Thursday, October 1, 2009

Forced Intervention

Quite a wild day! If you are of the bearish bent, you giggled all day as data point after data point came in "unexpectedly lower". With expectations as low as they can go, that is some feat. I will have an item tonight on this very topic. I really cannot remember a real down day like today, they seem so long ago.

New poll Question
With so much to cover, I will save the last poll results for another discussion. I would appreciate your participation in a new poll that was on my mind after I read this article (via Clusterstock):
Barely Anybody Clicks On Banner Ads Anymore
Obviously the piece covers the reality that nobody even clicks banner ads. I am interested to know how many (if any at all) banner ads the readers have clicked. Be honest, this is anonymous after all!

Not to be Lost in the Confusion
There was so much news and reactions today that I wanted to spotlight two items I read that I thought were first rate material that demand attention. I know there are plenty of items to cover, but these two writings are too good to let slide.

First up is another winner from Jesse's Cafe Americain:
A Priori versus Empirical Reasoning and Practical Decision Making
This article covers the issue of using one's own prejudice (as it pertains to market expectation) to color data selection. This is of course counter to how a real scientist uses information. This selection will allow you to step back and see if you are indeed using data selectively. It should be required reading for all writers of financial news. Blogs included!

The second selection is no stranger to readers of this blog as Ilargi of The Automatic Earth again amazes with another great introduction section:
The Carcass of Mother Goose
While the entire piece needs your review, here is the summation paragraph to get you hooked:
There once was a time, and it's not even that long ago, when the term "Moral Hazard" had a profound meaning that everybody in finance had respect for. Today, Moral Hazard means nothing anymore. The gutting of the term has become a cornerstone of government policy. And that harks back to something I told you a long time ago: this is not a financial crisis we're in, it's a political crisis, and a full-blown one.

Tomorrow's Headline Today
I mentioned the "beating lowest of the low" expectation game in my opening tonight. I am going to go out on a limb this evening and make a prediction with no waffle, no wiggle, and no excuses if I am wrong.

To set this up, we see this headline from today:
Goldman Raises Estimate of September Job Losses
The article tells us that:
The Goldman economics team, led by Jan Hatzius, said in a note to clients that they expected Friday’s employment report to show a net loss of 250,000 jobs, up from their previous estimate of 200,000.

The new figure is well above economists’ consensus estimate of 175,000, as tracked by Bloomberg News.

So one day before the data is to be released (released to the general public that is, government officials surely have this on hand right now, thus so does Goldman) we have a reasonably large bump up of job loss expectations. We saw this game in full force during the last bank earnings season.

The deal here is the template used by the major news wires for the last 6 months of "green shoot" coverage is a fill in the blank template so the news is standardized across the board. Tomorrow was supposed to go:
"Jobs losses of [165,000] easily surpassed Wall Street estimates for a job loss total of [175,000] adding further evidence that the worst of the recession has passed."
Of course after today's numbers the template will have to be changed somewhat, and so the new release tomorrow will read (my prediction):
"Jobs losses of [225,000] surpassed Wall Street estimates for a job loss total of [250,000] adding further evidence that job market pressure is easing after the worst financial crisis since the Great Depression."
You read it here first!

Forced Intervention
The story since last March has been one of government targeted support for the "free market" in order to save it. We are told the edge of destruction has been avoided, and more than that, a recovery is under way. I will side step for now the details involved in all this, they are secondary to this discussion.

In this fable all is going well enough that the FED will have to begin looking at "exit strategies" and in fact are out of ammo when it comes to MBS purchases and Treasury buys. Cash for Clunkers has come and gone. The housing handout is about over as you need to close on a home by the end of 2009 and those things take time. All that is needed is a self sustaining rebound and it would seem all will be well.

This is not going to happen.

Today's numbers (Car sales, Employment, Manufacturing) all are reflecting already a drop off in activity as even the knowledge of the possible end of government intervention is at hand. The stock market's first real down day in months served notice that the exits will indeed be full when the music stops.

In my mind we are coming to the point where the rubber meets the road. It was this writers expectation that as the fall season went along the data would get worse, and then much worse. Today may have been the opening salvo in this process, or just a one time blip that will resume shortly. Either way the real time reactions are the same.

