Thursday, June 10, 2010

If at First You Don't Succeed, Try, Try Again!

Ok, I should have some real time to post tonight so you are warned ahead of time! Non stop rain today and we had to put the heat back on. Summertime does not come easy up here.

Do not forget to get your requests in for Friday night.

How Many US Dollars are Out There?
While most mainstream writers focus on the "seen" types of money, there is and will always be an enormous underground where the US dollar is the big time king. I saw this story over at Clusterstock today and the pictures were amazing. Short recap:
This plush villa, seized by the Mexican government, has it all: lions, gold-plated handguns, millions of dollars shoved in closets, and a killer underground hot tub. A handful of photos were posted to Activeboard.com, some originating from pictures that the Mexican government took.
Sure, it was purchased with drug money, but you have to check out some of these amenities.
Here is but one of the pictures of the loot:

This put me in mind of a little factoid I wrote on a while back:
Interesting Currency Fact
Earlier this week I was paging through the marked pages of a book I read a while back titled "Gold: The once and future money" by Nathan Lewis. Now this is not going to be a gold post, I got tons of comments over at Seeking Alpha for the blurb I posted last night.

I had marked this section for further thought:
A staff member of the IMF estimated that as little as 10-15% of all the US Currency held outside of banks is used inside the United States. The rest is being used outside the country--by foreign central banks, in dollarized countries, by travelers, smugglers, drug cartels, tax evaders, and foreign commercial banks--as the international currency of the world. Roughly two thirds of all the dollars in the world are in the form of $100 bills, a denomination almost never seen in the United States.
I would wonder just how much money is out there but there is just no way to know. And I do not mean just the smugglers, well, the drug sort anyway not the government types!

Desperate Debt Wives?
Kid Dynamite covered a really weird story about Japanese advertising that uses women to entice men to buy Japan government debt. I kid you not!:
From Bloomberg:
"Japanese women are seeking men who invest in government bonds, according to an advertisement being run by the Ministry of Finance.
“I want my future husband to be diligent about money,” a 27-year-old woman says in an ad being run in free magazines promoting a fixed-rate, three-year note that Japan started selling last week. “Playboys are no good.” She’s one of five women featured in the page, which says “Men who hold JGBs are popular with women!!”"
The ministry commissioned the ads to appeal to citizens for money at a time when record government borrowing threatens to outstrip demand. Prime Minister Naoto Kan, who took office yesterday, said he doesn’t have an instant fix to rein in the world’s largest public debt."
Great stuff...
This is really strange. What will this do to sales of sportscars should people believe chicks like debt? In the comments section I just could not help myself:
getyourselfconnected said...
Extenzee and Pretenzee! Makes your debt even bigger in two weeks or your deflated principal back!
Ok, I am childish, but it has it finer points!

If at First You Don't Succeed, Try, Try Again!
I think the next stage of the financial debacle is taking shape and future policy at this point should be clear. There will be plenty of fake hand wringing as well as some debate (such that headlines can be called debate) about what to do but now I have zero doubt what is coming down the line.

Get ready for another round of funny money to be thrown at the economy in hopes more is better.

Why? I could go over plenty of reasons, but we have covered them all for a while:
-Housing IS going back down
-The stock market rally (on which the entire "recovery" was wrapped around) has suffered major damage and the swings as of late for no reason other than "fat fingers" has the average guy heading for the door
-Job markets are no longer shedding jobs at an alarming rate, but still no significant job creation (and no, even 100,000 real jobs next month is not significant viewed against the unemployment backdrop so don't bother)
-Via Ilargi at The Automatic Earth here is another angle I had missed entirely:
-BP [..] accounts for 12-13 percent of dividend payouts in Britain. Pension funds and other investors are heavily reliant on it.
-BP [..] accounts for 12-13 percent of dividend payouts in Britain. Pension funds and other investors are heavily reliant on it.
That should put you right in line with what will be playing out now. BP's bankruptcy looks like a foregone conclusion. That is, unless the US and UK governments step in, and do so broadly and very loudly. With both money and legal changes. The former, because BP faces far more in lawsuits and damage claims than it has in liquidity (its shares are now worth less than its assets, always an alarming sign). The latter, well, for more or less the same reason.

One party you don’t want to be when BP's bankruptcy lands square squash on the table is a Louisiana fisherman or a Florida tourist operator. British pensioners first!
While BP is a bigger concern for British pensions, how many US pensions are stuffed to the gills with now worthless FNM stock? Another hand looking for an out.

Forget the particular issues that will require more "liquidity" to make better, there are too many anyway. Let's take a look at the thought process going on amongst the very types to be crafting future policy.

Robert Reich, who seems to have a good head on his shoulders when it comes to handling the big banks, still is mired in the spend no matter what mantra. In this post he offers two things an economic advisor could tell the president:
-Spend more and hope
-Don't and pray
Well it is more nuanced than that, but that's what it is. Guess which way he thinks we should go?

