from going to zero. Ships that are located may have nothing recoverable. They could run out of money in short order. This stock is a speculative play at best. If you are still interested, read on.

OMEX does what many of us can only dream about. Bringing up gold and silver from long lost ships can only be termed "wild". The science behind their search methods and the methodical nature of their work is impressive. Those criteria make the stock interesting to me. As a catalyst for me to buy though, I look to this headline from December 11th:
Press Release Source: Discovery Channel
TREASURE QUEST Captures Thrill of High-Stakes Hunt for the Ocean's Greatest Lost Treasures
Thursday December 11, 4:39 pm ET
- World Premiere 11-Part Series Kicks Off Thursday, January 15 at 10PM ET/PT
SILVER SPRING, Md., Dec. 11 /PRNewswire/ -- TREASURE QUEST takes the meaning of "cold case" to a new level - it's not always what you find, but what you find out. Discovery Channel and Odyssey Marine Exploration (OMEX), the world's only publicly-traded company dedicated to deep ocean shipwreck exploration, plunges viewers to the ocean floor as they track the unsolved mysteries of the deep sea in this 11-part world premiere series. The nonstop race against time, secret locations and international intrigue will make the viewer's pulse race and remind them of their childhood fantasies. For the Odyssey crew and the Discovery Channel production team, it is a dream job -- but not one without its major challenges. TREASURE QUEST premieres Thursdays at 10PM ET/PT, beginning January 15, 2009.

So here we will have an eleven episode show on Discovery channel that shows the company in action. While Discovery Channel is not a major network, the channel does have high viewership and it is certainly the kind of inquisitive minds like mine. This kind of coverage will surely engender some interest.

I couple the show exposure with a thinly traded stock, and I see an opportunity to make a short term move. Like I said, at this point OMEX is more a lottery ticket as there are just too many unknowns. But if you are looking for a short term play that has some imagination, this stock jumped out at me. As I said and with full disclosure I now own a position in OMEX.

Automatic Earth Article
I read a great piece today on the blog The Automatic Earth (hat tip Some Assembly Required blog). The writer named Ilargi hits the nail dead on the head many times. I recommend the full read here.
Yesterday’s rate cut by Bernanke's Fed is the clearest -though by no means the first- signal that the entire gamut of political action has run its course, and it hasn't helped one bit. The answer: double or nothing. When one idea fails, 3 of the same ideas will surely solve the issue. They are gambling with other people's money, and that is always easy. It’s your money though, and the chances of winning are miniscule. They just don’t know what else to do. Every politician is a mini-Bernie Madoff. Addicted to power, fame, money and attention. The combined stakes we see today are at least a 1000 bigger than Madoff's paltry $50 billion.

But this is not the only way to approach the failed system. They could simply let the failed banks fail. You don't, as they like to make you believe, need those banks. You need access to your money. Your government can give you that. Instead, it tries to use your money to save banks you don't need. And those banks are so deep in debt that I can guarantee you all of your money will be lost, and the banks will still in the end go under. How to solve this? For one, expose all the losing assets in the banks. Let the ones who have too many bad assets die.

The whole thing is a great read.

Have a good night.

Tuesday, December 16, 2008

DOW 30,000! It's Not What You Think

Thanks to all for checking in. The power came back online this morning around 10am. I went to work and got the news from the wife. I am not going to go all into how "we are all to dependant on electricity" speech, instead I will do what any red blooded power addicted American would do: This Spring I will have an exterior generator installed! HA! Take that ice storm!

FED Admits Defeat and Open Season on the Dollar
Today we saw a true inflection point in real time: the FED moved interest rates down to all time low levels and set a "target" rate of 0-.25% for the first time ever. The rate cut bullets are all gone and now Ben Bernanke gets to implement all the creative tools he detailed in a speech from 2002 at the National Economists Club (that sounds like the most boring club ever!). You can read the text here. Note the title is:
"Deflation: Making Sure "It" Doesn't Happen Here"

Now it has been obvious to all that the FED had lost control of interest rates, and that the real rate was zero anyway. A favorite hobby here at Economic Disconnect is to scan over the mainstream media reports of events to see what the commentary is. If you had read Bernanke's speech, and noted the real FED funds rate at zero for some time, would you be surprised by today's announcement? Well it seems plenty of people were shocked!
Stocks surge as Fed pledges broad economic support
Tuesday December 16, 5:13 pm ET
Stocks surge as Fed slashes interest rates to record lows, pledges broad support for economy
NEW YORK (AP) -- A surprised Wall Street bolted higher Tuesday after the Federal Reserve's historic decision to further slash interest rates and pledge broad support to revive the troubled economy.
The Dow Jones industrials surged 360 points, or 4.2 percent, and broader indexes jumped more than 5 percent after the central bank said it will use "all available tools" to jump-start the economy. It also set its target for the rate at which banks lend to each other to a range of zero to 0.25 percent, the lowest level on record.
The idea that the Fed will likely proceed with plans to snap up government and mortgage debt made it easier for investors to place bets that the central bank will do what is necessary to help bring an end to the longest recession in a quarter-century.
"Today was a reminder that the Fed was on the case," said Jim McDonald, director of equity research at Northern Trust in Chicago. "It was a reaffirmation of their willingness to be very aggressive."
Many analysts had expected the Fed would cut its fed funds rate to 0.5 percent from 1 percent.
"In some senses the whole point of this meeting was to say quit watching interest rates, watch the other things that we can and will do," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

Jim McDonald sees today's decision as proof positive the FED is on the case. As they have been on it since last summer with no results I am not so sure Mr. McDonald's confidence is well placed. The FED admitting they have lost control of the economy is hardly some great thing. Bruce McCain thinks that interest rates are old news, and we should all be watching for new tricks. Perhaps Mr. McCain could host a show called "Stupid FED Tricks" where Bernanke and company trot out new financial engineering ideas and callers across America vote on the phone for the best idea! If the FED charges $1.99 a call we might just get somewhere.

