Wednesday, March 31, 2010

Throttle Linkage Is Not Stuck

Way short on time tonight, the bags were being hit aggressively, so I will just link to all the stuff that jumped out at me today which is better than anything I was going to write anyway.

Throttle Linkage Is Not Stuck
In the old day there was an actual metal rod that went through the firewall of cars and opened up the carburetor for gas intake. That evolved to levers with wires doing the work and no many cars just use a computer. Here is some non-stuck linkage!

Best of the Day
From Charles Hugh Smith comes this gem of a credit-housing-government intervention thesis that is a must read:
Housing and the Paradox of Credit Bubbles, Equity and Demand
This should be required reading.

A close second comes from The Automatic Earth and augments the prior piece:
Nobody's Kidding Nobody About Where it Goes

Ben Bernanke's homework assignment: Read the two posts above and write a report on what you have learned.

The End of Quantitative Easing (QE); The Beginning of QE by Other Means
Tell me it is coincidence that on the SAME DAY the FED MBS buys end we get relaxation of already lax lending standards by the government housing Medusa's:
Fannie And Freddie's Caving On Standards Has Officially Begun (NYC Condo Salvation Coming Soon)

Expect to see much more of this kind of thing going forward. A lot more.

Honesty From Across the Pond
In this country we get treated to such things as:
-The banking system is perfectly sound
-The vigorous "Stress Tests" proved banks were rock stars
-Capitalism is our system of markets

Across the pond we get something a bit different (via Mish):
Irish Banks Need 43 Billion in New Capital as "Worst Fears Have Been Surpassed"
The headline just jumps out and grabs you. Here it may have read "Banks need X trillion in Capital, FED says no Worries" but the story has some great nuggets:
Ireland’s banks need $43 billion in new capital after “appalling” lending decisions left the country’s financial system on the brink of collapse.

“Our worst fears have been surpassed,” Finance Minister Brian Lenihan said in the parliament in Dublin yesterday. “Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come.”

The agency aims to cleanse banks of toxic loans, the legacy of plunging real-estate prices and the country’s deepest ever recession. In all, it will buy loans with a book value of 80 billion euros ($107 billion), about half the size of the economy.

“The information that has emerged from the banks in the course of the NAMA process is truly shocking,” Lenihan said.

I can only imagine that the bank information was shocking because the Finance Minister never worked at Goldman Sachs, like all of our top level players have.

I am 100% sure that costing taxpayers dearly for a long time and shocking banking practices are unique to the Irish Banking system only. They are the outlier, nothing like what we have here in the United States.

Have a good night.

Monday, March 29, 2010

If You Wait Long Enough, Everything Comes Back

Hard to believe but another 5-7 inches of rain here between today and tomorrow. Spring time has started off a little spotty so far. That's New England I guess.

Another "Peak" to be Concerned About?
Most are well aware of the "Peak Oil" line of thought. There are many more including:
-Peak Gold Mining
-Peak Credit
-Peak Water

Ad to this the possibility of "Peak Phosphorus"? From the great site The Straight Dope:
Dear Cecil:
I've recently read claims that world reserves of phosphates, a mined resource essential in the production of agricultural fertilizer, are rapidly running out. The potential implications of this fact, if it is a fact, make global warming sound like a back-bencher in the End o' Civilization tournament. Can you, in your vast knowledge, shed any light on the subject? Is peak phosphorus worth worrying about, and if it isn't, is it not worth worrying about like a random wasp isn't worth worrying about, or not worth worrying about like the hounds of inescapable doom slavering on your neck aren't worth worrying about?
— Arcadia

Cecil replies:
Now, Arcadia. Let's not be dramatic. Yes, we face the dread prospect of peak phosphorus. However, we're also looking at peak oil, peak uranium, peak coal — hell, even peak gallium, a metal used in electronics and solar cells that may have reached peak production eight years ago. The obvious question is, how much worse can things get?

Answer: a lot, maybe. Without oil, uranium, or coal we'll be short of energy, which is bad enough. But without phosphorus we'll starve.
Another thing to worry about!

If You Wait Long Enough, Everything Comes Back
The policy of the United States in regards to the banking structural issues and for Real Estate in particular is to hunker down, pretend everything is ok, and wait for the inevitable rebound in prices that will bring the banks back to where they were before all hell broke loose. If one considers the course of action favored by most market participants over time this is no surprise.

Common thought is that markets are "forward looking" and price in events and/or conditions about 6-12 months ahead of time. This is convenient and plays to the idea that markets have any idea what is going on.

I have written plenty about how the housing market can never really move on unless prices reach their equilibrium level. In some places that level may well have been reached. For others there is still a long way to go. Government programs have been fighting this process tooth and nail. This waste of capital has robbed prospective new buyers from stepping in at lower prices. It is not just the big players either, as Housing Wire shows:
Marshall & Ilsley Extends Foreclosure Moratorium Through June
Monday, March 29th, 2010, 4:49 pm
Wisconsin’s largest bank with $57.2bn in assets, Marshall & Ilsley, extended its foreclosure moratorium another 90 days through June 30, 2010
The initial moratorium began Dec. 18, 2008 as part of the M&I Homeowner Assistance Program and covers all owner-occupied residential loans for customers who agree to workout a new repayment plan. M&I extended its moratorium three times before, once at the end of June 2009, again in September and once more just before Christmas.
Just keep waiting.

It seems a bit funny that all across the country there are millions of delinquent mortgages and yet the banks are in no hurry to do anything about it. 2 years mortgage/rent free tales abound.

So how long can the waiting go on? I think this should be a question Ben Bernanke and Tim Geithner should have to answer. Some "waiting to get back even" time lines from recent history:

Late 1980's Housing Bust
While regional differences make it hard to cast a broad net, the late 1980's to early nineties housing bust took about 10 years (1989-1999) for prices in Metro Boston to get back to even.

Stock Market Bust early 2000's
Calculated Risk's chart of the S&P 500 Closing Prices

Even after the big rally, it is 1998 all over again!

It is clear that when things go bad they tend to go bad for a while. Will foreclosures be postponed for 10 years? Will Fannie Mae, Freddie Mac, and the FHA buy every mortgage for the next decade? At what point are support efforts going to stop? These are answers I would like to know.

Of course some things pan out faster. The government was able to make a few bucks off their Citigroup stock purchase:

Maybe that 8 Billion will come in handy when the FED has to unload a trillion in MBS paper they paid full price for!

All this great news has had an effect. As Econompic shows us, it seems the US consumer is going back to the spending that is expected of them:

With high unemployment, massive "under-employment", and falling wages I have no idea where this money is coming from. Maybe all that cash is from a mortgage free year? With taxes of all sorts set to go higher I fully expect the US consumer to do their duty to the bitter end.

Of course how bad can things be? Geekologie unearths a sure fire winner of a business idea if I ever heard of one: Paying girls to play online video games with you! This will be a huge winner I predict:
Paying Girls to Play Video Games With You

Have a good night.

Saturday, March 27, 2010

Double Layered Tin Foil Hat

Some extra time so I thought I would do a quick post on some interesting developments in the metals world. Also, a little boxing history stroll!

Double Layered Tin Foil Hat
I am well aware that gold and silver are useless investments that hold no value over what anyone is willing to pay for them. Not like stocks or real estate which are priced 100% correctly at all times based upon set parameters known to all. Only fools buy the metals and most metal heads are crazy conspiracy nuts anyway.