I have never argued that we are not in deflation right now. Even in the face of unprecedented (in the modern era) government assistance, the economy is still in tatters. Soon the FED will come to understand some side effects of all their intervention:
-The market sees temporary lending facilities as capital pools
-The market sees MBS purchases as an open ended trash dump
-The market sees a weakening dollar as a structural trading platform
And there are many more ingrained intervention effects as well.

Should any of this change, there is going to be a violent market reaction.

The government is going to have to make a decision. Massive expansion of support programs and extension of the same is the bare minimum. Of course they could just let things go to their natural level, as I have argued all along. We would be 6 months closer to real resolution of our structural issues if the government had stayed out of things. Instead we have played a rally game built on implicit help that may or may not be renewed.

In the face of a deflationary collapse and overhaul of US financial engineering, I believe the government will go "all in" and do whatever they think they need to make sure deflation "does not happen here". Think big.

Have a good night.

11 comments:

getyourselfconnected said...

All,
Still compiling answers to last nights question. There has been some very good input and I think the excercise is a good one. Enjoy tonights post, I did!

GawainsGhost said...

Well, I never participate in internet polls. But to answer the question, no. I have never clicked on a banner ad.

They're more bothersome than anything else. It's all part of the Boomer mentality of finding a "new" way of making money. There is only one way to make money, and it hasn't changed from time immemorial. Produce a product or provide a service that's worth money. That's it. Everything else is bovine feces. If you can't do either one of those, you're just a con man, and worthless.

Anyway, yeah, this government is going to go all in. And, like the mark in a game of Texas Hold 'Em, it's going to lose everything.

There's an old saying in poker. If you cannot look around the table and identify the mark, you are the mark. That is true. If I could recommend two books on the subject, they would be The Poker MBA: Winning in Business No Matter What Card Are Dealt, by Greg Dinkin and Jeffery Gitomer, and Amarillo Slim In A World Of Fat People, by Amarillo Slim with Greg Dinkin.

I would especially recommend the latter. You will learn more from that book than any other. Really.

You know, once Amarillo Slim, the greatest proposition gambler who ever lived, said that he could hit a golf ball for a mile.

"C'mon, Slim. Nobody can hit a golf ball for a mile!"

"I can hit a golf ball for a mile."

"You wanna bet?"

"How much you got?"

$10,000. So Amarillo Slim took that bet. Pretty soon everyone was on the phone, "Amarillo Slim's betting $10,000 that he can hit a golf ball for a mile!" Next thing you know, there were 30 gamblers, each putting up $10,000 to take that bet.

So Amarillo Slim got them all together, put them on a plane and flew to the great north, where the lakes were frozen. He put a golf ball down of the ice and took a swing. Zzzzzzzz! "Looks like a mile to me." Went home with $300,000.

This is what I'm talking about. Money is not a game. You want to play games with money? If you cannot identify the mark, you are the mark. It's that simple.

CT-Hilltopper said...

I've never clicked on a banner ad.

I think the Ken Lewis leaving will play out further when Andrew Cuomo has his ass hauled in to court. Cuomo isnt going to be stopped.

As I posted in your last thread, government intervention is why we are dealing with "mix"flation right now, rather that just an all out deflationary collapse. Stagflation, mixflation, it's all the same.

Eventually, like you said, the rubber has to meet the road.

The American people have to realize that not one of us are entitled to a damn thing.

At about the same time, we have to realize that a good deal of the people that we voted to represent us are crooks representing special interests, not us.

Millions of people are in for a very rude awakening, literally overnight, as they have not been heeding the warning signs.

Stagflationary Mark said...

GawainsGhost,

"If you cannot identify the mark, you are the mark. It's that simple."

As seen on the Internet...

"Dear John,
I have been unable to sleep since I broke off our engagement. Won't you forgive and forget? Your absence is breaking my heart. I was a fool - nobody can take your place. I love you.
All my love,
Belinda. xxxxoooxxxx
P.S. Congratulations on winning this week's lottery."

getyourselfconnected said...

Gawains,
I used to play online poker for real cash until the Port bill made is very sketchy for US players to have money in the game. Poker is much easier to make money in than the markets!! Try Dan Harringtons 3 part cycle of books on poker, sage wisdom that is good across many facets of life.