The market surging on today's decision just shows that there is still a deep well of confidence that the government will fix things. The feeling out there is one of "The US cannot go bust, so trade accordingly!". Hope is not a good long term investment strategy.

DOW 30,000! It's Not What You Think
Deflation is here. Evidence from all corners says so. Even deflation haters have come around to accept it as here and now. Now even the FED is of the firm belief that deflation has stormed the beaches and begun its invasion. The defense of the homeland has already been planned, just read the Bernanke speech listed above. So what does this mean?

The FED will now begin in earnest "quantitative easing" which is a rare animal last seen in Japan, though never captured on film. The FED will do whatever, and I mean whatever, it can to stop deflation. Troubled mortgage paper buying? Yes. Direct injection of capital to banks without collateral swap? Yes. Expansion of the FED balance sheet, perhaps explosively so? yes. Some of these things have already been happening, and now will accelerate.

There will be a lag for all this stimulus to take hold. I would venture a guess of 8-15 months before the end result begins to be seen. The end result is of course re-inflation on a massive scale. The FED, along with the Treasury and with the clear backing of Congress, will make money rain down from the skies just like in the "helicopter Ben" speech. While I believe this action will not work out anywhere near how the FED would want it to, there will be consequences that bear positioning oneself for ahead of time.

First off, the dollar is going to get bombed. I have read that other countries being worse off than America will keep the dollar strong. Ask yourself what real impact the Indonesian currency debasement will have when scaled against the US dollar equivalent. Try India, Singapore, Arab states, etc and I think you can appreciate that the magnitude of printing the US is going to do will dwarf any on earth.

Hard assets will be king. Gold and to a lesser extent Silver will become stores of value immune to currency issues. Physical delivery and well known storage firms will do well. Miners should get a great run, until the government outlaws owning mining shares that is (I am not kidding). Real estate, while never approaching old price highs, will be in high demand but only available to buyers with the cash or cash equivalents to buy it outright (no loans).

Food will be an issue I think. With shipping becoming a mess, delays and shortages will become commonplace. This poses a real problem for those of us on the coasts who have no real way to produce our own food. I do not have a reasonable idea to combat this, other than hoarding. Hoarding will only get you so far as space becomes an issue.

Tobacco and alcohol should do extremely well, as they always do in tough times. I may caution you that medical insurance is going to skyrocket and the insurance companies may well refuse to insure anyone that smokes, chews, or snorts tobacco. Any arrest for drinking may well render you excluded as well from health coverage.

There are more areas to cover but I wanted to impress upon you how dangerous a move the FED made today. Faced with the decision to let bad debts be defaulted on and destroyed or trying to put some kind of floor under that debt the FED went all in for re-inflation. This sad decision will prolong the agony and keep any real recovery far off into the future.

With dollars all over the place expect to see DOW 30,0000 just like in that year 2000 book. Soaring stock markets will have no positive effect as the currency debasement will make old market highs meaningless. Google at $3000 a share sounds great until you buy a loaf of bread for $2200. Like the title of this piece says;
DOW 30,000! It's Not What You Think

This may sound a bit gloom an doom. I hope I am wrong. Even if I am wrong on the degree and breadth of things, there will be some truth to what I have written. If I am wrong, the US will be in the perfect position: We can print whatever we want and nobody can do anything about it but accept it. Then we are all going to be billionaires and I will not have time to blog anyway!

Full Disclosure: I own gold mining shares Goldcorp (GG) and Kinross Gold (KGC).

Have a good night.

Monday, December 15, 2008

Ice Storm

Hello all and thanks for reading. My town has been subjected to a return to the stone age after the crazy ice storm. No power and no idea when I might have it back. Finally got a hotel room that allows dogs, so I am using their internet. Sorry to be gone, but I cannot even go to work! Take care and I hope to be back soon.

Thursday, December 11, 2008

Automaker Bailout Bill and the Ford Gambit

It has been raining nonstop here for two days. The temps may drop enough tonight to get freezing rain! While it makes the trees look pretty, iced branches and roads tend to make a real mess of things. I have 4 days of vacation to take before December 22nd, so perhaps I will exercise one tomorrow.

Loyal reader G reports that he had a job interview. Let us all give a hope that G gets an early Christmas present. Good luck sir!

Home Equity Extraction and the Front Loading of Demand
Over at Calculated Risk today the always great CR had a great chart that I will reprint here with full credit of course:

Complete post and much larger graph can be seen here.

The steady downtrend is evident since 1987 and the vicious acceleration is obvious during this bubble bust era since 2006.

What this reminds me of is another core concept here at Economic Disconnect and that is the idea of front loading demand. By this I mean that the high consumption rates seen since the year 2000 were not financed with real wages and real wage increases, but with various vehicles of debt. While one may think of credit cards, the real culprit was Home Equity Lines of Credit (HELOC) and other home mortgage equity withdrawal plans. Many people used escalating home values as "savings" that were never anything more than paper profits never realized. The Calculated Risk chart shows this well.

This is why the FED, the Treasury, and the Keynesian thinkers are wrong with their policy ideas. Trying to recapture a consumption (or demand) rate approaching that of the 2002-2006 time period is a lost cause. That amount of spending was false and illusionary to begin with, and any attempt to restore an illusion usually fails. Expecting government spending to take the place of false demand is circular in logic. Instead of attempting to recapture the "Glory Days" (hat tip Springsteen) of profligate spending, leading economists should try and make estimates for things like home prices relative to income and new car sales (exclude 2002-2006 era for both) and figure out how best to cushion the blow from the drop in spending. If "everything reverts to the mean" the quicker we get there, the better.

