Friday, July 17, 2009

What's the Future of Mankind? How do I Know, I Got Left Behind

88 degrees here today and the humidity was out in force. I love the heat. Hopefully we will move into a nice warm pattern here. Bad news on the fishing front; my beloved Quabbin Reservoir is closed to boat traffic for 45 days as the dreaded Zebra Mussels have been found in a feeder river to the reservoir. No private boats allowed, and I am not sure about the boat rentals. I hope the situation can be resolved, the Quabbin really is a treasure.

Blog Housekeeping
I have cleaned up the blog a bit and moved some items around so you may see some changes. Let me know if there is anything format wise you think would add to the quality of the blog.

I have made some changes to the blogroll to better reflect my daily reading list and to offer all readers some fresh new sites to try out.

I have added:
EconomPic Data which is graph heavy and always a good read.

The Financial Ninja has been added. Great main course macro analysis and a side order of technical charting.

I have been stopping daily at The Housing Time Bomb for some time now. A nightly in-depth parsing of a major market theme that covers all the angles.

Check them out!

Rise of the Silver Surfer
I have not written about the precious metals in a while, I know you are all so waiting for a metals post! Haha. There were some gold and silver related items I have been watching lately that I will share tonight.

First up is the strange move by COMEX to make sure everyone understands that they can in fact deliver paper interest from exchange traded funds (GLD,SLV) in place of physical metal delivery. This should make it clear that COMEX may one day deliver to your door a certificate that says you are holding ounces of a metal in your hand, and not just a piece of paper. What could go wrong?

From Jesse's Cafe:
Paper, Scissors, Gold
As you may have heard recently, the COMEX has asserted their right under their rules to deliver the equivalent paper interest in Exchange Traded Funds such as GLD in lieu of the delivery of physical bullion for those standing for delivery under the rules of the commodity exchange...

We have often said that when the real crisis of liquidity comes, and the final flight to safety from the credit bubble collapse begins in earnest, the exchanges will alter the rules to allow for cash and paper settlement of claims for bullion, which they cannot or will not be able to deliver at the agreed upon prices.
This is what makes the current structure of the short positions held by a few banks on the precious metals exchanges a 'racket,' a type of Ponzi scheme where the same thing is sold repeatedly with no means of satisfying the aggregate of the claims and ownership.
We are sure the Comex is "well capitalized," and will continue to be so, even as it is rocked by de facto delivery failures and the substitution of more paper to back up the general failure of paper.
The wheels of justice grind slowly but they grind exceedingly fine.

Ouch!
Disclosure: I own GLD and SLV but I am well aware of the physical shortcomings of the funds. I only use them as a proxy for the metals.

As for my personal favorite metal, silver, The Mogambo Guru chimes in today with some mind boggling facts (excerpts):
The Silver Supply/Demand Imbalance
..But sometimes something comes along that makes me think about silver, such as David Morgan of the silver-investor.com site reporting that “during the past ten years, silver’s use in industry has gone from roughly 35% of the entire annual production in silver, to greater than 50%. Not only that, but it is the fastest growing area of the silver market.”

...So how much silver was mined? Well, the commoditynewscenter.com notes that “According to the US Geological Survey, about 672m ounces of silver was mined in 2008. And with an average silver price of $14.94 per ounce, if all mined silver was sold at spot, the entire supply chain would generate revenues of only about $10 billion.”

...And since this is after decades of dis-hoarding of strategic stockpiles, the result is that “Today, most of the U.S. silver stockpile is gone,” and whereas “the world once had about 2.2 billion ounces of silver above ground,” now there are “only about 300 million ounces. In other words, total world silver supply has plummeted by over 86% just in the last few years…while silver demand has gone UP!”