Some other conspiracies that have yet to be proven true, oh wait, they have:
-The Market Protection Team that guns stock futures in times of need
-The Long Term Capital Management (LTCM) backdoor bailout
-Threats of street violence to extort TARP money
-FED breaking own charter to exchange treasuries for toxic paper
-The FED coordinating to drop gold price with England in the early 2000's
There are more but I just wanted a sampler.

Sometimes my double layered tin foil hat sits heavy on my brow as a firm believer in the future of the last real money. Sometimes I find it hard to not go all conspiracy crazy though, and here is a case in point:
Whistleblower Exposes JP Morgan's Silver Manipulation Scheme
Now JP Morgan's silver manipulation from a massive short position in silver is well known to hard core metal watchers. Catching them o a paper trail is a bit new though. From the piece:
On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.
There is much more and I would suggest you check it out. Also required is this piece form Jesse's Cafe Americain:
JP Morgan Manipulation Whistleblower

So what's the big deal? Nothing except this (via Jesse):
Whistleblower to CFTC in JP Morgan Silver Struck by Hit and Run Car
I am glad that although Mr. Maguire and his wife are shaken they will apparently be all right.

The related story on his allegations regarding manipulation in the silver market is here.

I hesitate to say anything more at this point, except curiouser and curiouser.

As reported by Adrian Douglas, the Director of GATA who has been the contact for Mr. Andrew T. Maguire
"On March 25th at the CFTC Public Hearing on Precious Metals GATA made a dramatic revelation of a whistleblower source, Andrew Maguire, who has first hand evidence of gold and silver market manipulation by JPMorganChase, and who had tipped off the CFTC in advance of manipulation in gold and silver some months ago.

On March 26th while out shopping with his wife, Mr. Maguire's car was hit by a car careening out of a side road. The driver of the vehicle then tried to escape.

When a pedestrian eye-witness attempted to block the driver's escape he accelerated at him and would have hit him had the pedestrian not jumped out of the way. The car then hit two other cars in escaping. The driver was apprehended by the police after police helicopters were called in and following a high speed chase.

Andrew and his wife were hospitalized with minor injuries. They were discharged from hospital today and should make a full recovery."

Now in a statistical run down:
-Your odds of being hit by a crazy driver are pretty low
-The odds of being hit as said on any specific day are very low
-The odds of being hit as said and on a day not 4 days removed from the manipulation story being out are almost impossibly long

Now I am sure this is all pure coincidence, but my head is itchy from keeping my tin foil hat on all day. Strange indeed.

For more metal mania:
IMF Is Now Rejecting Prospective Buyers For Its Gold Stash
In an exclusive report, Kitco has just released yet another stunner in the world of precious metals. It turns out that Eric Sprott has attempted to purchase gold from the IMF, according to information provided to Kitco by Frank Holmes, CEO of US Global Investors. "I just spoke with Eric Sprott, who bid to buy [the IMF's remaining gold on the block] and they refuse to sell it." As Kitco points out, "the IMF might be holding out for a bigger buyer or a central bank or for higher prices. But Holmes argues the IMF's rejection of Sprott's bid means markets are being manipulated." Back to Holmes: "I think there is a lot of manipulation done by governments around the world in the currency markets which affect the bond markets so to me it's just normal course." Holmes concludes "with an election year there may be a gold rally that could be two standard deviations, or $300 dollars, to the upside. So you could see gold run to $1300 to $1500 quite easily." This all is occurring as ever more pundits finally realize that as fiats are discredited across the world, the only safe, non-dilutable resource is gold.
I would think the IMF would want to get rid of something as useless as gold when paper money is the better option. Weird.

Boxing History
I have re-fallen in love with boxing and through the miracle of YouTube almost any fight I can think of is available for viewing!

Hector "Macho" Camacho was one of the best fighters I had ever seen. A super fast southpaw (left handers are hard to fight) with almost uncanny defensive skills, Camacho was well on his way to becoming an all time great. Can one punch change an entire career? It can, and a left hook from Edwin "Chapo" Rosario in round 5 of their fight sent Camacho on a career path of more running around the ring than fighting. I wonder how he might have turned out otherwise (punch comes after the 45 second mark):

He was never the same fighter after this one and I also scored the fight for Rosario but Camacho got the decision.

The greatest fight I have ever seen was my hero Alexis Arguello and Aaron Pryor in 1982. Two great fighters at the top of their game. It was troubling that Pryor likely used illegal substances during the fight, and to this day I think he was on something. Nobody can take the right hand that Arguello lands at the 4:38 mark and stand up unless on some thing:

I still get upset at the end of the fight.

Sugar Ray Leonard is a smart guy. He waited until Marvelous Marvin Hagler got old to fight him. A Hagler in his prime was a top 5 all time fighter and would have killed Leonard. As it was, when they met the fight was exciting and sad. Hagler is a Massachusetts native and very beloved yet he fought the dumbest fight ever against Leonard. At the time I thought Hagler was robbed in the fight, but now when I score the fight I have Leonard winning by 2 points. Most exciting part? Between rounds 11 and the final round 12 Sugar Ray's trainer Angelo Dundee scream "We got 3 minutes!", the referee comes over rand says "one more round and the fight is over" and Dundee yells "You bet NEW CHAMPION, NEW CHAMPION!" and Leonard gets up off the stool ready to go (watch from 3:10 mark on):

An amazing comeback for Sugar Ray.

One punch knockout? How about Michael Nunn's KO of Sumbu Kalambay? What was funny is that Nunn could not knock out a child usually so this was weird:

Nighty night!

Last one!

Julio Cesar Chavez find a way to put Meldrick Taylor away with 2 seconds to go in a fight he could not have won on points. Watch the last minute of round 12 starting at the 6:12 mark:


Have a good night.

Friday, March 26, 2010

Housing Market Support: Enough is Enough Already

This will be a quick post as Mrs. Disconnect is a huge Twilight book/film obsessed fan and we are set to watch "New Moon" tonight. She is chomping at the bit for an 8pm start and I do what I am told!

Tax Time
I get to have my taxes done by the accountant tomorrow. I am going to owe because I made out pretty well last year on the limited number of moves that I made. Paying taxes on money I made when it is done using after tax money I already paid on reminds me of a scene from an obscure film "Kidco". The set up is the owner of the all kid fertilizer business is taken to court on a charge of not paying sales tax on his product, which is horse manure. The lead kid represents himself and calls as a witness the man that sells hay and oats to his father to feed the horses that make the manure he uses as fertilizer. The exchange goes like this, but it is from memory so I may be off:
Kid: Mr. Jones, does my dad buy all his feed from your store?
Mr. Jones: Yup.
Kid: Does my Dad pay you sales tax on said items?
Mr. Jones: Yup.
Prosecutor: Your honor, the question is not whether the defendants father paid sales tax....(interrupted)
Kid: Good. Good. Your honor, you see all Kidco sells is manure, which used to be hay and oats! Don't you see!? We are getting taxed at both ends!!!
Court erupts with laughter.
A funny film if you can find a copy.

New Earnings Guidelines
Market Ticker does a good job with estimating the hit to earnings and margins increased health care costs will have on stocks:
Consequences of Health Care: Valuations
Karl looks at AT&T, Caterpillar, and John Deere and sees a real hit. I cannot argue with his math, he is correct and two years ago I would have said "stock market will go lower". I am much smarter now.