Automaker Bailout Bill and the Ford Gambit
The latest reports indicate that the votes in the Senate that are needed to pass the automaker bailout bill are not to be had. So as of now there is now bill to be voted on. While I have hope this will be the course of action, we did see this exact show during the TARP debate. First the Republicans said "No Way" but a couple of days later they were all aboard the TARP train. This could very well happen again.

The item I wanted to focus on (Ford pun intended) was the Ford Motor Company opting out of participation in the bailout proceedings. Ford has stated that they are not as bad off as General Motors and Chrysler, and that they can survive on their own. While I am not in a way of knowing the validity of that claim, I like their moxy.

I happen to think this move could work out extremely well for Ford. The move is what I would call "The Ford Gambit". In the game of Chess a gambit is a play where one player will sacrifice a game piece (called material) in order to gain an advantage in some way. The advantage is usually either more board space or increased piece mobility so a coordinated attack on the opposing King can be made quickly.

In this way Ford is sacrificing material (bailout funds), but what is the advantage? Keeping with the Chess analogy I think Ford could acquire space in the sense that they will not be handcuffed like their competitors. Ford will be able to make their own decisions, for good or bad, without the car czar looking over their shoulder. I think Ford could gain mobility in the sense that they can appeal to the US public as the only one that did not take a handout from the taxpayer. This is a key attack point. It is not hard to think of a radio ad or a narrated television ad that goes something like this:
"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."

Now just have some good music with the ad and show Ford workers working on the cars and I can imagine car buyers will be more than willing to give the Ford boys a chance. No handout, just a chance.

I may be wrong and Ford may be up to something else entirely. I can see how this could make sense looked at this way.

Full Disclosure: Economic Disconnect has NO position in ANY stocks of the companies mentioned here.

Have a good night.

Wednesday, December 10, 2008

Quick Hits

There was a driving rain storm for the ride home tonight and thus I have zero time to make a post. You know I think I could develope as a writer if I did not have to work for a living! There are a few points I really wanted to get into, so I am a bit perturbed. With another day to think about things maybe I can have some coherent thoughts up tomorrow.

Seeking Alpha Opportunity
Perhaps some of the readers here have seen the site Seeking Alpha. The site is a huge collection of news and opinion from all facets of the web: Newspapers, analyst reports, and of course blogs. Someone from the site got in contact with me and showed interest in my writings as possible inclusion on the site. There is no cost to me and all I have to do is return a form and meet their requirements for disclosure. So up front I must say I OWN SHARES IN Goldcorp (GG) and Kinross Gold (KGC).

I will complete the paper work soon and I hope some article of mine makes it on the site. I am sure if one does I will break the top 100 of economic blogs, so lets hope!

FED to Issue Own Debt?
This is a huge story and one I need some more background on. If you have some good insight or articles that are good leave them in the comments section!

I am at a loss to understand what this means exactly. I am sure the FED has no authority to issue debt, but when has the rules ever stopped the FED from anything? With that disregarded, how does the FED pay off this debt? Is it linked to the Treasury? Why not just use the Treasury? There are so many questions. A Wall Street Journal report can be found here.

I think that this move demands better scrutiny than the TARP or auto bailouts. What is the FED doing with this?

Auto Dog and Pony Show
There is some talk this evening about some republicans opposing the auto bailout bill. I imagine it is the same bunch that complained about the TARP, waited for more pork to be added, and then went along with it anyway. Expect the same rollover on this one. Spineless and weak, there is now no opposition party to protect the US taxpayer. It is a free for all unless you are a taxpayer. Sorry.

Prime Rib Information
I want to make a prime rib for the Christmas dinner this year. I would ask the readers to help me out with online places to get one (any suggestions) as well a preparation tips. I have a terrible feeling this is going to go bad. I think McDonald's is open the day after Christmas, so I do have a backup plan.

Have a good night.

Tuesday, December 9, 2008

Unheeded Warnings

I checked the ratings website for economic blogs after their latest report, and Economic Disconnect still sits at #105. I will continue to try and break the top 100!

Corrupt US Officials Give Away Our Money While They Pad Their Pockets
The disgusting news out today concerns the Governor of Illinois and highlights how far gone the US Government is. Governor Rod Blagojevich has been nailed trying to sell the Senate seat held by Barrack Obama for all kinds of payments and kickbacks. What is both funny and sad, Mr. Blagojevich won the office by replacing his predecessor who is now serving jail time for the same kind of corruption. Quite the state good old Illinois! Do not worry Mr. Blagojevich does not intend to resign until he is being walked out of court on the way to jail. Hang in there buddy!

What this puts into my mind is the sickness that is the US Congress voting on things like the TARP bill and an automaker bailout. While our elected officials decide whether to hand over countless billions to Citi, AIG, Fannie/Freddie, Bank of America etc they are at the same time taking some off the table for themselves. Very disturbing. It does matter who you vote for and we missed another chance to send a bunch of clowns packing in the last election. Keep the same people in Washington and we will get more of the same.

Unheeded Warnings
There are some danger signs flashing bright red concerning things economic. While the markets are getting ready for a year end monster move up (up 20% from the lows=technical BULL MARKET) other indicators are screaming warnings.

From the always fun site LOLFed, I found this story on General Growth Properties which shows the coming commercial real estate bust is both here and very big indeed. Full story here.

GGP was a $40 stock and is now in the 40 cent range. Too many acquisitions and too many loans made on "future rent estimates" ie liar loans were the killers when the retail side of things went bust. Banks have enormous exposure to commercial real estate and now that worm is turning. This fits well into the treasury yield debacle that is going on right now.