Have I ever mentioned I love silver for the long haul? No? Well I just did.
Disclosure: I own silver via multiple channels

What's the Future of Mankind? How do I Know, I Got Left Behind
"People look to me and say
Is the end near, when is the final day?
What's the future of mankind?
How do I know, I got left behind"

Ozzy Osbourne's "I Don't Know"

A smart person knows what it is they do not know. Ask 100 people if they think they are of "above average intelligence" and fully 85% of the respondents will say they are. Of course in any sample size you have the good old Gaussian distribution so we know that this cannot be the case. As a card carrying member of the mental middle of the pack, I am aware am lacking in many market understandings and thus I try to stay away from things I feel unqualified to opine on. Take Zero Hedge and Tyler's coverage of High Frequency Trading. I know it is important, but i really am not clear how it is done (or why it is allowed, but that is another discussion). Two items from the past few days also had me vexed, so I will share my bemusement with the readers.

MGIC and CIT Make No Sense to Me
The area of mortgage insurance must be a nuclear waste land in the current market meltdown. The two biggest players are PMI and MTG. This week MTG was out with earnings, well loss guidance, and that is where all the action begins:
MGIC 2Q loss widens, plans to shift new business
MILWAUKEE (AP) -- Private mortgage insurance provider MGIC Investment Corp.'s loss for the second quarter widened, the company said Thursday, as delinquencies increased due to increased unemployment, lower home prices and the ongoing recession.
For the three months ended June 30, MGIC lost $339.8 million, or $2.74 per share, compared with a loss of $99.9 million, or 81 cents per share, in the year-ago quarter.

About what you would expect. Very bad indeed. On top of this most headlines were showing "MGIC to end new origination" and this of course would have serious implications for the housing market. Market Ticker had a write up you can see here.

So what has be confused? This information:
It also said it plans to shift newly written insurance to a subsidiary beginning Jan. 1, and the parent company will then stop writing new business.
The company said the state of Wisconsin has allowed MGIC to contribute up to $1 billion to its subsidiary MGIC Indemnity Corp. to enable that entity to begin writing new mortgage guaranty insurance as of Jan. 1. MGIC plans to provide the capital in two $500 million installments, with the first slated for July 31.
However, the state's insurance commissioner must still specifically authorize the subsidiary to begin writing insurance, as must each state.
The subsidiary must also be approved as an eligible insurer by Fannie Mae and/or Freddie Mac, neither of which has yet done so.
"We cannot predict whether these approvals will be obtained and if so on what conditions," the company said.
If they must continue to write new business through the parent company, MGIC "will need either additional capital or relief from the regulatory capital requirements in 16 states," the company continue. In 14 of those state, relief will require new legislation or insurance regulation changes.
MGIC said it has not yet tried to raise capital from private sources, but has had discussions with the U.S. Treasury to seek a capital investment.

See what I mean?

MTG is basically done. They cannot do any new business and need gobs of capital to go on. So they are done? Well no. I guess you can make a new company, capitalize that, and through the magic of financial engineering, nobody is supposed to see that the new company is just a smaller version of the bigger failed one! Amazing!

I have no idea how this works or who would pony up any money for it. Never fear, here is the 5 day chart for a company that will no longer do business and will use a "mini me" firm to write new coverage as if nothing is wrong;

Nice chart!

The other news that has be befuddled is all the wrangling over the fate of CIT. The government seems ready to let CIT go down and they judge CIT is not a good taxpayer money risk. I mean things have to be really bad for that to be true! Today there was serious talk (and a 70% rise in the penny stock) that either or both Goldman Sachs and JP Morgan could extend the firm some financing. This of course makes no sense.

If CIT could not get US government assistance at great terms because they could not even qualify in the eyes of the FDIC and Treasury, there is NO WAY they can meet the onerous terms GS or JPM would surely impose. This is either a false rumor, or a orchestrated move by the FDIC/FED/Treasury to make the market think there are non government avenues of capital out there. Spare me gentlemen, there are none. Please explain to the best of your ability what gives here in the comments.

Friday Night Entertainment
A little lighter fare to get the weekend off right!

Book Reviews
I have read two books in the past two weeks that I thought I would share.