What WILL happen (you read it here first) is that earnings will be reported as ex-health care costs. Just like inflation, ex-inflation is done. No material difference will be attributed to this and the market will accept that. Going further out in time, expect that when the government takes over the whole show companies will be allowed to go back and write off as tax credits what ever money they did lose on health care costs (much like the homebuilder tax credit gift). I am 95% sure of this prediction.

Housing Market Support: Enough is Enough Already
This section is going to be short both due to vampire film time constraints and my own interest in not getting so aggravated that I have to do 10 rounds on the heavy bag just to relax.

By now all should know that every housing support program is another tweak for the good of the banking system that has overextended itself to the point of insolvency on real estate loans gone bad. I have had it with all this crap. Can anything be done to penetrate the small circle jerk of fools running this show and point them towards another avenue? All the best writers and thinkers see what is going on and know this is not working and is terribly hazardous as well. The only people that like the current waste of capital are:
A.) The big banks
B.) The Academia Economists
C.)Some of the book wise, world lost economic writers like those found at the Calculated Risk blogroll, ok B and C are the same.
D.) Politicians that want to be seen as doing something, anything to help the poor souls in mortgage trouble
E.) All those lucky ones living payment free for years at a time while extend and pretend passes them by

Not much of a list. Pretty piss poor actually.

I will make it simple for anyone at the helm and I will use small words as not to confuse them:
Housing is still too expensive and has to fall further

So you know I am not a lone crazy nut on this, consider the following sage write ups over the past few days that make this point so clearly that there can be no debate as to what has to happen:
Kid Dynamite
The Automatic Earth
Bruce Krasting
Barry Ritholtz
There are plenty more.

My spotlight article for the night touches upon something I have discussed for some time: Why not bailout all stock market losses as well? Why is that different from housing? You know that answer; poor saps on the street got left holding the bag on stock rashes while the banks hold all the bad mortgage paper. Guess who is too big to fail and has the ear of the government? Not you, correct!:
What's Next? Is Obama Going To Protect Investors Against Loss In The Stock Market
The headline could read "Is Obama-Bush-Whomever" as I do not think that matters at all. Hilarious side by side comparison:
The Obama administration will announce a major new stock market initiative on Friday that will directly tackle the problem of the millions of Americans who lost money betting on stocks. The government will buy loans from stock brokerage houses at the current value of the stocks in an investor’s portfolio, in an effort to stabilize the stock market, people briefed on the plan said. The government will also increase incentive payments to stock brokers who loaned on margin to their investing clients and now assume some of the losses of those clients. And it will require those stock brokers to cover some of the losses of unemployed investors for a minimum of three months.

OK, I made that up. But how is it different from this, which is real?

The Obama administration will announce a major new housing initiative on Friday that will directly tackle the problem of the millions of Americans who owe more on their houses than they are worth. The government will buy loans from investors at the current value of the house in an effort to stabilize the market, people briefed on the plan said. The government will also increase incentive payments to lenders that cut the principal of borrowers in modification programs. And it will require lenders to cut the monthly payments of unemployed borrowers for a minimum of three months.
The whole piece is a must read so please check it out.

Friday Night Entertainment
Enough down, let's get up!

Free T-Shirts
I think every member of CONgress that passed the "Big Fu#king Deal" known as Health Care should get one of these T-Shirts:


Book Review
A little while back some of us got to talking about swords, samurai swords to be exact, and reader Gawains pointed out a book titled "The Book of Five Rings" by legendary duelist master Miyamoto Musashi. I had of course heard of the man, but not the book. I read the translated version I picked up on Wednesday night and I can tell you this book holds many lessons that can be applied to all aspects of life. It is well worth your time. One of my favorite sections from the book:
The eyes are to be focused in such a way as to maximize the range and breadth of vision. Observation and perception are two separate things; the observing eye is stronger, the perceiving eye is weaker. A specialty of martial arts is to see that which is far away closely and to see that which is nearby from a distance.
Great stuff.

Picture Pages
Time to get your markers and your pencils!

"Permission to buzz the tower?"
"Negative ghost rider, the pattern is full!":
funny pictures of cats with captions
see more Lolcats and funny pictures

I would have won this round of "Wheel of Fortune":

What was the correct answer????

New "Predators" Film
The Robert Rodriguez film "Predators" figured to be a crappy film but based on the top cast they have and the trailer, I think this movie could be pretty good:

Rock Blogging
It is time to start the show; the curtain must go up!

I will lead off with a song I had never heard until Ilargi, writer of The Automatic Earth (you do read it don't you???) relayed it to me this evening. Check out the funky Comsat Angels and "Waiting for a Miracle":

Plenty of requests this week, so lets go Anon's (grab a name!) request for Flock of Seagulls and "I Ran":

"Hey, do you like Flock of Seagulls?"
"I can see you do!"

Another winning request, this one is Cheap Trick's "I Want You to Want Me":

I feel the need for hair band metal. You too? Great!

How about one of my favorite Motley Crue songs, and one of the their best, "10 Seconds to Love":

I guess two more should about cover it! What to play.....

Found a nice live Joan Baez version of "The Night They Drove Old Dixie Down", a song I like very much:

Lighters up! Last call and the lights go out! Well not know what I mean.

Just to stretch the range here, I offer No Doubt (whom I have seen in concert, they rock!) and "Hey Baby". Just to make the record straight, after I dumped Gwen Stefani she ran off and married that actor on the rebound. No accounting for taste!:

Have a good night.

Thursday, March 25, 2010

All Systems Proceed Towards Disorder

So much to do and so much going on! It's a whirlwind sometimes.

What Have I Been Up To?
A regret that I have is that I have not been writing much and when I do the material has not been as sharp as I would like it. Of course time constraints are a huge factor. I fear this may continue on. Here is what i have been up to and some other items, should you be interested in the slightest.

As I have stated, I have been on a pretty serious workout using the boxing equipment I bought some time ago. As time has passed it is taking longer and longer workout times to get to that zone where you know you are pushing your body to grow and get stronger. As I have a Bahamas vacation scheduled for the last week in April, I wanted to get more in shape to look a little better for my beautiful wife. The results so far:
The Good
-I feel great
-I can go a solid 10 rounds all out; I will have to withdraw my long standing challenge to Bill Gross for a steel cage match, it would not be fair
-I think I look a bit better
The Bad
-I wear a lot of long sleeve button down shirts for work (no tie, but I have to look "professional") and now they really do not fit my shoulders and arms. I like my shirts!
-My hands hurt a bit. This is what stopped my boxing years ago, but spacing the workouts has helped.
Sorry, no before and after pictures! I am too ugly for those kinds of pictures unless it is AFTER plenty of drinks. Only 3 readers of the blog know what Economic Disconnect looks like, the man behind the dark cloak.

Going forward I have the vacation and on order is a Bass Pro Shops FS-10 fishing Kayak with which I am planning to do plenty of small water prowling for bass. I also want to hit the Wachusett and Quabbin Reservoirs a ton more this season. Obviously this will take up time. Any fisherman near the area that wants to go with me, I am always open for some company!

Why do I mention all of this? It is because I respect the time most of the readers spend here and all the great feedback. This blog is my outlet and it is very fun, especially Friday nights! I just wanted to convey that I am engaged elsewhere and not just ignoring the issues or scared of the bull market stampede. I trust you understand.

Pensions Looking at 401k's as a Bailout
Struggling pensions all over must not be satisfied with the almost guaranteed government bailout on the way, or they think it will be too small because they would just love to include your 401k in their pooled money mix to go down the drain with them (via Market Ticker):
Having ruined the pension funds of Americans nationally through corrupt and utterly unsustainable "projections" of future growth labor unions are now targeting your money to make up the difference:

One of the nation's largest labor unions, the Service Employees International Union (SEIU), is promoting a plan that will centralize all retirement plans for American workers, including private 401(k) plans, under one new "retirement system" for the United States.
In effect, government pensions for everyone, not unlike the European system and regardless of personal choice.