The latest Treasury auction went off great on the demand side as record numbers of bidders gobbled up US debt with the awesome yield rate of, ZERO PERCENT! (from Bloomberg)
Treasury Bills Trade at Negative Rates as Haven Demand SurgesDec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.
The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

The short term 1 and 3 month T-bills are going yield negative or already are there. Why would any player want to park money in a vehicle that will even lose a bit of it for them? This question has many possible answers and makes commentary on some of the major issues going on today.

Banks Will Not Lend Money
There has been tons of talk about how "banks will not lend money", even the TARP cash that was supposed to be for that very purpose. This has caused consternation among the Congress and the FED/Treasury. The ultra low yield on T-bills gives us a glimpse of an answer.

Suppose you were a bank (perish the thought) and you were able to swap with the FED 50 Billion dollars in garbage MBS paper and get cash in return. You then roll that money into short term T-bills getting little or even negative yield. Why would you do that?
1. Any lending vehicle available cannot beat that zero return, be it residential or commercial real estate loans, consumer credit card debt, or any other debt. There exists no reasonable alternative for that cash. Why this is possible is that the models that the banks use must be telling them bad things as far as loan losses go. Which leads to number.....
2. This cash will be required to meet reserve limits when more loan losses are realized going forward. Remember that GGP story above? Do you think that company made all those acquisitions and issued that many loans with cash it had on hand? Nope. It was all borrowed and leveraged up money and it has gone poof. If you are a bank on the other end you will need the FED money to cover that loss and many more like it.

So here we are. The disastrous losses on mortgages and consumer credit has hamstrung the banks into hoarding cash. They are doing this either because there is no profitable use for the money and/or they need to cover losses going forward. The bond market says things are on the edge of disaster, the stock market says things are on the edge of recovery.

Bernanke's conundrum is going to be how to get this resolved. He is faced with a two front problem. The first is that if the banks communicate that the loan environment is too risky to put money to work in Bernanke looks like a fool for shoveling cash to nowhere. If the banks come clean about how poor their balance sheets are, there will be risk of a panic. I mean it is one thing to be insolvent and another to admit it on all levels.

Also wrapped up in this mess is why on earth any foreign country would be piling into Treasuries right now. While we in the US appreciate foreign funding of our never ending debt pile, the motivation to do so is lost on me. Some argue that the fortunes of many countries (Japan and China especially) are tied to the US too much to allow any calamity to occur. I can see that, but all things have limits. Where is the limit here? (see US Debt Chandrasekhar Limit for more on this topic)

There are warning bells ringing loudly. The Treasury and the FED need to stop playing games and address the real underlying issues. All their meddling has accomplished nothing but extended the duration of uncertainty. The treasury bill problem demands an answer. We deserve to get one.

Have a good night.

Monday, December 8, 2008

Rally Mode

I had a pretty successful Christmas shopping weekend. I did about 30% at a mall and 70% online. I still have a few items still to procure, but there is plenty of time. Wild weather swings this week. Today was 10 degrees and very windy, but Wednesday is supposed to be in the low 60's! Crazy stuff.

Silver Update
The first batch of my silver orders started to arrive today. I am looking to get about 70 ounces, mostly in 1 ounce sizes. It feels good to hold that metal in your hand and feel the weight. Why 1 ounce size? Well really I am buying this as a hedge for an outright calamity, and I think the small bars would be easily portable and tradable for items. A huge 100oz bar does not lend itself to those applications.

I am about half way to my goal as of tonight, so I could have done without the silver price ratcheting up today. I read the story posted by Watchtower on the "backwardation of Gold" and it was very appealing:

Still, my mind is leaning towards a two market solution where the paper gold/silver does one thing but the physical world does another. I base this on the observation that the price difference has existed for some time now and nothing has happened yet! I would love to be wrong.

Car Czar A Wonderful Idea
Word on the news is that some kind of bailout is on the table for the US automakers. I am done writing about all the reasons why this should not be done, and like all the other bailouts there will be no debate about "if" only "how big".

As an added attraction there seems to be a push to appoint a "Car Czar" to oversee the auto forms restructuring. Just what we need, another Washington appointed genius to reform a failed business! Makes sense to me!

Rally Mode
It has been a long time since I saw such unbridled optimism in the markets and the press. All the top stories were about how things are going to get better and the worst is behind us. What data is there to back this up? None whatsoever. You do know that with a newly elected Democrat president the press will go all out to craft better sounding stories though!

Mish sees a rally into years end, and a pretty significant one. Barry Ritholtz says about the same and the many folks over at Minyanville are in the same boat. Now how far and how long seems to be in flux, but rally mode is in full effect. What do I say?

I say why the hell not? The markets have long divorced from any fundamental reckoning. The holiday season will be light volume and quiet news wise. What better time to try and make the yearly returns for funds and investment houses look a little less terrible? Why not indeed?

I have long discussed how the US economy is one built on perception and belief rather than a tangible foundation. If people want a rally, have it. I can easily see a run to DOW 10K again before years end as long as the auto bailout goes through and we hear more details on Obama's plan to put 2.5 million people to work on projects the states cannot afford to do themselves.

The problem with things financial is the glacial pace at which things progress. The current bullish sentiment is self reinforcing. It will now take about 2 more months of terrible numbers to scare anyone. It took over a year of terrible data to finally dent the skulls of the bulls the last time.

So this juncture affords one of sufficient fortitude an opportunity. A solid move up into January to around DOW 10K, S&P 1000, and Nasdaq 1800 will present a choice for the new year:
-Unemployment is bottoming
-Earnings are bottoming
-Home prices are stabilising
-Credit is fixed
None of the above as all get worse.

If you say none of the above you have a pretty simple investment strategy. That's why they call it a horse race! We will further discuss this as we get deeper into December.