The first was Barry Ritholtz' "Bailout Nation". I must say that this book was really great. Over the past 2 years I have forgotten all the help that has been extended, and more important I had the entire timeline of events all jumbled. Bailout Nation has rich history lessons on the FED, bailouts across time, and banking regulations that are a must read. The book even reads fun which is not something I can say about most economic themed books. I was thinking I might pick up a couple of copies and run a couple of contests with the book as the prize.

The second book I read this week has already become a favorite. Robert Heinlein's "The Moon is a Harsh Mistress" is a masterpiece. I was so engrossed with the tale I could not put it down and read it in two blocks of 3 hours. While on the surface a Sci Fi tale, it really is a lesson in self reliance and self determination. If you are of a libertarian bent, you will love this book. All I can say is "TANSTAAFL"!

Comic Relief
If you have ever had a cat, this is something they would certainly do:
funny pictures of cats with captions
see more Lolcats and funny pictures
Nice!

Friday Night Rock Blogging
Some tunes to get things started off right!

Loyal reader Watchtower asked me to drop my favorite guitar solo by the best guitar player I know. While always a matter of opinion something like this is, I do have a clear "best all time" pick. His name is Randy Rhoads. With so many to choose from it is hard to pick one. I have selected the solo from the center section of "Suicide Solution" from the live album "Tribute". While the entire song is scorching hot, skip forward to the 4:45 time mark for what I think is the best work I have ever heard, and live no less:


I have always loved this song, but until I just looked it up I had no idea who performed it or the name of the song! Please enjoy Grand Funk Railroad and "I'm Your Captain":


Found a really rocking live version of Bad Company and "Bad Company":


Just so it is not all hard all the time here, how about a little disco? Try out Santa Esmeralda with "Don't Let Me Be Misunderstood". Major props (and a name mention on the blog) to the one who can guess where this song was reborn in a classic scene:


Last call! Grab a drink, a girl or whatever else is nearby!

I close the show with the classic 80's rock out tune by Ratt, "Round and Round":


Have a good night.

27 comments:

getyourselfconnected said...

Missed it by post time, but the weeks must read by Mish:
http://tinyurl.com/lb8htj

Anonymous said...

GYSC

This may be why MTG chart looks like that and how HFT are related.

"Citigroup looks like a prime candidate for the high frequency traders today. Cheap stock price, high volume, early morning ramp then probable flatline around $3.15. BTW, the HFT’s pay less SEC section 31 fees (which are based on market value of the transaction) when they traffic in cheap stocks which is why they tend to trade stocks under $5."
http://tinyurl.com/llj4au

I don't know personaly but this guy should and I found it interesting.

Kevin

watchtower said...

Ah, Randy Rhoades, yes you have had him on Friday Night Blogging quite a bit as I recall, I should have known.

Glenn Beck was ranting about CIT this morning on his radio program, he seems to think that GE (which received help from the gov.) and the government are somehow in a conspiracy against CIT because CIT is a competitor of GE.
I probably oversimplified that, but that is the way I took it.
GE gets government help in no time flat but CIT doesn't.
More power concentration for the government basically is what Glenn was driving at from what I understand.
Is Glenn correct on this? I don't know, but his Goldman Sachs analysis sure sounded about right.

Thanks for the Randy Rhoads vid, it will give me something interesting to talk about this weekend with my guitar playing brother-in-law.

getyourselfconnected said...

Kevin,
again, thanks for the great link! You always find the best stuff!

Watchtower,
I know I am a broken record, but Randy Rhoads was classic guitar trained, yet he translated that to rock. His work shows so much movement and so much grace he is my top pick. He could add so much to any tune, listen to "Children of the Grave", a Sabbath tune, from the Tribute album and he was able to give the song new motion and life that improved an all time great song.
Just my 2 cents!

getyourselfconnected said...

PS,
Gawains, or THE Soothsayer, did the car arrive yet?

Almost footbal time! At least Romo is done with Jessica, maybe now he can focus! I would take J. Simpson over footbal any time, well maybe 1 night, well maybe not a Monday night game, well...ok I do miss football!!!