Yes, because labor unions have done such a great job of managing their pension plans, right?
Oh wait, they haven't. In fact, virtually none of them are actuarially sound, and they know it. So instead of addressing this (which would mean that workers would have to put up much more of their wages to be funneled into these funds) the SEUI is effectively advocating stealing your 401k - to cover for their outrageously rosy "estimates" on portfolio returns (which in fact have been negative over the last ten years.)
Safe to say i will pull my 401k regardless of penalty should this happen. I do most of my own investing anyway but I do take advantage of the tax status and matching aspects of my company program. On a related note......

The REAL Health Care Endgame
I have long thought the Health care bill was both a scam to gain funding and in the end a final take over of the entire system. I feel 100% confident I will be right after this Mish piece chock full of real world information. Some snippets:
Had a VERY INTERESTING conversation this evening with a CFO for a local business who employs about 100 people total..
I asked him how this health care bill was going to affect the company he works for.
He told me that he had run the numbers based upon providing health care for all of their employees and realized that he could save the company 1/2 million dollars by just paying the $2000 per employee penalty and not offering any coverage at all.
Is this how the government plans on taking over all health care?
Bingo! We have a winner!
While most will buy into a plan based on fear of illness, many will not and companies, whose entire earnings rebound has been built on cutting everything possible and not revenue growth, will take the lowest cost path. This will cause howls and force (as planned) the government to expand the program to the full on single payer system wanted by socialists everywhere. Nicely played you commie red nanny state lovers.

On a related note, guest poster at The Big Picture, Invictus, writes the following:
Cramer, late last week (prior to its passage), on health care reform:

First, it is the single biggest impediment to the stock market going higher.

As I write this (late Thursday morning), the market (S&P500) has tacked on ~1.3% so far this week, with healthcare, pharma, etc. — all the companies Obamacare was going to kill — chugging right along (I note a new 52-wk high on BMY).

Might it be:
A) That the market — forward-looking beast that it is — had already priced in health care reform?
B) That healthcare reform is not the dire economy-killer many made it out to be?
C) That Cramer is still the best contrary indicator in the history of mankind?
By now I would have thought even the "pros" may have figured out the market looks ahead sometimes, in 20/20 hindsight, but in reality cannot see jack even when it is dangling in front of them. Maybe the entire market rally has been on health care reform? Still, Cramer is a good contrary indicator!

Bond Auctions Getting Sloppy
Regular readers know that I know much more about James Bond than the bond market but that said the 2 and 5 year auctions have been sloppy and today's 7 year sale was ugly as well, via Zero Hedge:
$32 Billion 7 Year Auction Closes At 3.374%, Very Weak Auction With Huge Tail
I like huge tails usually (hi J-Lo!) but I gather this is bad.

The 30 year is looking to go higher as well:
30 Year On Verge Of Breakdown As Yield Hits Highest Since June 2009

Higher borrowing costs will not help the credit environment, and is deflationary. As Anon pointed out last comment thread:
Deflation ceased about 6 months ago and we now have (very mild) inflation:
Gotta admit, the fed has thus far threaded the needle between deflation & hyperinflation. We shall see how long that lasts.
Of course deflation in prices is one thing and the slowing of the velocity of credit is another (this is what always gets confusing on this topic). Prices paid is a poor indicator as the data is massaged quite a bit. Money creation/velocity is still deflationary. If prices were all that mattered the FED would be all done here, as they "threaded the needle". Instead get ready for more programs.

Like this one:
Obama To Take Big New Step On The Foreclosure Crisis, As He Orders Lenders To Cut Jobless Homeowners A Break
Using the TARP money to help out deadbeats, I mean banks, I mean down on their luck home debtors stay in homes they cannot afford to side step the DEFLATIONARY collapse of money should the banks have to eat the losses. The owners equivalent rent parameter is stable, why bother?

Wait, as a gold/silver lover, should I not be clamoring for hyperinflation? Maybe you missed this post from the other night.

That's about it. Post ideas for tomorrows blog in the comments. I have the night off from the bags and can try and answer any questions that are interesting. Also get your Friday Night requests in!

Have a good night.

Tuesday, March 23, 2010

Worth a Read Tuesday

The middle of the week is reserved for the boxing training time so not much chance to post. I read some great stories during the day that are worth a look.

Worth a Read Tuesday
A few posts ago I was discussing the FED looking to remove any banking reserves and what that would mean. That lead to a far reaching discussion across another site (Kid Dynamite) and I learned quite a bit.

Mish steps in and tackles the same story today:
Bernanke Wants to End Bank Reserves Completely: Does it Matter? What Chaos Will Result
Key point from Mish:
Q1: What in the world is Bernanke thinking?
A1: That elimination of reserve requirements simply matches what banks are already doing. Moreover, a formal policy shift eliminates a bunch of accounting paperwork that started in 1994 when Greenspan authorized sweeps.
Why makes banks go through all these sweep charades given the result before and after is effectively a policy of "no reserves" anyway? Viewed that way, (and at the risk people will take this sentence completely out of context) Bernanke's proposal makes perfect sense.

Q2: If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system?
A2: Exactly the kind of banking chaos we have already seen! Nothing has changed. Expect more chaos because it is coming.
Well there you go!
Greenspan said last week reserves must grow by 40% and others say they do not matter. Economics is a real science.

All that's wrong with the political/banking system can be summed up by the following headline:
Jon Corzine Joins MF Global As Chairman And CEO, Stock Surges Ridiculously
Well, at least he did not return to Goldman Sachs.

The much hyped HAMP mortgage program has underperformed and a great guest post over at Calculated Risk has one example of the non effort most are going through to qualify for a free, I mean better mortgage:
HAMP Applicants Tanned and Juiced
One months spending by an applicant included:
• visits to the tanning salon
• the nail spa
• some kind of gourmet produce market (have you seen the price of arugula?)
• various liquor stores
• A DirecTV bill that must involve some serious premium programming or pay-per-view events (or both?).
• And over $1,700 in retail purchases, including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples, and Footlocker.
The consumer is never dead!
Another example of the joke being played on us all.

Jesse's Cafe Americain links to a post covering the way I think about default and hyperinflation:
Watch the Bond Market, not Bank Lending or Velocity
Key point:
The deflationists have it backwards. As we've illustrated, severe deflation is what leads to hyperinflation. Debt crisis' go hand in hand with currency crises. In fact, if we had an increase in bank lending, consumption and velocity, we'd be assured we wouldn't have hyperinflation. We'd end up with rising price inflation for certain, but not hyperinflation. Hyperinflation has never occurred at a time of strong or growing demand.

Are we not in deflation right now?

The soon to be newest FED head had this to add to all you fools thinking a rate hike was coming as soon as this year:
The Fed's New Vice Chairman Janet Yellen Implies No Fed Rate Hike Until 2013
Now Yellen did not say "no hike until 2013" but here criteria for a rate hike make one impossible for a long time.

Have a good night.

Monday, March 22, 2010

Passengers on a Ship

After a great spring time tease this weekend the weather has again turned wet and cold. At least we got a couple of days out of it.

Tonight's post will more of a philosophical thought post than a market bearing report. It is all related.