Have a good night.

Friday, December 5, 2008

Dissent Will Not be Tolerated

Home late again. The wife and I selected the Christmas tree and I had to set it up. The house has that great pine smell and the dog seems uninterested in the needles, so that is good.

Silver Bars Bonanza
A little while back I had gone over all the trouble I had locating silver bullion bars online. At a local coin shop I was able to procure 10 silver eagles, and they were not shall we say low markup! I had about quit on the idea of getting a stash when I stumbled upon EBAY.

Now you have to put in the time and be crafty, but so far I have been able to get a good amount of 1 ounce bars at reasonable markups to spot. One set of 10 one ounce Pan American bars I got for just about $11.50 each, not too shabby! So the silver buy is on again. This is great as both gold and silver crash and burn, it seems I am always right on time!

The Second Great Depression Will End in Second Half of 2009; The Markets Say So
As you are all well aware, the stock market looks ahead 6-9 months and prices in that future with neverending accuracy. The market is always right and is a forward looking mechanism. So what does the recent action say?

Well except for that horrible down day (over 700 down on the DOW) the markets have had a nice two weeks. The major down day was blamed on the call of a technical recession, but today's scary job loss number (-553k for November) obviously mean things are at the bottom. And if that is not right, well more government help is on the way so a bottom is here in either case. Can't argue with that logic!

Here is a Yahoo Finance story with all the details:
Stocks shake off jobs report to end with big gains
Stocks shake off dismal jobs report to end with sharp gains; indexes jump more than 3 percent
NEW YORK (AP) -- Wall Street put an upbeat spin Friday on the government's report that the nation lost more than half a million jobs last month. Stocks reversed early losses and closed sharply higher as the data raised hopes that Washington will again step in to help the economy.
"In a kind of paradoxical sense, the really ugly employment numbers probably helped the case for more help from Washington, whether it's through the broader stimulus plan or more targeted industry measures," said Craig Peckham, equity trading strategist at Jefferies & Co.

Now if journalism existed the question to Mr. Peckham would be: "How successful up until now has the government intervention been?". Remember last August the government really got into the help business and things have certainly been on the mend ever since!

Again, this is why the markets are worthless right now. The markets are priced to reflect an idea that the FED/Treasury/Congress can or will be able to do anything helpful. Shoveling out money has failed, but what else can they do? It is easier to play make believe than think things out and thus you will see days like today and dumb comments like Mr. Peckham's. One might ask that guy if he thinks government hands in the pocket of his company Jeffries and Co is bullish for their earnings.

Dissent Will Not be Tolerated
On Wednesday I poked fun at the FDIC chair Sheila Bair (The Crutch that is Soon to be a New Appendage)when she said the government needed an "exit strategy" while on the same day Paulson was saying the Treasury was targeting loan rates to 4.5% and Nouriel Roubini was calling for massive government intervention. It seemed funny to me to be so at odds on core principle.

Well as we all know many, if not all, employees of the FED/Treasury read this blog and they were not amused at the contradiction. In fact incoming Treasury man Timmy G was so incensed at Mrs. Bair breaking the "government is going all out" mantra he has hatched a plan to dump the poor old bird (from Bloomberg):
Geithner Seeks to Push FDIC’s Bair Out After Clashes
Dec. 4 (Bloomberg) -- Timothy Geithner, President-elect Barack Obama’s choice for U.S. Treasury Secretary, is seeking to push Federal Deposit Insurance Corp. Chairman Sheila Bair out of office.
Geithner, president of the Federal Reserve Bank of New York, has argued Bair isn’t a team player and is too focused on protecting her agency rather than the financial system as a whole, according to two congressional officials and a person familiar with his thinking. Bair has battled with Geithner and fellow regulators over aid to Citigroup Inc. and other emergency actions, making her enemies in the Bush administration.
The idea of having an independent actor on the stage with you who might not be singing the same tune can make you nervous,said Wayne Abernathy, a former Treasury official who is now executive vice president with the American Bankers Association in Washington. “They recognize that she’s a very independent person.”

HAHAHA! I love it. The FDIC chair is concerned with keeping her agency equipped to do what it has to, protect savings at troubled banks! The nerve! The gall! How could she do this? Add to this that Mrs. Bair is an independent actor that does not engage in blatant group think and she is as good as gone. There simply will be no disagreement about help for Wall Street. The markets cannot take any hint that help mat be slow or not coming at all. Silly Sheila, brains are a hindrance in the new paradigm.

Friday Night Entertainment
Not much in the way of requests, so I guess it is up to me.

Outlaw Josey Wales Clip
Love the scene when Wales faces down the bounty hunter:

Music To Make the World Go Round
Friday night means tunes to get you going.

I am a soundtrack maniac. I love the great music great films often have. Listen to this wildly pretty though sad tune from the "Lord of the Rings" called "Gandalf has Fallen":

From the really really strange vault I submit Primus with the song "Winona has a Big Brown Beaver". Very out there:

This song by Bon Jovi always gets me going. Great tune to drive to, listen to "It's My Life":

One more for this evening. Another great Ipod find was the amazing band Faith No More. You caanot dislike the song "Epic":

Have a good night.

Thursday, December 4, 2008

Topic Ideas: Wanted Dead or Alive

The clouds were out in force today so the pedestrians were safe for the ride home! Snow is predicted for Saturday night. I think you can guess my unending joy at the prospect.

Topic Ideas: Wanted Dead or Alive
I got home quite late today and I was overwhelmed by the number of topics that I was reading about after dinner. I just could not put something together that was quality. I will have some time tomorrow for the usual Friday Night festivities.