GawainsGhost said...

Well, GS and/or JPM provide financing to CIT, then the government provides financing to GS and/or JPM. That's how the game is played. The government can't very well be seen as providing financing directly to CIT, out of fear that it will be accused of risking or wasting taxpayers' dollars, but GS and/or JPM can be trusted, right?

No, GYC, the car has not arrived yet. It will probably take about two more months. I had to order it from Japan, because there wasn't a car like I wanted in the entire Southwest. And it's a 2010 model. The 2009 was completely sold out. I really didn't want or need the in-dash navigation system, but the car would arrive sooner with one than without, so I took it.

The olde truck still runs. Or it should anyway, since I spent more money on repairs last year than it's worth. I figure it's good for a couple more years, maybe another 100,000 miles. I'll drive it till it falls apart, then I'll drive the Mazda until it falls apart. But having the Mazda should prolong the life of the truck, even though I'll use the Mazda primarily for dates and going to Cowboys games. (I go to more Cowboys games than I go on dates, but that should change when I get the Mazda. Girls don't like to go on dates in olde trucks, you know.)

Anyhow, loved Heinlein as a kid. I'd put Stranger in a Strange Land right up there with Lord of the Rings as the most profound influences on my life. Red Planet is also very good. But then all of Heinlein is very good. Tunnel in the Sky was always one of my favorites. Few people know that the water bed was invented by a guy who was inspired by Stranger in a Strange Land. That's cool. In fact, I used to wear a t-shirt that had "I'd Rather Be Grokking" on it. I could always tell who was really cool and who was not by whether they knew what it meant.

Sad to read about MGIC. We actually do a lot of work for them. Actually, we have an exclusive agreement and are their only broker in the area. I've written quite a number of price opinions for them over the years and sold a good many houses for them. I sure would hate to lose that revenue stream.

getyourselfconnected said...

No guesses on the Santa Esmeralda song?

Lisa said...

Great post, G. Went to bed early, so this was a Saturday morning rock blog for me. Gawain's, what kind of girl doesn't like an old truck?? I prefer them :)
CIT news this morning:

CIT Group Inc Banks customers issue request for bailout from US Government - WSJ
- "The coalition, which included the National Retail Federation, the National Cotton Council, and the Southern Textile Association, sent a letter Friday night to Treasury Secretary Timothy Geithner urging him to help the CIT avoid collapse."
- "The groups said the number of jobs that depend on the successful outcome of the CIT crisis is immeasurable."
- Letter stated:"As the U.S. and world economies struggle to recover from the most devastating recession in recent memory, we are writing to impress upon you the very severe ramifications that a CIT bankruptcy would have on more than one million small and medium-sized businesses, their partners in the U.S. retail industry and the manufacturers and service providers that supply that sector and is asking the administration to reconsider every possible option to address the current stresses confronting CIT and to prevent further tightening of the credit markets"

Anonymous said...

OT

Friday, Stats Canada reported Canada’s inflation rate is less than zero. That’s deflation – when falling prices, falling wages, salary cuts, cheaper manufactured goods, lower interest rates and economic stagnation bring the cost of living crashing down. At the same time, frenzied homebuyers have been bidding the price of houses higher, while realtors egg them on, warning valuations will only rise. Fools with offers. Lambs to the slaughter.
http://www.greaterfool.ca/

I'm truly fascinated watching the Canadian real estate bubble growing and following Garth's take on it. When will they ever learn? Oh when will they learn?

Where Have All The Flowers Gone? -Peter, Paul and Mary
http://tinyurl.com/5r8w6o

Kevin

Anonymous said...

SHANGHAI (Reuters) - To address the serious threat of global warming, Americans should be required to "pay" for the carbon content of goods they consume from countries around the world, a top U.S. official said on Friday.
http://tinyurl.com/lguwac

If you want less of something tax the crap out of it. Never mind we don't export anything but paper.

Kevin

Lisa said...