Passengers on a Ship
I am not going to get into the passage of the Health Care bill. Long time readers probably know that I am of course against government expansion into just about anything so you can figure my position out. I think what is meaningful about the bill was how it was done and in an environment where the bill was not wanted by the majority of the US population.

Now I understand that sometimes a national need may be unpopular and the US Congress may have to take steps to pass laws that will not be well received. I do not think Health Care reform makes the grade. Neither did TARP money handed out to banks.

What I want to focus on is the lack of effective checks on the government as of late. At this point Congress is passing monster bills that will have far reaching consequence with limited support of the people. The FED and the Treasury have broken all the rules governing their behavior and make stuff up as they go along. While nothing is perfect, it does seem this new chapter of those in control doing just about whatever they want is becoming more and more commonplace and more bold as time goes on.

Health Care Bill
A while back the election in Massachusetts of Scott Brown was seen a the final nail in the health care coffin. Added to this was the revelations about side deals (Louisiana, Nebraska) and outright bribes for votes. Faced with electoral defeat and large volumes of anti-health care bill input things stopped.

And then the supporters of the bill passed it anyway.

I think plenty of people were caught sleeping on this one and many are going to feel that they were not given a chance to really oppose this. Why the hurry to get this thing done? I think it comes down to a few things:
-Mass exodus of several democrats allowed those leaving in November (various reasons) to vote without fear of losing re-election
-Speed kept organised protest from being able to form
-Seems to be some strange push to get the tax collection end of this thing up and running as soon as possible. Funding crisis anyone?

Again, I am focused on how this bill was passed, not the particulars of the merits of the bill. At least there was a House vote instead of the threatened "deem and pass" option so that was something.

Of course now passed there is NO way to repeal the bill so I would save those with that in mind the time and energy in even trying. A court may well find it to be unconstitutional, but that is another long shot.

My prediction:
The tax revenues that are collected to fund the program will be spent long before the roll out of the program even happens in a few years time. At that point some other taxation elevation will come on board. Mark my words, whatever money is collected will be gone before the plan is off and running.

Along the same lines we now have concrete information (it was well known but it helps to have the paper proof) that the NY FED, under Tim Geithner, accepted all kinds of garbage loans as posting collateral, minimally from Lehman, but of course in no way did it end there. A story at Huffington Post today:
NY FED Warehousing Junk Loans on It's Books: Examiner's Report
As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn't sell in the market, according to a report from court-appointed examiner Anton R. Valukas.

The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a "warehouse" for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.

Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.

Without an audit, the Fed is able to conceal the specifics of what it holds on its balance sheet. If the Lehman deal is any indication, the Fed is hiding billions of dollars in toxic loans on its books.

"The Fed legally is forbidden from taking such assets. There's a legal requirement that the Fed's assets be investment grade," Rep. Alan Grayson (D-Fla.) told HuffPost. Grayson, who is the cosponsor of the Grayson-Paul Audit the Fed measure that passed the House, said the Lehman scandal shows precisely why such an audit is needed.

"The net result of this is we know the Fed knowingly bought assets for more than they were worth -- substantially more than they were worth -- and actually created a market for garbage that Lehman was more than happy to push on the Fed because they regarded the public as the suckers of last resort," said Grayson.

Open breaking of the laws and charters set out for the FED and the recourse is.......crickets. Some crappy audit bill that has zero chance of ever being passed. If this was some little deal then who cares but it involves the central bank of the world's largest economy. It seems here that the FED bankers can and will do whatever they want as they see fit and there is no way to do much about it.

Along the same lines I had to chuckle when I read the following story:
Moody's Warns Of Upcoming Bank Downgrades If Dodd Bill Passes, BofA, Citi And Wells At Greatest Risk
Key point of the story, Moody's take:
To the extent that such resolution authority were enacted into law, and to the further extent that we found it to be credible and likely to be used, we would need to reevaluate our systemic support assumptions that currently provide lift to the deposit and debt ratings for a number of U.S. banking companies.

Translates as:
If the Banks are really going to be left on their own then we downgrade the whole sector.

Of course the Banking Reform Bill will not include any such thing.

Wrapping it up I am becoming more concerned as elected officials and unelected person's in power positions continue to do whatever they want regardless of the will or common welfare of the nation. Yes elections can make changes, but how much? How much damage can be sustained by a rogue set of policy makers before an election cycle?

Soon the US government will be in control of:
-school loans
-home loans
-car loans
-support of favored companies
-health care

On top of this the banking classes seem to have control of the arms of government.

Maybe all this was right in front of me and I did not notice, or maybe the grab job has accelerated as of late. In any case it is clear to me that the behavior right now of policy makers is getting bolder and more aggressive. I have not been impressed with the results thus far. Maybe it will get better.

Have a good night.

Saturday, March 20, 2010

Making Way for the New Grill

70 degrees today! A truly wonderful Spring day indeed. A small post to show you what I was up to.

Big Steel Keg and the Lawn
Well fairly early in the morning I went out to Lowes to get some supplies:
-Lawn fertilizer
-Patio Paver Stones
-Crushed Stone Base Material
-Leveling Sand
-Lump Charcoal

I started off feeding the lawn for the early Spring time, and the grass is already looking pretty good. One can hope for miracles after all the rain.

The main show was getting my new Big Steel Keg set up. I assembled it yesterday after work and it was break in time.

I washed all the grates and top valve. After drying I rubbed everything down with Crisco to coat up the cast iron. It was very messy to say the least.

I set up some lump charcoal (maybe 8 small-medium pieces) an used a starter block to get things going. The grill started off a bit slow but after about 10 minutes the grill was over 500 degrees! I had to mess around with the vents to get it to the suggested target of 400 degrees for the grate seasoning step.

After getting set around 450 (I will need to practice) I put all the grates in and let it run. That thing stayed at 400-450 for about 3 hours on the small amount of lump charcoal I used! Amazing.

While it was burning I built a small patio for the grill to be placed on in the back. I used the crushed stone as a base, level sand to well, level, and then used 4 slate patio pavers that were 18X18 for the grill's new home. Here is a picture of the small patio:

Not bad for an amateur!

Here is the new grill:

The white thing is the Big Green Egg indirect heat plate for smoking that I bought.

I will be testing it on real food tomorrow (Kielbasa I think) so wish me luck as I am very new to charcoal cooking.

Have a good night.

Friday, March 19, 2010

Debt Creation Approaching Escape Velocity?

It was a beautiful Friday here. 70 degrees and very sunny. Seems Spring is upon us once again. I assembled the new grill I mentioned yesterday and now I am chomping at the bit to use it!

A few notes, a small post and then off to the Entertainment!

Profiles of a Healed Economy
As you all well know, the economy is just aces right now and things are so bright we have to wear shades, maybe even at night!

Here are a few headlines that cover all the good news:
Bank Failures 31-37; Busy Day for the FDIC
Banks often fail in good economic times. Often.

GSEs Green Light $200bn Buyout of Seriously Delinquent Mortgages
Barclays says so and they would know! Great note:
One of the GSEs, Fannie Mae said in a press statement earlier in March that it expects to continue purchasing delinquent loans in subsequent months until the seriously delinquent loan population is “substantially reduced.” Analysts at Barclays Capital remarked that Fannie will likely begin “buying out loans on a coupon-by-coupon basis, for all products including 10/20s, ARMs, starting with the highest coupons in the April report, and then proceeding to lower coupons in subsequent reports.”
In case you don't know, you are on the hook for these things.