I wanted to throw it out there to the readers: What topics would you like to read about tomorrow? I am open to anything. I imagine loyal reader Kevin, who probably knows more about this stuff than all of us, could provide an interesting post idea. So sound off in the comments. Anything at all will do. Serious, fun, off topic, or even chart type stuff. I will look over stuff during the day and get as ready as possible. Also remember entertainment requests as well. Have at it!

Have a good night.

Wednesday, December 3, 2008

"Sytemic Risk" Is Not an Option

When I leave work the Sun is directly in my eyes for half the drive home. Sunglasses help, but seeing is certainly impaired. In two weeks the Sun should be too low for that to happen so until then I beg the pedestrians of Cambridge Massachusetts to try and realize a 3000 pond car cannot stop on a dime and that seeing them jump into the street is a bit difficult.

The Crutch that is Soon to be a New Appendage
I had an idea that perhaps the head of the FDIC Sheila Bair might just be reading Economic Disconnect. Today Mrs. Bair was out with some statements that wondered out loud as to when the US government may get out of the "lender of only resort" business. Recall my post from Tuesday November 25th (There is No Going back to a Free Market) where I said:
"To me the biggest issue going forward is that there will not be any way for the government to get out of the loan racket. Guaranteed cash and government backed debt is going to be both preferred and demanded going forward. Nobody will go into the private sector for funding when cheap money can be had at the FED. Is there any way the FED/Treasury cannot understand this?"

Today Sheila came out asking the same kinds of questions which were reported in the Washington Post:
FDIC head: gov't rescue plan needs 'exit strategy'
The Associated Press
Tuesday, December 2, 2008; 5:46 PM
WASHINGTON -- The head of the FDIC said Tuesday the government needs to devise an "exit strategy" for its massive financial rescue plan to avoid artificially propping up banks and other institutions over the long term.
"We really need to think through the exit strategy because (government guarantees) could become a crutch," she said. Weaker financial institutions "need to be allowed to fail," Bair added.
The government needs to decide which banks and other institutions receive the financial support, and eventually, "How do we get out?" she said.

Well that all sounds warm and fuzzy, but while Mrs. Bair was thinking about ways to remove the crutch that is a blanket guarantee for all things economic, other players were crafting plans to make that short term crotch a new market appendage. Since our economy does not seem to have one good leg to stand one, I guess that appendage leads the list!

While the FDIC was saying "exit strategy", the Treasury was thinking "how else can the US government get deeply involved?". I kid you not, here is the proof:
Treasury Considers Plan to Stem Home-Price Decline
Rates Could Be as Low as 4.5% for Newly Issued Loans
WASHINGTON -- The Treasury Department is considering a plan to revitalize the U.S. housing market by reducing mortgage rates for new loans, according to people familiar with the matter.
The plan, which is in the development stages, would use mortgage giants Fannie Mae and Freddie Mac to bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages.
Under the plan, Treasury would buy securities underpinning loans guaranteed by the two mortgage giants, which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration. Fannie and Freddie guarantee a large proportion of all new home loans made in the U.S.

The Treasury thinks that mortgage rates are the reason homes are not selling and falling in price. We in the know are aware that a percentage point here or there made ZERO difference in the house price rocket on the way up, and will make ZERO difference on the way down as well. This is yet another action that if started will have to become a normal market mechanism. I mean when would you let rates float to normal? One year? Two? Ten? Who can say. Certainly not Hank Paulson who changes his mind daily about everything.

So you think government influence needs an exit strategy? Leading economists (or is it eKonomists) are calling for crazy government spending to save the world. People like Paul Krugman and even Nouriel Roubini are firmly is the "spend whatever is needed then do that 3 times over to make sure" camp. You do not believe me? Here is the proof:
How to avoid the horrors of ‘stag-deflation’
By Nouriel Roubini
Published: December 2 2008 19:53 | Last updated: December 2 2008 19:53
The US and the global economy are at risk of a severe stag-deflation, a deadly combination of economic stagnation/recession and deflation.
As traditional monetary policy becomes ineffective, other unorthodox policies have been used: massive provision of liquidity to financial institutions to unclog the liquidity crunch and reduce the spread between short-term market rates and policy rates; quasi-fiscal policies to bail out investors, lenders and borrowers. And even more unorthodox “crazy” policy actions become necessary to reduce the rising spread between long-term interest rates on government bonds and policy rates and the high spread of short-term and long-term market rates (mortgage rates, commercial paper, consumer credit) relative to short-term and long-term government bonds.
To reduce the former spread the central bank needs to commit to maintain policy rates close to zero for a long time and/or start outright purchases of government bonds; to reduce the latter it needs to spread massive liquidity, such as by direct purchases of commercial paper, mortgages, mortgage-backed securities (MBS) and other asset-backed securities. The Fed has already crossed that bridge with facilities that are aimed at reducing short-term market rates, such as Libor spreads; it has now moved to influence long-term mortgage rates by buying MBSs.
Traditionally, central banks are the lenders of last resort but they are becoming the lenders of first and only resort, as banks are not lending. Central banks are becoming the only lenders in the land. With consumption by households and capital spending by corporations collapsing, governments will soon become the spenders of first and only resort as fiscal deficits surge.

The statement "unclog the liquidity crunch" is especially annoying from Roubini as he has forever correctly identified the issue as a "SOLVENCY" issue and not one of liquidity. Why the change of song and dance now I could speculate, but I think you can figure it out (hint:he used to work for the new Treasury head; also he has been getting tons of publicity).

All told, I am going to be proven right. The Government will soon become a mega bank that controls almost all aspects of finance. Unintended consequences certainly will follow.

