Wednesday, February 27, 2008

The FED and the Government are Focused on the Economy; It is OK to be Scared

Hello all loyal readers as well as anyone that stops by. This is my first full post in a while. I have not lived in a real house for over 12 years and the first thing that stands out to me is that EVERYTHING takes twice as long to do. This thing is upstairs, that thing is downstairs, shovel this walkway, clean this room, etc. A medium apartment is surely the easiest lifestyle there is! Oh well, this is the situation for the time being while the wife and I ponder our long term needs.

Monoline Insurance - Still a Charade
When I left blogging, the monoline insures were in a world of hurt. ABK and MBI seemed in dire straits. Over the last 2 weeks we have seen threats of downgrades, plans to split the business into two parts, and now finally a reaffirmation of the AAA ratings the companies desperately need to function. Quite a round trip. The always excellent Mish over at his site had the best summary of the debacle that is the game being played with his post here:
Mr. Shedlock compares the balance sheets of MBI and Pfizer Pharmaceutical. Pfizer debt was downgraded to a lower level than AAA recently, but after reviewing the numbers, it looks pretty silly! Check them out below:
PFIZER

MBIA
So Pfizer debt is rated Aa1, while MBI has the golden AAA rating. If these two companies owed YOU money, who would you want to collect from? Lunacy at its finest.
The FED and the Government are Focused on the Economy; It is OK to be Scared
Regular readers know I am a headline and mass media article junkie. I always get a good laugh from the often contradictory, insane, or just silly writing done on the economic issues. Yahoo finance had a dandy up today:
AP
Stocks Finish Mixed in Choppy Session
Wednesday February 27, 6:28 pm ET By Joe Bel Bruno, AP Business Writer
Investors Pare Gains After Regulator Lifts Caps on Fannie, Freddie, Bernanke Comments Please
NEW YORK (AP) -- Wall Street finished mixed in another seesaw session Wednesday after regulators allowed Fannie Mae and Freddie Mac to buy more mortgages and Federal Reserve Chairman Ben Bernanke said the central bank will remain vigilant about the weakened economy.
Bernanke indicated the Fed is more concerned about the sagging economy then the immediate risks of inflation. In testimony on Capitol Hill, he told lawmakers the Fed will "act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."
The remarks came as the dollar plunged to a record low against the 15-nation euro. That sent already inflated oil and gold prices further into record high territory, and raised the prospect of accelerating inflation.
Meanwhile, Fannie Mae and Freddie Mac -- the biggest sources of financing for U.S. home loans -- helped give the market some ballast after the government removed restrictions on the size of their portfolios. That offered a chance for an easing of the extremely tight mortgage market that has been battered by the subprime loan crisis.
"The government is trying to do their part," said Todd Leone, managing director of equity trading at Cowen & Co. "Together, this helps put a little more faith in the economy."
Harry Clark, president of Clark Capital Management in Philadelphia, said a slowdown in the economy that avoids recession could create a moderate drop in demand and help ease pressure from rising prices.
"If the economy goes down the drain with rising prices, that's stagflation," he said. "Rising prices aren't a big deal if everyone is employed and the economy is growing."
There is so much dumbness in this story it is hard to even start!
The writer seems to think he has found a new idea by reporting that BernanSpan is more concerned with slowing growth than with inflation. WOW! What a concept! Welcome to reality son, glad to see you. In his testimony today, BernanSpan used that clever line about "immediate" effects of inflation. Does he mean the immediate and short lived pressure from gas prices over $3 dollars? I mean that has not been going on very long. Food, health crae, etc over the past 3 years is not an immediate problem either. As far as the FED being "on the ball" with more rate cuts to support growth, all the cuts so far have not done a whole lot.
Early leaders for retarded statements for 2008 are found a little further down in the article. In no particular order:
"The government is trying to do their part," said Todd Leone, managing director of equity trading at Cowen & Co. "Together, this helps put a little more faith in the economy."
So the government needs a stimulus plan, several housing bailout programs, expansion of Fannie and Freddie two major money losing government entities, and massive FED rate cuts, and the result of this will be more faith in the economy? Seems a bit strange. If a patient needs an oxygen mask, weekly dialysis, a liver transplant, and a triple heart bypass I may not have MORE faith in the health of that patient, but I am a pessimist by nature.
"If the economy goes down the drain with rising prices, that's stagflation," says Harry Clark, president of Clark Capital Management in Philadelphia "Rising prices aren't a big deal if everyone is employed and the economy is growing."
Love It! Ever escalating prices are awesome if everyone in the country is employed! Too great! I offer it without commentary.
GOLD and SILVER on the Rampage
I am breaking my own trading rules by not unloading my positions in two stocks. I love the macro story for both Gold and Silver, so I have been lax to let my stocks go. I am sitting on over a 100% gain right now. The big debate is about Deflation vs. Inflation (or even hyperinflation) and as I have said before, I need more data and time before I can weigh in on that one definitively. Right now I am thinking that Gold and Silver will continue a strong run until the FED rate is at 1% this summer (July-August) and it is FINALLY apparent to even the permabulls that serious problems are here to stay. At that point things could get dicey. Weigh in in the comments section with your ideas, I know many readers here follow gold and silver.
Glad to be back!
Have a good night.

5 comments:

watchtower said...

Kevin,
I think I remember you telling G about job opportunities in the railroad industries (if I remember correctly) a couple of months ago, and I wondered to myself if that was true. Well tonight I read a transcript of how the railroad lines were investing in their own infrastructure, because with the high price of fuel, it is now up to 1/3 cheaper to ship by rail than by truck.
I guess what I'm saying is, good call!

Anonymous said...

Watchtower,

Another thing about the rails is that they are in the same shape as the oil industry, an aging workforce that will soon be retiring. When I left the major I worked for in 05 the average age was 54. With the high oil prices and therefore high stock prices a lot of these guys were doing what I did and bailing out early most have a boat load of stock. I imagine the rails may be the same but I'm not sure.

Kevin

Mentalic said...

Good to see you back blogging.

Mentalic

watchtower said...

Kevin,
One more thing I noticed, I remember posting something a few months ago to the effect that "we're doomed", and you mentioned the upcoming "infrastructure rebuilding" that needs to take place here in the US. Here lately I'm noticing more and more on this subject, plus if I'm not mistaken, the next "government bailout" package (not the one where we are going to get "free money" in May or June) contains talk of investing in the infrastructure.
I've said it before, and I'll say it again...good call!

Anonymous said...

Well I am sitting on a small pile of BULLion so let's see where things start to decline then it's time to sell a little at massive profits.$$$$$

The wife is also looking for work now and more options are starting to open on the horizon. Don't worry guys it took a while for ROME to fall.... Hopefully I can be employed during our fall....ahhaa

G