Fed Must Disclose Bank Bailout Records As Court Of Appeals Upholds Historic "Mark Pittman" Decision
I have it on solid inside info this will be fixed by amending the law on page 12,897 of the Health Care Bill.

Debt Creation Approaching Escape Velocity?
This is going to be short because of two factors:
-I simply do not have command of the subject enough to describe or explain the mechanics at work
-The topic deserves a full on post or even a series of posts that I cannot do at the moment

That said, I can point you in some directions and open a debate.

The discussion is about money creation and banking systems. This is important for many reasons and not the least is that the entire foundation of our financial structure is based on assumptions, confidence, and group subscription and these things can go away in a hurry.

Most can understand fractional reserve banking and I often use it as an example because it is easier to grasp than how money gets created in our system. I think if people really knew how things ran they would all panic because the whole thing is a sham. That said, the relevant posts:
German Central Bank Admits that Credit is Created Out of Thin Air
George Washington posts at Zero Hedge and has some great reporting. Read the entire thing as it really helps, but an small excerpt:
Private banks don't make loans because they have extra deposits lying around. The process is the exact opposite:
(1) Each private bank "creates" loans out of thin air by entering into binding loan commitments with borrowers; then
(2) If the bank doesn't have the required level of reserves, it simply borrows them after the fact from the central bank (or from another bank);
(3) The central bank, in turn, creates the money which it lends to the private banks out of thin air.

It's not just Bernanke ... the central banks and their owners - the private commercial banks - have been running the printing presses for hundreds of years.

Of course, as I pointed out Tuesday, Bernanke is pushing to eliminate all reserve requirements in the U.S. If Bernanke has his way, American banks won't even have to borrow from the Fed or other banks after the fact to have reserves. Instead, they can just enter into as many loans as they want and create endless money out of thin air (within Basel I and Basel II's capital requirements - but since governments keep overtly and covertly throwing bailout money, guarantees and various insider-get-rich-quick schemes at the giant banks, capital requirements are meaningless).

The system is not based on assets. It is based on creating new debts, and then backfilling from there.
Not quite what you thought, huh?

Kid Dynamite offers more on yesterdays post today:
More on Bank Reserves and their Potential Meaninglessness
The comments section is where the meat is. It is worth some time.

My take was left in the comments section at Kid's site and I offer it here to frame how I see things:
What the summary here seems to be is that:
-As long as "liquidity" is available than money is fungible because you never really have to have it all at once.

Of course in the end the FED has a printing press so the argument is that liquidity can never be an issue.

While true in the lawyer/legal sense of the argument, it is also bullshit.

In essence the banking system is built on the idea that money once in motion, stays in motion and there is never a "called all in" to borrow a poker term. Of course back at the apex of the crisis when money markets were being drained this was a partial call and the FED/Treasury wet their pants in fear over the removal of a small (relative to the "liquidity" out in the system) amount of real money from the system.

The evidence would make the pie in the sky argument that reserves are meaningless and money can be created from nothing as long as loans (credit) are made a failure because why did they bother to do anything if everything was all set?

Sorry to simplify but all the tangled paths of this make something so simple very complicated.

The oldest profession is prostitution because it is hard to screw up (pun intended) and it is very profitable. The second oldest is banking for the two same reasons. Of course over time smart asses with theories have bent things around theoretical constructs so much that banking is screwed up. Classic. Remember the models and theories that said people would never, ever "walk away" from a home mortgage and never pay a credit card or car loan before a mortgage? Working out nicely indeed.

Taken as a whole it makes sense that debt is created and then some form of payment is arranged some how. The US consumer makes up 70% of the economy? They need to to keep accumulating the debts (money) issued by the banking system. No wonder no one this side of Wall Street can get ahead, everything is designed to maximize separation of you from your "money". I often wondered why the FED was so terrified of a recession and now we have the answer. Any speed bump in the debt accumulation race and things get ugly fast. Maybe debt has reached escape velocity and we cannot carry enough to backfill it. What then? Now I am dizzy.

Friday Night Entertainment
I need a drink and some fun stuff! Off we go!

WIN instead of FAIL
Let's try some WINS from the Failblog.

Reading the signs can help:

It is always the little black dress that causes trouble:


Film Clips
Great film is, well, great!

One of the scariest scenes in a movie for me was not even in a horror film. In 2010: The Year We Make Contact there is a scene that sends chills down my spine. When HAL 9000 relays a message to Dr. Floyd and tells him to look behind him I still get those chills! (start at 1:20 mark):

Because I have seen About Last Night I know that Rob Lowe can act. The closing scene is pretty good stuff:

Under rated film.

Rock Blogging
It just might be time to let it rock. Wait, ok, now it's time!

Anon requested the Go Go's and "Our Lips are Sealed" which was strange because I had this song in my head this week after hearing it on the radio! Weird! Here it is:

Lead singer Alex Chilton of The Box Tops died this week and one of my favorite old school songs is "The Letter" so check it out:

Obviously before the dawn of email!

Loyal reader Gawians, who if you have not been checking out his real estate commentary in the comments section you are really missing out, requests "Spiral Architect" from Black Sabbath and I mean who could say no to an unsung Sabbath tune?:

Awesome tune.

One more, two more? Two more seems about right.

Of course because I love Joan Jett and I know what rocks, they decide to make a film about her early band "The Runaways" that contained a few names you may recognize. Anyways, enjoy Joan playing "Light of Day" with the man that wrote it, Bruce Springsteen:

Studio version here.

Last call! The streetlights are on, time to go home!

Closing the show is always a struggle. Do I end with a ripper? A mellow relax tune? This is harder than it seems!

Well I could not decide between these two so you get BOTH! HA!

Close the show with a Depeche Mode double feature!

"It's No Good":

Kicks ass!

My favorite Mode song, "Personal Jesus":


Have a good night.

Thursday, March 18, 2010

Looking for Bagholders?

This week has been great weather wise! 60 degrees and sunny all week and it could hit 70 on Saturday. I have a brand new grill to get seasoned and I hope to get it done this weekend and maybe attempt my first cook with The Big Steel Keg. Being new to charcoal cooking this could get funny in a hurry!

I had a post in mind all day and I will get to it but there was plenty of other stuff that caught my eye that will make it on tonight no matter how late it goes. I am done the boxing workout so I am ready to roll. Get requests in for Friday night entertainment as well!

The "Motor City Cobra" in Foreclosure?
Regular readers know I am a huge boxing fan so when I caught this post over at Tim Iacono's site (updated the bookmark in the blogroll, but I prefer the old site!) I knew I was going to write something on it:
"Hit Man" Thomas Hearns Now in Foreclosure
You can read the details if interested.

Thomas Hearns started with the nickname "Motor City Cobra" and switched to "The Hit Man" after recording big knockout wins. His fight versus Marvin Hagler is one of the best all time, second only to Alexis Arguello vs. Aaron Pryor I in my mind. Thanks for the great find!