"Systemic Risk" Is Not an Option
This week is only a few days old and already we are being flooded with the good old "Systemic Risk" Ace of Spades Trump card. Today saw a new angle trotted out as the two following headlines show:
GM exec: bankruptcy not an option for industry
Pelosi Says Bankruptcy by Automakers ‘Not an Option’

So I gather a bailout is a sure thing? What if an automaker bailout was not an option? from about an hour ago:
Reid: Auto bailout lacks enough votes to pass

Someday the folks in Washington are going to get on the same page!

So the list of "Systemic Risks" has been updated:
-Insurers like Ambac and MBI going bust (Not!)
-Bear Stearns going bust (We will never know)
-Lehman Brothers going bust (Not!)
-AIG getting busted (property of US government now)
-Fannie and Freddie going under (property of US government as well)
-Automakers going bust (We might see)

And the list goes on and on. With Ben Bernanke getting set to use borrowed money to buy long dated Treasuries as to depress interest rates that are backed by issuing more debt (figure that one out and write to me!) I would say the only systemic risk I see is wild action by the US government. With all the calls of a second "Great Depression" running wild I will offer a new term to better describe where we are:

"The Great Confusion"

Nobody knows what is going on. Nobody knows where over 2 Trillion dollars has gone over the last 6 months. Nobody know what CDS exposure means. Nobody has an idea how California, New Jersey and other states are going to get through their issues. Nobody knows what nobody knows. In the Great Confusion what we need is a little thinking and a bit of light cast on the core issues. Then good policy could maybe be put together. Flying by the seat of your pants in the dark has proven to be a loser way to go up until now. The question remains, who can stop the ship USS Confused before it is too late? I see icebergs ahead.

Have a good night.

Monday, December 1, 2008

A Real Loss This Monday

Well, the Patriots blew a huge game yesterday. All ability to control their own destiny was fumbled away on 5 second half turnovers. While I expect they will keep fighting, they now will need all kinds of help to make a playoff spot. My other team, the New Orleans Saints were also all but eliminated from the playoffs yesterday. NFL, gotta love it.

Doris Dungey, Known as "Tanta" on Calculated Risk, Has Passed Away
I was barely awake when I sat down at my desk this morning. I checked out the site Naked Capitalism and scanned the links section. I saw a link to a New York Times article out this morning, here it is:

I had a terrible feeling that Doris Dungey was Tanta from the blog Calculated Risk. I read the story and everything just stopped for about 30 minutes. CR has an extended blog section devoted to remembering Tanta and I encourage you to check it out. I would also encourage you to donate to the American Cancer Society and/or a charity desired by Tanta's family.

If you have no idea who Tanta was, I can tell you who she was to me. Back when I started to think there was something wrong with the mortgage markets, it was near impossible to get any real in depth analysis on the subject. I stumbled across the site Calculated Risk and I found the holy grail of real information. This lady known as Tanta gave an unbiased, by the numbers look at all things mortgage. She made long posts (called "Ubernerd" posts) that finally made clear just what the heck was going on. This woman was a high powered intelligence and she was able to make idiots like me understand complex financial matters. Tanta, along with CR himself and Mish Shedlock inspired me to write my own blog.

We are all intellectually worse off without Tanta. We are all a bit poorer now that she is gone. Thinking of you tonight, Doris Dungey and her family.

Developments Continue
In all honesty, my heart is just into a post this evening. Still, there was plenty of important information out there today with one item standing out like a sore thumb.

Mish has a must read up concerning Ben Bernanke taking things to the next level in the war against rates. Read the whole thing:

I admit that bond stuff and yield curves are not exactly my area of expertise (what is?) but this stuff looks ominous. The FED is really facing a "backs against the wall" moment here and it is not clear what they will do next. Safe to assume there is going to be more, and not less, volatility across everything while this gets sorted out.

Try to have a good night.

Friday, November 28, 2008

Holiday Friday Night

My wife bought a bag of squirrel food and put some out yesterday. I think these two monster fat squirrels that came to it stayed there all day and were back at the bin again today. They ate all of what she put out there (about 2 cups). Will a squirrel eat until it pops? Just wondering.

Black Friday
Would you like my "on the street" report for "Black Friday"? Ok. I did not leave the house today at all. Aside from the shopper that was trampled at Walmart, the news reports I saw seemed pretty good. We will have to wait for the hard numbers to know for sure. Never fear, the US consumer cannot be stopped!

My Silver Buying Saga
I hold a bunch of gold mining shares, and I was thinking of putting some money into physical silver. My mom gave me a nice 10oz Johnson and Matthney silver bar about 6 years ago for Christmas (My mom and her long term boyfriend spent a long time in the Sacramento area; He is a gold panner enthusiast and loves all the metals!)and I just love the feel of the thing. I wanted to get maybe 60-70 1oz bars. So it begins.

Trying to get around having to have the silver bars shipped, I called 4 shops in the area that sell silver/gold coins and bullion. Here are the 4 responses I got from them:
1-Have not had any coins or bars for 8 months
2-Could make some calls and get back to me
3-Maybe, possibly could have a few in a month or so if I was interested
4-No longer tries to get any; cannot help

Ok, well in truth these shops were pretty small outfits, so I said to myself "Self, I guess we will look online". As I listen to myself as much as possible, I started my search.

What I found was pretty disappointing. Most sites had big banners saying "NOT AVAILABLE". When the silver bullion was available, we are talking crazy premiums! One site I saw had a 10oz JM bar (the one I have) going for $160. Silver is at $10 and ounce, so that is $100 for the metal and another 60% markup from there! Wowza.

On a tip from a comment left at Calculated Risk (I had asked for help) I was pointed towards a very nice site, Northwest Territorial Mint. It seems that they do indeed have silver available, but the disclaimer says at least 30 days until the order can be filled. The pricing was a bit less onerous (10oz bar for $140) and they offer Pan American Silver minted items, which I used to own a bunch of PAAS stock.