Mab,
I respect your opinions, but we are total opposites on Ken Lewis. He bails, the pressure is released and the new story is BAC with a new leader for the future. Flogging the old head does not fit the narrative. I would hope I am wrong and you are right though.

Glad you also see the inflection point at hand. The FED/Treasury/FHA/FDIC whom I just blanket as the government tried "money printing lite" which was still unprecedented. Faced with reality they will either have to let reality assert itself, or really print. Its decision time pretty soon (3-6 months). Maybe then I may have more concrete answers.

getyourselfconnected said...

Mark,
Where is that from? Hilarious!

getyourselfconnected said...

PS
I used to watch a network show titled "Dear John" starring Judd Hirsch. Pretty good show. If you have not seen the film "Running on Empty" with Judd Hirsch you are missing out.

GawainsGhost said...

Internet poker is for fools. Sorry, GYC. Poker is a game against the guy in front of you. It's the only game in which the house does not have an edge. You can bluff the guy in front of you, but you cannot bluff the house.

It's all about tells. It's about reading the guy in front of you and knowing when he's bluffing and when he's not. You cannot do that on the internet.

Of course, Doyle Brunson's Super System is the bible of poker. But I'd recommend Amarillo Slim In A World Of Fat People over it, to tell the the truth.

It'll teach you how to make a bet on which sugar cube a fly will land on, and win every time.

Stagflationary Mark said...

GYSC,

"Where is that from? Hilarious!"

http://www.casinotimesonline.com/march/lighter_side.htm

"A blonde went to Las Vegas. She had been in the casino for about an hour, and realized she was thirsty. So she went to the pop machine in the hall. She put $1.00 in an a Pespi came out, she put another $1.00 in and another Pespi came out, she put one last $1.00 in and another Pespi came out. A man saw her, and he said: "What are you doing?" And the blonde said: "Duh!! Winning."

getyourselfconnected said...

Gawians,
sorry to disagree with you but online is pure skill and math, tells are a myth.

I turned $250 into $1750 in 6 months slow and steady winning sit and go tournaments. Only the Ports bill stopped me. Poker is easy when people think they have a "edge" due to x,y,z. In reality, given a normal table 3rd place out of 10 should be easy going.

Mark,
NICE!

GawainsGhost said...

Tells are a myth? Got to disagree with you on that one, my good friend.

When you're in a high stakes game and there's a lot of money on the table, if you've got a good hand and think you're going to win, or if you don't and you're trying to bluff, it gets exciting. Your heart starts racing, which makes the artery in your neck throb. It's an autonomic, involutary response to pressure that you can't control. Most people don't know to look for it or how to interpret it if they do notice, but this is why many professional poker players wear turtle necks at tournaments.

Similarly, say you look at your hole cards and realize you flopped a nut straight or a royal flush, an almost unbeatable hand. Wow! Your eyes flash. It's another involuntary response to excitement, and this is why almost all professional poker players wear dark glasses.

Body language is real. For example, when you meet a girl for the first time, if she likes you at some point, usually in the first few minutes, she will smile and show you the palms of her hands. This is a subconscious, learned behavior, and it's unique to Western culture. Eastern (Asian) girls do not do this. The reason why is very simple, Western girls are mean. If she wants you to approach her, she smiles to let you know she's friendly and shows you her palms to let you know she's not carrying a weapon. If she does not smile and show you her palms, do not go over there, she will hurt you. It's true.

Most amateur players have nervous habits, like playing with their chips, tapping their fingers, swirling their drink, lighting a cigarette, touching their face, and what not, that they're not even aware of but which, to an astute player, indicate how they're going to play a given hand or in a certain situation. Over time, these guys can be read like a book, and they usually are, go home broke.

Neck throbs, eye flashes, body language, facial expressions, nervous habits, betting tendencies, these are real things. And true poker players know how to interpret them. Poker is more of a game of learning how to read the people at the table than it is of knowing the odds.

Yes, math skills are important, and all good players have them. But a number sense champion, who can calculate odds in an instant, against a real poker player, someone like say Amarillo Slim, will get taken for a ride every time. Guaranteed.