Very cold here today. I guess it is going to be fairly warm next week, in the 40's, so I will try and hang on. Missed posting on FOMC Wednesday, but I went out with some friends from work instead of hashing over the latest FED slash and burn move. I am sure I was soooo missed.
Google Misses Earnings - What Does This Mean?
Everybody's favorite stock, Google (GOOG) was out tonight and missed their earnings forecast. I will not cover the details of the earnings report, it was as fake as any report that wall street puts out anyway. It amazes me that in this era of financial trickery with regard to earnings reports that nay company (banks and lenders not included) can ever miss a numbers projection. There are just too many ways to play "hide the salami" with respect to how the numbers get figured. Remember that saying "Figures don't lie, but liars can figure"? Sums it up perfectly.
I do not really care about Google as a stock or any other way, but I bring it up because I feel the need to point the readers here towards a piece that I think is pure mastery of the situation at hand. I feel that this piece holds many levels of both truth and insight that is sorely lacking in the world of economics. What is the piece? Ok, I will tell you! It was writtten this week by the great Kevin Depew of Minyanville. Kevin's daily "5 Things You Need to Know" articles are the finest missives on the net and are a MUST read for any economic junkie. The post from Januray 30th (yesterday) was so thought provoking that I spent most of the day yesterday, last night, and most of today thinking about it. You must read the article in full before proceeding to my main thought for this evening. Here it is: http://www.minyanville.com/articles/index/a/15724
Delusion and Illusion is All That is Left
Did you read the article? Good stuff, huh?
I know it is in poor taste, but my post tonight will borrow heavily from Kevin's original idea.
Monoline Insurance Companies Retain AAA Ratings
Companies like MBI and ABK provide insurance for a wide range of products. These entities are facing real problems right now as it has been shown beyond any reasonable doubt that they cannot in any way pay off their contracts if more than a miniscule amount of debt goes bad. Companies like these two have barely 100 Billion in cash, yet are on the hook for many times that amount. These are the facts.
Without going over all the well documented specifics regarding this business, just focus in on the fact that even though the facade of this insurance has been unmasked (it is indeed a known fictional arrangement) the AAA ratings are still retained. The ratings agencies are setting out baby criteria for the companies to stay afloat and keep the charade alive.
It is here that we see that the monoline insurance companies are now not a part of any real world finance vehicle. The argument for keeping the AAA ratings are rooted not in sound actuary criteria, but in the acceptance that the loss of the appeareance of insurance payouts is a systemic threat. We have arrived at a point in time where objectively fantasy belief replaces reality and itself becomes reality. The AAA rating is kept on the inurers, and therefore they ARE AAA rated agencies just like that. No need to ask questions, no need to ask how. To borrow a phrase from the film "The Matrix": " The Illusion Has Become real!"
You can see it in practice. When a rumor hits that the AAA rating will be downgraded, the stocks sell off like there is no end. Add a rumor of some kind of plan to keep the rating and the stocks fly to the moon. Whether the AAA rating is in fact realistic or not has no bearing, as long as the AAA rating is retained.
This process is in play across many facets of the financial world right now. All know the USA can never pay off it's debts. By pretending otherwise, the fantasy of repayment exists all by itself and becomes real. The USA is able to then sell boatloads of more debt all over the world. Again, the illusion has become real.
Home prices are disconnected from incomes many times over. There is no way possible to service the debt load for many households. Rental incomes cannot service the mortages. If credit can be made cheap enough however, some may be willing to try. The fantasy that home prices are of any real "value" becomes real.
I am sure you can think of many more, and I encourage you to leave your ideas in the comments section. I will post relevent ideas and give full credit to the authors.
I really think this idea that started with Kevin Depew could become a kind of unifying theorem to describe our financial markets. I have a poll question up tonight that asks about his article, so please vote. I am engrossed by this line of thinking and I hope you will like it as well.
Have a good night.