I wrote to the site support and asked about the 30-60 delivery delay. If I can be assured that I will get my order I think I will buy 65 1oz bars. Anyone out there know a better way to go? Leave a comment if you have any input.

Here is their site:

Economic Wrap Up
So November reaches a close and only 1 more month left in a wildly exciting 2008. What is going to happen is anyone's guess, but I am sure it will be a wild ride.

My overall take on things as of now is this:
There seems to be a huge sigh of relief and a bunch of cautious pats on the back going on. CNBC was all happy about todays session, capping 5 up days in a row, and visibly were all giddy about the future. The markets have moved way up over the last week and all seems quiet.

I have written a ton about how you cannot have a bottom when half of market players are looking for a move up. I actually saw guys on the TV today giving estimates for UP percentages the markets will return next year. UP! In the face of a recession, higher unemployment, and more credit issues too many are already setting high goals.

Confidence is too high, and risk perception is again going awry (that rhymes!). The FED/Treasury guaranteeing basically everything is seen as the green light. It very well may be. I just think pretty soon that guarantee is not going to mean a whole hell of a lot. The 10 Trillion mark is going to get hit soon as far as bailouts and guarantees. At some point this has to matter. If it does not I fear the US government may see their own green light to really get going on spending.

Friday Night Entertainment
I was a little pressed for material tonight, but then I remembered it is still a Friday, so I can add a bunch of fun stuff to fill out the post!

Funny Pic
Speaking of squirrels and the evils of financial leverage, I give you:
funny pictures of cats with captions
more animals

Film Clips
I have been watching movies over the holiday so I have a buch of scenes on my mind.

A great film is "Patton" starring George C Scott. The intorduction speech scene is an all time classic:

One of the more chilling scenes ever is when the super computer Hal9000 denies David Bowman entry back into the Discovery in the film "2001: A Space Odyssey". What would you do stuck outside a space ship billions of miles away from earth?:

Music, Sweet Music
While one can debate the merits of wearing "Sunglasses at Night", certainly the terrible video buy catchy song is worth a listen:

One of the all time greats is Pat Benatar. One of may favorites is "Shadows of the Night":

Heard this one on the radio and remembered how much I like this song. try out Roy Orbison with "I Drove All Night":

Now for some creepy piano work. Take a listen to "Tubular Bells" for the piano and guess the film it is featured in. NO CHEATING!:

Have a good night.

Wednesday, November 26, 2008

Things to be Thankful For

I just finished Stephen King's new book "Duma Key" and I must say, in my opinion, the book is King's best work in a long time. Novel storyline, tension, surprises, and great writing make for a powerful novel. highly recommended!

Another Day, Another Pep Talk
As written last night, today was the THIRD DAY in a row president Elect Obama held a press conference to assure the folks of America that "Help is on the way." What kind of help he did not mention, but some help nonetheless.

What was a good sign was that advisor Paul Volcker has been assigned to an advisory committee and seems that he will indeed have a hand in crafting policy. Three cheers for the Obama camp for this addition. Mr. Volcker is a solid, stand up kind of guy and he has some real world brains.

Still, one has to wonder how much influence Volcker is going to have unless he has taken a big drink from the Keynesian Kool Aid Bowl. Calculated Risk has excerpts of a 2005 Volcker speech that would seem to both correctly identify the underlying economic issues and be in direct opposition to current "more spending" plans to fix things. Excerpts from Calculated Risk:

"Altogether, the circumstances seem as dangerous and intractable as I can remember."
"Boomers are spending like there is no tomorrow."
"Home ownership has become a vehicle for borrowing and leveraging as much as a source of financial security."
"I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? - High consumption - high leverage - government deficits - What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day."

How he is going to square this with bailouts galore and forced consumption will be intellectual gymnastics.

Things to be Thankful For
On this Thanksgiving eve I would like to write a list of things I am thankful for. Some will be pretty basic, others sarcastic, and others insightful (I hope anyways!). Up front I am thankful for Blogger which allows me to make this site without any charge to me and to the readers for taking the time to check out my own little piece of the web.

Things to be Thankful For
-The New England Patriots never giving up
-The 2008 Infiniti G35X; The sweetest ride I have ever been in
-The 2008 election results were clear and known very quickly (No Florida 2000)
-Iran has no way to effectively deliver a nuclear bomb should they have one
-The Argentinian Prime Minister is a complete babe
-That unemployment during the biggest crisis since the GREAT DEPRESSION will reach only as high as 8%
-That the US can fund bailouts of any amount because the world can't do a thing about it
-For the freedom to print money without the whole currency devaluation problem
-Calculated Risk, Minyanville, and Mish
-A chance to shatter the bullshit gold COMEX market
-That our children and not us will have to pay for all of our mistakes
-Harvard Business School for all the great minds they turned out that have ruined America
-That there is no accountability in America
-Due to the recession, illegal immigration will slow down
-There is a whole new generation in their formative years that will believe the government will solve all their problems
-Prime Rib
-The bottom is in for stocks
-Inbev has stated they will not change the Budweiser formula (big one!)
-That 90% of the US population is brain dead, otherwise we are in the midst of a revolution
-Reserve Currency Status
-That banks deemed "too big to fail" are merging with as many banks as possible to become "too huge to have a bad quarter"
-Soon you will buy your electronics from Best Buy and everything else from Walmart as they are the only two retailers left
-You have less freedom of choice on all levels and that saves you from thinking for yourself
-Now that Democrats hold the White House and both houses of Congress the mainstream news and newspapers will be decidedly upbeat on everything

That's all I have for now. Add your own in the comments section.

For all the readers, enjoy your holiday. Thanks for reading.

Have a good night.