The fact an "American official" said this is THE most disgusting thing in the world. I'm SO sick of the "America needs to apologize for everything in the world since mankind sprouted" mentality. If the ass don't like us, let him move to China.

Anonymous said...

Lisa,

I think the fact it wasn't a good idea to outsourced our jobs in exchange for slave labor and cheap imports which also made us dependent on vendor financing from foreign creditors and allowed us to live beyond our means along with peak oil which makes the current scheme of things unsustainable anyway may be driving a lot of this.
This is part of the global re-balancing that must take place.
This should have been done slowly years ago though and not in the middle of what will more then likely be a depression. This is only going to make it worse.

Kevin

getyourselfconnected said...

Quick thought all,
usually when a big bust happens, any new growth is led by a new leader. After the tech bust (IT spending, fiber optic lines, dotcom speculation) credit expansion and real estate speculation took the banner. What is going to back growth now? I think until there is a viable (it may be dumb, or just another bubble) mechanism for growth and jobs come up, things are going to stay bad for some time.

GawainsGhost said...

That's exactly right, GYC. What the government needs to focus on is job creation and wage increases. But how is it going to do that now since we've exported our manufacturing base? The whole thing is a mess.

Meanwhile the guys as Goldman Sachs and the guys in government (same thing) live large on the taxpayers' dollar. It's a sad story.

Sigh. Oh, well, as long as I get my new Mazda before hyperinflation sets in.

Anonymous said...

GYSC

I think one reason for the push to ram this health-care deal threw is one place they are trying to cause to grow. If that passes there will be more demand then supply causing a shortage, along with the one that was on the way because of the aging baby boomer's which make up 38% of the population. If the US is like Japan when their bubble burst Americans will be paying down debt and saving for a long time and government spending will be the main source of growth.

There may also be more sinister reasons to let the Goldman boy's get away with their fleecing short term on the democrats part as the calls to tax the crap of them will rise to a furious pace.

That is probably why the stimulus was back loaded to 2010 for the midterm elections too. But I won't be a bit surprised to see a stimulus 2 early next year.

Cap and Trade will raise the cost of all good we buy it's a tax no matter how it is advertised and therefor a simple transfer of wealth. Where this money goes and what it is used for may be part of the key. Some may be directed to high speed rail, and green energy.
It may also cause some of our outsourced job being repatriated as cost of producing and shipping overseas by US based companies become prohibitive. They could just tax the crap out of overseas earnings as well or give tax incentives to bring jobs back.

I don't know if they can pull it off but I think these are part of the plans. If that doesn't work then there is always a war and a draft.

These are some of my thoughts on this but like always I could damn well be wrong and way off base.

Kevin

getyourselfconnected said...

Gawains, here's to the car being delivered before hyperinflation (I would say we have 2 years).

Kevin,
health care cannot be the next bubble. As I work for a top 3 pharma company I can say:
-no one likes to see the doctor
-for 98% of the population nothing will be wrong with you (serious wrong) until near 70
sadly 80% of all your health care costs will come in the last 3 months of your life.
If you subtract infant mortality from the "expected lifetime" chart, we have only gained 5 years in 100 years. I am a huge believer in medicine, but the limitations of our bodies are somewhat fixed.

Anonymous said...

GYSC

You asked about growth, and maybe just another stupid bubble.

I think that will be where growth will be just on supply/demand and the aging of the boomer's. I don't know if it could turn into a bubble but Wall Street loves any kind of money and if a bunch of goverment spending is going to be thrown in who knows.
My SIL just got out of nursing school and went right to work and every time I use to look in the ads that is one job that always has openings.
My SIL is going back to school in the fall with a goal of being a nurse practitioner.

Long term care, funeral homes and cemeteries may be another.

LOL
Kevin

Anonymous said...

GYSC

One other thought we no longer have any resemblance of free market capitalism. What we have is a political economy the bubble will be in government spend and the directing and control of that money.
Communism with a nice dose of fascism for the political elite firms.
Say it ain't so Joe.
Kevin

GawainsGhost said...

