Thursday, June 5, 2008

All the Big News is Bad, The Tiny News is OK

If the weather does not improve quickly, my fishing trip may be on hold. The weather report on the local news was so off the mark for today it now calls into question the great Saturday weather forecast. Maybe meteorologists should get a job at the FED.

FED Member Jeffrey Lacker is Honorary Member of Economic Disconnect
Jeff Lacker is my new hero. After I have been repeating the major issue that moral hazard represents when you are dealing with people with NO MORALITY (like Wall Street) we finally get a serious thought on the subject from someone in a position to perhaps do something (however small) about it. Lacker, in a speech in London, was sharp with his critic of Boom Boom Bernanke's alphabet soup of lending booths. From Bloomberg article, key parts:

""The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking," Lacker said in a speech to the European Economics and Financial Centre in London. That "in turn could give rise to more frequent crises," he said.
The central bank has introduced three programs since December to help counter the credit crisis. Along with the Primary Dealer Credit Facility, the Fed lends Treasuries to dealers in exchange for mortgage and asset-backed debt through the Term Securities Lending Facility. The Term Auction Facility offers cash loans to banks.Lacker indicated skepticism about the value of the programs."It isn't clear what kind of market failure is being addressed" with the TAF, he said. Central bankers should be wary "that they can substitute their own judgment about the fundamental value of financial instruments," he said.

Note that Lacker has dissented on rate cuts in the recent past. Here he hits it exactly. By going ape shit and spreading the FED balance sheet across a bunch of retarded banks, Bernanke has not saved the entire financial system from collapse, he has practically ensured it will be bigger when it does happen. Wall Street simply is not able to reform, and giving them free money from the taxpayers to recapitalize them after losing their asses is not going to help anyone but the bank executives. Thanks Mr. Lacker. I appreciate your comments today.

All the Big News is Bad, The Tiny News is OK
I am not going to try and comment on today's market action. Stocks have long been off the reservation as it relates to to the macro picture. Today could have been more delusion, a short squeeze, a Thursday bored office of brokers decided to buy, whatever. Compare today's headlines and see what you think matters the most.
Big News
AP - Foreclosures hit a record high -- and more coming
Reuters - Oil posts record $6 gain on weak U.S. dollar
CNN Money - Household net worth drops by $1.7 trillion
AP - S&P cuts ratings on MBIA, Ambac

Tiny News
AP - Retailers report May results above expectations
AP - Jobless claims drop unexpectedly but key indicator of unemployment hits four-year high

You decide which news items mean more going forward. Foreclosures hitting a record high, and accelerating in the PRIME LOAN space is pretty bad. Downgraded monolines was supposed to mean the end of the known universe, now just a small headline. Retailers like low cost bulk stores Costco and Walmart had good sales, other stores not so much, but hey focus on the good stuff. And unemployed people ran out of benefit weeks and dropped off the payroll, so that is great news. Exactly.

Shorts got Killed on MBIA and Ambac
You know I love message boards, and today was great fun! The downgrade news on MBI and ABK must have made some shorts cover their positions, and thus the stocks rallied pretty hard. The message boards were awash with calls the "Shorts got their asses handed to them" and the like. I wanted to put up a couple of 1 year charts so you can see that, yes, shorts have gotten killed on these stocks!
So ABK has gone from $89 to $2.60 and MBI has gone from $68 to $6. Yeah I would say shorts have been cleaned out on these two stocks, yes? Maybe the shorts from early this morning got hit, but seriously, anyone long this stock is both wasting their money and ignoring reality.
As always leave music, film, or other entertainment ideas in the comments section for Friday Night.
Have a good night.


Anonymous said...

I should note that the end of the housing boom could not have been a complete surprise to most participants. Sure, it’s nice to sell your home when bidding wars and escalator clauses are common, as they were in 2005. But these conditions were fairly unusual in most markets, and it’s hard to believe many people seriously thought they would persist indefinitely. This is another reason to believe that most people are likely to be reasonably well-positioned for the end of the boom.

Jeffrey M. Lacker
October 11, 2006

Some observers have called this extraordinary behavior of the housing market in recent years a bubble. I don't find that term useful or particularly accurate, since the behavior of housing appears to have been based on solid fundamentals.

Jeffrey M. Lacker
December 21, 2006

These guy's are like politicans, watch what they do not what they say.


david said...

I am surprised that there has been no great uproar about downgrading the monolines.

What happens to all those funds/pension funds who could only hold AAA rated securities?

or are we yet to see fallout from this.

David -the bullish bear