Banking Reserve Requirements; Useless or Need to Grow?
Last night I posted a quick piece on FED head Ben Bernanke offering that banking reserves could go to zero in the future, via The Economic Collapse. Again, key take away:
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

Kid Dynamite, who survived the rainy downpours here in the northeast, had some thoughts on this (and gave a cool hat tip over here as well):
Reserves? We Don't Need No Stinkin' Reserves!
KD's thoughts:
Now, it's been brought to my attention that there are several countries who currently operate banking systems without reserve requirements. The real question is, is Bernanke suggesting that we don't need reserve requirements because in a rational free markets world, banks would hold adequate reserves anyway, and thus don't need more expensive restrictions imposed on them? I think that claim can be easily refuted by saying "See: U.S. Banking System 2007-2009." The alternative, then, is that Bernanke really believes that banks don't need to hold reserves at all.
Ben Bernanke's expertise in banking is greater than mine. That much is given - although I wasn't riding shotgun next to Alan Greenspan as the metaphorical car that is the U.S. Financial System was driven off a cliff. However, I literally do not understand how zero-reserve fractional reserve banking can work. If, in reality, banks lend out every dollar of deposits, with no allowance for depositor redemptions or decline in collateral (read: LOAN) value, isn't the system guaranteed to fail?...

Anyone care to explain this? Anyone? I'm looking for someone who can explain to me the rationale, even in theory, for how banks could operate with no reserves. My specific questions: most importantly: if you have no reserves, and the price of your assets (loans you have made) declines, aren't you instantly insolvent? Also, if you have no reserves, how do you handle depositor requests for redemptions? Is the answer simply that the Federal Reserve is there to backstop insolvencies arising from these two situations? That's not really an answer. Maybe the answer is that the Fed backstops "temporary" insolvencies until they can recover and right themselves - until the value of the assets "comes back." Extend and pretend! What if the value doesn't come back though?
Great points and indeed there was plenty of great debate in the comments section for this post. Stuck at work I could not really participate!

An Anon poster (of course) seemed to think the system was so solid this was all fine because banks always have so much collateral to save themselves from losses. I know, funny stuff. He did make several good points but in the end I felt he was too theoretical and was ignoring reality. I would encourage you to read the dialogue from the comments section and make observations here. My take in the comments section:
Well I am at work and thus cannot be involved here to much degree but the conversation to me seems to boil down to theoretical debates vs reality. In reality the banks have abused fractional lending and made poor loans that are so bad it has toppled the pyramid, which in theory could not be toppled. That seems to be Anon's point, nothing KD (or I) says about solvency has any meaning because it cannot happen, well except that it just did.

Furthermore, I thought getting loans from the FED was bad and had a stigma? Seems now the new theory is ultra low non-market based loans from the FED forever. This is quite possible but I think though forever may not be so long.
Later I added:
Good stuff everyone, and a good debate.
My only issue here is the assumption that the FED is now the permanent lending arm for the banking system from here to eternity and all that implies. If the system can only work at 0% rates and taxpayer backing for losses, how awesome is the system?
Worth a look.

Now not even a few minutes after writing the added comment, I see this over at Bloomberg:
Greenspan Says Banks May Need to Raise Reserve Capital by 40%
I mean, you cannot make this stuff up! Either zero or raised by 40%? What's the deal? From the piece:
Former Federal Reserve Chairman Alan Greenspan said regulators may need to compel banks to raise capital levels by as much as 40 percent, saying that’s a more effective way to ensure stability than new regulatory rules targeting risk.
“The most pressing reform that needs fixing in the aftermath of the crisis, in my judgment, is the level of regulatory risk-adjusted capital,” Greenspan said in a paper prepared for a Brookings Institution conference today. “Adequate capital eliminates the need for an unachievable specificity in regulatory fine-tuning.”
Banks may need to hold capital equal to 14 percent of their assets, compared with about 10 percent in mid-2007 before the financial crisis, Greenspan said.
We have a serious disagreement here! Obscure movie quote: "Stir the Tiles! Stir the Tiles!".

Now of course Greenspan had his entire tenure at the FED to make these kinds of overtures but instead lobbied hard (at the time) for a bare minimum of regulation and reserves. While this may be a way for him to try and regain some semblance of credibility (impossible?) it does make sense. Of course what's 14% as opposed to 10% really?

I do not have time to open a big debate on this tonight. Suffice to say that I think reserves are both necessary and should be large given what we have seen.

Looking for Bagholders?
I read a post over at The Big Picture today that I wanted to discuss all day long.

The post, titled "Household Equity Exposure", uses a great chart from Ned Davis Research to show "Stocks as a Percentage of Household Financial Assets (Adjusted for Pension Funds)". It is quarterly data from 1952-present. I would LOVE to post the chart but could not secure clear permission and unless you want a tip jar installed, the usage price is a bit more than I want to go for!

So please open the post above and use the chart as the visual aid. In reality one look over should do to follow what I am going to offer here.

Barry notes:
Household balance sheet data is accumulated by the Fed, and no one makes it look prettier than Ned Davis Research. Using the Federal Reserve data, NDR shows that households are now fully invested, roughly equivalent to 1972 (when rates were much higher)

Not to differ with NDR, but the present levels are only modestly over-exposed to equities — nowhere near 2000, and still a good ways below 2007 peak.

I am not sure we can say the US household is “All In” just yet. Somewhere in the 1200- to 1250 range should get us pretty close . . .
And this stuck with me all day.

Up front, I think Mr. Ritholtz is a great writer and he seems to have a firm grasp on all things Wall Street. This post, to me, really seemed a bit off for him in regards to main street though.

Looking at the chart household exposure to stocks was highest at the Tech Boom Bubble top in and around 2000. Of course the bagholders on that collapse were regular people as Wall Street unloaded all their shares to the public right before the meltdown. Weird coincidence, yes? I have talked about this time and again. No bailout for the regular Joe's that stocked up on Yahoo and Red Hat that crashed, they got what they deserved, right?

Another top was right at the peak of the housing/stock market top in 2007. This time the collapse was tied closely with Wall Street and things like mortgages and credit vehicles that only Wall Street held in large amounts. Of course household stock holdings fell as well but they were much less invested this time and this is where I want to focus.

First off most regular people, which are the only kind I know, never got over the tech collapse. Stocks may never capture their large scale attention again. Never. They did fall in love with real estate however, due to it's perceived "safety". As that has now been smashed that makes the trifecta of finance vehicle collapse; stocks 2000, homes 2007-present, stocks 2007-2009.

Lost in this is that I know many people (regular types) that borrowed large amounts from their 401k's to buy homes and now have the great pleasure of being underwater on their homes and paying back their downward adjusted 401k account at par.

What I am trying to get at here is I am not sure what The Big Picture post meant. Is an influx of household money into stocks after a run up of 60% or more from the lows a good investment idea? If it is, is it good for households in general or private paying clients?

My prediction is that regular money will not be making it's way into the stock market any time soon. The low volume melt up done by banks bidding futures up to each other will have to carry the boat. What if the algos have no bagholder to unload on? I guess another bailout will be on the way for them.

My friend who runs the Housing Time Bomb had a great post on this a while back:
Is America Losing Interest in the Stock Market?
The post fits in well here. I commented at the time:
I think money is going into bonds but anything with the "real estate" tag will be left out. We will see the FED step back in in that space. Many regular investors got smoked in the dot com bust and I think most felt they got in over their head. They switched to real estate and vanilla S&P index type funds and low and behold they got smoked on two fronts once again. At this point I think return OF capital is more important to main street than return ON capital. Too bad our whole system is based on juicing things into bubbles.
I stand by that.

Best comment from the post at TBP? A guy that sees what's coming:
scharfy Says: @ March 18, 2010 at 4:20pm
Awesome chart.
I dunno, lot of bears on this board. The market seems comfortable with current multiple (15 times 2010 earnings) plus 2 percent dividends which will likely grow due to record corporate cash from lack of capex spending/hiring…. Should earnings grow to 100 your are lookin at 1500 in the S&P….