Well, as to markets, jobs, medicine, and life cycles, in fact everything, I defer to the beginning of the second fitt in Sir Gawain and the Green Knight, affectionately known as the Passing of the Seasons. Here is Tolkien's translation.

After the season of summer with its soft breezes,
when Zephyr goes sighing through seeds and herbs,
right glad is the grass that grows in the open,
when the damp dewdrops are dripping from the leaves,
to greet a gay glance of the glistening sun.
But then Harvest hurries in, and hardens it quickly,
warns it before winter to wax to ripeness.
He drives with his drought the dust, till it rises
from the face of the land and flies up aloft;
wild wind in the welkin makes war on the sun,
the leaves loosed from the linden alight on the ground,
and all grey is the grass that green was before:
all things ripen and rot that rose up at first,
and so the year runs away in yesterdays many,
and here winter wends again, as by the way of the world

it ought,
until the Michaelmas moon
has winter's boding brought;
Sir Gawain then full soon
of his grievous journey thought.

Anonymous said...

GawainsGhost,

I like that, but if this weather doesn't warm up I ain't ever going to get any ripe tomatoes on my plants this year.

LOL
Kevin

getyourselfconnected said...

Gawains,
did you ever see that low budget movie that was made with the green Knight(played by Sean Connery) and Sir Gawain? I cannot remember what it was called.

watchtower said...

That movie kind of rang a bell from my youth but I still had to google it, it was called:

"Sword of the Valiant"

http://tinyurl.com/nl2kbc

getyourselfconnected said...

Watchtower,
Thanks! Yes that was it. Pretty low budget flick but I remember liking it when I saw it a long time ago.

GawainsGhost said...

Yeah, I remember that movie. Great special effects on the Green Knight, who incidentally is the most enigmatic character in all of literature. No one really knows what he's supposed to represent, Nature, Death, Christmas, God. I actually wrote a paper when I was in graduate school that argued he represents William of Ockham--Ockham's Razor is his Axe, and the entire poem centers around the Nominalism vs. Realism debate in the late 14th century.

This is especially seen in the third fitt, when the Lady of the Castle tries to seduce Gawain by using Nominalist rhetorical strategies to undercut his Realist thinking. First she gets him to identify himself as a character in a medieval romance, then she tests his knowledge of the text, and finally she tries to get him to act on that identification and knowledge by sleeping with her. But Gawain is a good Realist, and he refuses to betray the Lord of the Castle, who is actually the Green Knight in disguise. So the Lady gives him the green girdle as a reward for his honesty, and the Green Knight gives him a nick on the neck for not revealing it in the exchange of gifts.

It's actually a remarkably complex poem, a meta-romance or a romance about romance. And it deals with such diverse issues as Nominalism vs. Realism, the nature of contracts, chivalry, the dissolution of the Middle Ages, numerology, even medieval cosmology.

What the Gawain poet is really doing is responding to Dante's representation of the structure of the cosmos in the Divine Comedy, particularly in Inferno and Paradiso. However, instead of focusing on the concentric spheres of the celestial realm, as Dante does, he focuses on the ever-changing elemental spheres of the terrestrial realm in the sublunary world, where everything is mutable, regenerable and corruptible.

It's a fascinating poem, well worth a serious read. Tolkien's translation is probably the best, if you don't have time to struggle through the Middle English.

getyourselfconnected said...

Holy crap Gawains, you really should be an english professor at a University! You write very well!
Occams Razor is a wonderful science tehroem that I fully subscribe to.
Great stuff.

Anonymous said...

WASHINGTON—Some of the biggest recipients of the government's $700 billion financial bailout, including Bank of America and Morgan Stanley, increased their spending on lobbying in the second quarter as Congress began to look closely at revamping the rule system for financial institutions.
http://tinyurl.com/lluf6s

That's nice, get taxpayer money and then use it against them to lobby CONgress with it so they will give them even more.

Say it ain't so Joe.

Kevin

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