Wednesday, May 26, 2010

It is Easy to Get Sidetracked

It has been hot and humid here for two days and I just love it! It can never be too hot as far as I am concerned. One more day of work and then a nice 4 day weekend is at hand. Things are looking up.

I should finish Yves Smith's book "Econned" this evening. Early report is the book features some excellent history of economic theory and how certain ones gained widespread appeal even though they sucked. As a scientist I LOVE how Smith tears apart economics as a piss poor scientific endeavor. A bit on the wordy side, but so far a winner. Full recap upon conclusion.

It is Easy to Get Sidetracked
As I have written, on any given day there are a few stories that grab my attention that I set aside for a write up or just to think about. Of course in the headline hungry news cycle we have there is always plenty to find interesting. Here are a few stories out over the past two days that are all interesting. The exercise is to figure which story has the most to offer a reader in terms of importance and meaning. Here they are:

1. Wait: Why Did Ron Paul Just Introduce An Extension To The Homebuyer Tax Credit?
Ron Paul in favor of permanently extending the first time home buyer tax credit and expanding it to cover any home buy in disaster areas.

2. A Tale of Irrational Premium (and Risk)
Karl Denninger takes a look at the premium of the gold ETF PHYS.

3. Treasury gets $6.2 billion from Citigroup sales
The biggest hedge fund in the world, the US Treasury/FED/Willing partners ready to dump Citi shares.

4. New $3bn Foreclosure Prevention Program Added to Wall Street Reform Bill
More help for those that should walk away.

5. Dow Closes Under 10,000 For First Time Since February 7
A sub 10,000 close for the DOW. What to do with those hats now?

These 5 stories all have aspects that can be interesting. Some serve as an entry point into thinking about things on a deeper level. Others are just side notes. My recap of 1-5:

1. -A Libertarian having an ideology war with himself? All taxes are bad so any tax credit is good. Government intervention in markets is bad, but here it is ok? It is fun to see a politician tying themselves into a pretzel, but not much here.

2. -I noted the other day the premium that the gold ETF PHYS was commanding and today a follow on offering was done for the fund. Karl Denninger (who usually stays away from anything gold related) had some nice charts showing the GLD/PHYS spread. Unless you are into gold then who cares? I am a big metals fan (gold and silver) and I wanted to watch the new PHYS fund for a bit to see how things went. Either the premium would vanish or it would continue to creep up as many find this fund more believable in terms of gold holdings than others. I am still watching. Gold has caught plenty of news as of late, here are a few more from tonight:
-Huge Additions to GLD Inventory by Tim Iacono
-Greek Scramble For Physical Brings Gold Price To $1,700 Per Ounce An overblown headline by Zero Hedge, but still an interesting read.

Back to story 2.; should gold holders get ripped off or blow up gold somehow there will be no bailout nor any damage to the system. You could look forward with gold at $5 an ounce to gold Ipad/Ipod jacks and such at that point.

3. The biggest volume traded stock, C, hits the open (?) market and the government makes some cake. Great job guys! This one will bear watching going forward and the government still has tons of C stock to sell.

5. The DOW could cross back over 10,000 at the open tomorrow. Who cares.

The biggest story to me was #4. This story shows just how wrong things are and how debt overhang cannot go away by pretending and extending.

From the story:
The Senate passed the Restoring American Financial Stability Act last week, approving a new program that would reduce mortgage payments for the unemployed.
The program would provide $3bn from the Troubled Asset Relief Program (TARP) to lend up to $50,000 to unemployed homeowners, who could reasonably resume making payments again within two years. The program was modeled after the Homeowners’ Emergency Mortgage Assistance Program (HEMAP) in Pennsylvania.
There is so much here.

First off, I always said the TARP would become a permanent slush fund, and so it has. That was easy to see coming.

The real story here is the disgusting stretch being made to extend debt no matter what no matter the situation.

Now I know not every single applicant will take the full amount and all that. Say they did though. $3 Billion/$50k = 600,000 potential loans to unemployed. At $25k that would be 1.2 Million. These are not small numbers.

Now if a person was unemployed for up to two years, but COULD make payments IF they found a job that could support it THEN they would not only have to continue to pay their mortgage but also repay this loan on top of that? Insanity anyone?

Forget any interest rate (say 0%), just assume the repayment plan was a 10 year program, that would add over $400 debt service payment to the newly re-employed stress level. Of course it would probably be some long term repayment or just forgotten about at some point.

This story right here leads to many great questions/thoughts:
-Why would the plan be needed? Helping home-owers is good press, but it is really the banks that get help here.
-How many loans can continue to be made to those is the same bad spots?
-The FED is sitting on Trillions of mortgage paper that they really cannot sell. This paper is valued at far less than what the amount the FED issued treasuries for them, now they are an active position defender in the area. This is far beyond the scope of the FED.
-If everything is great and getting better, why is this still going on?

All these things and more have been covered on this blog over the years. This one story has many layers of important information and macro view changing data. I saw this story in ONE place all day.

Another Tim Iacono item today on debt was the kind of far reaching, thinking sort of essay I find the best kind of work:
In a Word, The Problem is "Debt"
You need to read the whole thing. Probably the best essay I have read in some time.

Have a good night.


GawainsGhost said...

It can never be too hot as far as you're concerned? Yeah, right.

Come down here to deep South Texas. The heat will hit you like a wall when you step off the plane. I'm not kidding.

And if you think you're real tough, you can go stand in an un-air conditioned repossessed home with me for an hour. Or you could stick your head in an oven, same thing.

Rush Limbaugh once did a live show down here. It was in the late 80s or early 90s. The first words out of his mouth were, "This heat is uninhabitable!"

Uh huh. I've actually fried an egg on a side walk. When I was a kid, we used to have barefoot slow races across the street. Whoever got to the other side last was the winner. This was because if you were wearing sneakers, the soles would melt and stick to the pavement. So if you were barefoot and could walk slow, you were real tough.

There was a time when the skin on my feet was so thick stickers couldn't penetrate it. I had no fear.

Cold, on the other hand, I can't deal with. Me and cold do not mix. Me and heat, well, so far I'm winning.

As far as debt goes, I'm completely with Tim Iacono. As Yves Smith points out in her book, the real problem underlying this crisis is leverage on top of leverage, debt on top of debt. I really don't see how any of this ends well.

getyourselfconnected said...

yeah heat does not bother me but some of what you described sounds a bit too much. Cold messes with my shoulder and my hands so they hurt. Hate the cold.

That Iancono pice is really good. I am almost done Yves' book, not a bad read at all.

watchtower said...

Financial Sense had spotlighted that Tim Iacono article today.

I had printed it out at the time (something I rarely do) so I could read it again at my lesuire, hoping to glean a little more out of it.

It was cool seeing GYSC and Gawains mentioning it this evening.

Anonymous said...

Question, can sheeple be used as a verb?

For instance, Damn! We got sheepled again.

It seems valid to me, though I've not heard it in this use.

getyourselfconnected said...

I think it can work. Go with it. Just dont try to make "fetch" happen. (Obscure reference!)

You gotta see my post tonight, up in a bit.