The natural question would be how the hell can they grow earnings with their customers not working and in bad shape?

Thats where I am open to the “decoupling” of corporate America from the working stiffs. Bottom line, they will squeeze us. We will still eat at McDonalds, buy an ipod, watch TV, search on Google, buy gas from Mobil , Bank at Chase and pay our mortgage. We just won’t save a lot or have a lot. This is how the poor have done it for eons and now the middle class can have a turn.

But this doesn’t mean that Corporate America will die a painful death. They might just keep right on truckin.

I have argued that the crap will hit the fan with the stock indices at all time highs and Unemployment at 9% and everything else that is wrong now is still wrong. Hard to explain that one, yes?

Of course it helps when you have the might of the full Federal Government behind you as well as the FED and the Treasury. They just do not have our backs. Be careful.

Have a good night.

Wednesday, March 17, 2010

The End of Pretend?

Just enough time for a quick thought.

The End of Pretend?
I will not bore you with how fractional reserve banking works. Let's leave it at the fact that none of your money is really at your bank. Banks are required to keep minimum reserves to meet things like withdrawals and banking losses. The losses part is a drag because, well, of all the money the banks have lost in real estate loans. This kills earnings and limits lending.

Of course in the new age of taxpayer backed speculation, Ben Bernanke wants to up the ante and allow the banks to lend out not $8-$10 dollars for your every one at the bank, why not lend out infinity? Why bother carrying cash to cover losses when losses are the sole responsibility of the US taxpayer? Why indeed?

I thought this was a joke but it is a real story (Hat tip The Economic Collapse:
Money Out Of Thin Air: Now Federal Reserve Chairman Ben Bernanke Wants To Eliminate Reserve Requirements Completely?
Key footnote line:
That simply does not make any sense. But it is right there in black and white on the Federal Reserve's own website....

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

I guess this is the logical extension of our situation. Maybe the pretend is over, just do whatever you want.

I think I want more gold and silver.

Have a good night.

Monday, March 15, 2010

Voice from the Past

It has rained to the tune of 9 inches here since last Friday. Many streets and highway ramps were closed today due to flooding and that made my commute home a lesson in alternative route planning on the fly. Just unreal.

Voice from the Past
A bit short on time due to the weather, but I already wrote tonight's post back on September 19th, 2008. Allow me to set things up.

By now you must have followed the Lehman collapse report which details all the juicy tid bits about cooked books and stress tests run on a sliding scale. For some color Zero Hedge is on top of this as is Naked Capitalism.

I do not need a detailed report to tell me what I already know, but it is great reading!

From my post in September 2008:
Enron Was Ahead of Its Time
You have to feel bad for those poor souls which ran Enron. They were years ahead of their time, they were just unappreciated as clever geniuses. If Ken Lay and crew had only waited a few more years, history would regard them as savvy players that used the whole "systemic risk" pocket aces to great effect.

Those poor Enron guys. While they were attacked for accounting fraud, Fannie Mae had their purchase caps lifted and was able to operate for 2 years without a single shred of quarterly reports. I mean, falsifying earnings reports is bad, but now that is the new good! Too late for Enron.

Enron used wild and complicated derivatives bets to lever up their small initial working capital into a mammoth, if hollow, money base. At the time this was panned as dangerous but today it is known as the investment bank business model. Again, too late for Enron.

Enron hid losses and wildly exaggerated their asset values using internal parameters that had no basis in the real world. Now this is currently known as "Level Three Asset Accounting" and "Mark to Model" pricing. Again, just missed by a sliver of geological time! Poor fools.

Enron shopped around for a buyer to help them survive, but after looking at their books there were no takers. Once again, we see that the Enron model was not wrong, just early. Today we have the FED and Treasury forcing mergers and buyouts for insolvent institutions, and when that fails they just bail them out themselves.

I think it is clear that the so called scandal that was Enron was something else entirely. I think Enron was punished and attacked so harshly because they exposed the clever plan the banks had for screwing the US taxpayer into paying for their never ending party. Enron was early once again, and paid the price. Their model was then copied and amplified to arrive at the point in time we are now at. I am not writing this to be funny. There is no material difference between Enron's behavior and that of today's players. Sick? Yes. Sad? That too. Basically what we deserve for being the losers that vote in fools? You bet your ass.

Any part of that not true or not clear?

Not to worry those of you with a bullish mind, reality has long since departed the collective soul of US markets.

Have a good night.

Friday, March 12, 2010

Living Life on a Friday

Well it seems I will be around this evening so a post is on the way!

Market Commentary
What's left to say? Everyone knows that things are a scam but no one wants to miss a move in the magic show. Take this post by Barry Ritholtz over at The Big Picture:
Accounting Fraud, Short Sellers, and the SEC
Mr. Ritholtz lays out the worst of the Lehman collapse fraud and hits all the big points. Final summary thought offered:
All in all, the entire system failed. The situation is utterly disgusting, and if the investing public pulls its money out of the completely corrupt public markets for a generation or more, it would not surprise me . . .
Of course Mr. Ritholtz was clear that he was buying the market last March (right on the lows, amazing!) so I guess a rigged market full of fraud is too juicy to leave alone. In fairness it is his job to manage stocks but this is the central issue why nothing ever changes. Asset markets are too important (going up only that is) to leave alone and if that is true it will also be true that rampant fraud will occur because it can.

With this in mind, next week I will lay out a "bullish Enabler of Fraud" portfolio that I may well try out to get a seat at the casino. My proprietary trading software (my mind) targets the S&P at 1250 in the next month or two so there will be ways to jump on that ride.

Living Life on a Friday
I spilled quite a few pixels this week on things economic. In honor of my birthday I am going to have an all around fun post with slices from all over the world of interesting. I hope you enjoy!

Real Estate's Favorite Line in Jeopardy
When asked why buying real estate is a good idea no matter what, the most often cited reply is "they are not making more of it". Well that may not be the case.

What about Waterscapers?:

At least they are not making any more ocean, are they?

Eerie March 12 Factoid
Long time readers know how much I really hate The Beatles. In a swing of cosmic irony not lost on me I noticed on the Wikipedia page for March 12th the following factoid:
Born March 12, 1914, Julia Lennon, mother of musician John Lennon.

Things You Should Know About
Inquisitive minds will like:
-How the Moon was formed. Wild.
-Aerogel. Amazing.
-Early Picture taking. Stay still!
-What happened to the USS Scorpion?
-Telomeres are strange.

FailBlog, an Odyssey
Today was a huge day for FailBlogs. Two samples:

"Wendy, I'm Home!"

Not quite the help group one may think:


Rock Blogging
Some musical selections to start the weekend.

Of course I go out in Boston like twice a year and it is going to rain big time. Reader Anon says they have been swamped with rain for a while so Karen Carpenter's "Rainy Days and Monday's" will fit:

What a voice.

We can get a little nasty with White Zombie and "Thunderkiss 65":

Great guitar chords.

Another great tune on the "Zombieland" soundtrack is "For Whom the Bell Tolls" via Metallica:

Great live version of "The Thunder Rolls" from Garth Brooks:

One more? Two more? Ok, two more.

Take a ride with the Rolling Stones and "Paint it Black":

Last Call! Grab a drink, the mouse and load the tunes!

I get one for my birthday and I once again play the intro (Ride of the Valkyries!) and first song from the greatest live album ever made, "I Don't Know" by Ozzy with Randy on the Tribute album. "ROCK AND ROOOLLLL!!!":

Always a real treat.

Have a good night.