As predicted by many, Paul Krugman is already moaning that the last round of stimulus/bailouts/whatever was too small to matter and now it is time for more. Next time this time will have been too small as well, but we will have to wait to skewer him then. Mish points out very well that we DID HAVE a lost decade already and Krugman is worried about the next one? It never ends. Here you go from Mish:
Kiss the Illusion Goodbye
With global stimulus efforts playing second fiddle to default concerns, a double-dip recession is just around the corner. Please see Hungary Tries To Calm Markets; Europe Headed Back in Recession, US Will Not Decouple for further discussion.
The Keynesian clowns will be howling that reduced stimulus killed the recovery. However, the reality is there was no recovery in the first place, only an illusion caused by unsustainable stimulus.


Yves Smith is even on board for accelerator depression by the government and uses this section as an analogy:
Similarly, the fear about rising deficits is misplaced right now. As George Soros pointed out in a speech today in Vienna, the action of righting an economy when it faces serious financial stresses is a lot like straightening out a car that has gone into a skid: you need to turn the wheels into the skid, which looks like taking it further off the track where you want it to go, until it regains traction and you can then steer it back to its proper path. In this case, we need an expansion of public debt to offset the needed contraction in private sector debt, and then to (Soros did point out that this was a tricky operation). Otherwise, a resumption of the crisis is in the cards.
I offered in the comments section:
While the Soros driving metaphor is not bad, I would ask what good is regaining a sliding car when you are doing donuts in a parking lot 10 miles from the freeway when you need to be on the freeway.
“Replace Private Spending with Government Spending” sounds good but it does not answer was there too much spending in the first place?
This is the kind of crisis mode deal stop gap measures that impede any long term progress.
I like that one! Donuts in the parking lot, HA!

Putting it all together, there is going to be another round of stimulus/loan guarantees/unemployment extension to 2015/tax credits for various things/etc. I think the summer will be all about "laying the groundwork" and then the fall will bring the noise. Right before the mid term elections. This is dangerous politically because you have to hope more people will like handouts and vote for you than people will hate wasting money and vote against you. Money handed out tends to get the handee voters to go to the polls though.

I wanted to talk about a bubble which has not garnered much attention. It seems bubbles are everywhere today and in everything. I will lay out the most dangerous one.

The creation of 3 Trillion, 5 Trillion, or 13 trillion (depending on how you count) of new money has not resulted in inflation nor a bond market dislocation. In fact, it seems as if you can make all the money you want and bond yields go DOWN! Inflation goes almost NEGATIVE! It is truly amazing. What this has done is make a bubble in the egos of the Keynesian type money printers. I think they are feeling pretty confident right now even as they ignore the structural issues that have allowed this game to proceed. Why not double it? Triple it? Why not indeed.

Gold can serve as a foil bubble, a bubble nonetheless, but a counter balance to the madness of this mindset. Everyone wants to know how far gold can go to the upside? Ask instead how far the money printers can dream.

Have a good night.

17 comments:

getyourselfconnected said...

Mortgage tax deduction scrapping trial balloon?:
http://taxprof.typepad.com/taxprof_blog/2010/06/ax-may-fall-.html
or
http://tinyurl.com/24d6qd4

Lurker said...

My Friday night pick is "Gypsies, Tramps, and Thieves" by Cher. Seems apropos.

getyourselfconnected said...

OOOHHH! Cher, not a bad pick indeed!

watchtower said...

"The creation of 3 Trillion, 5 Trillion, or 13 trillion (depending on how you count) of new money has not resulted in inflation nor a bond market dislocation..."

What happens when the government bubble pops and the handouts stop?

From what I've read the numbers of the Great Depression and our current situation are not really that far off.

But activity seems to go on and not that much has changed, especially in the non-bubble area where I live.

I see them swipe their government aid cards in the grocery store and then walk out to their fairly new car with a cell phone stuck to their ear.

What happens when the unemployment, medicare, medicaid, and food stamp teat starts to dry up?

I had just about convinced myself awhile back that things would not get too out of hand, but here lately I've been thinking.

Would you buy anything that you really did not need if there was little to no backstop?

When that government teat starts drying up I can see a cascading effect take place, sending us to a far worse destination than perhaps even the first great depression.

getyourselfconnected said...

Watchtower,
the depression food lines are food stamps. The depression migrant workers are unlimited unemployment checks and no ability to move, plus why would you, you are not paying the mortgage!

What is going on is the government is using the banks as a means to their own end but what they do not get is the banks will do what they want in the end, even sell the FED out.

getyourselfconnected said...

I have to write down, I have to play balck eyed peas manana.

Stagflationary Mark said...

If at First You Don't Succeed, Try, Try Again!

What if we tried succeeding with success?

But I hope the ambitious realize that they are more likely to succeed with success as opposed to failure. - George Bushism

Bushisms

crisis garden said...

That spanish sign reminds me of a thread on a English/Spanish forum.

Accionista means shareholder.

http://forum.wordreference.com/showthread.php?p=9153983&highlight=#post9153983

Anonymous said...

"But activity seems to go on and not that much has changed, especially in the non-bubble area where I live."

Same here. Its really interesting, I think we all have the idea of the great depression as being some huge overarching thing that had significant effects on every man, woman and child across the USA.

However, the more I look at it, the more that doesnt seem to be the case. Sure we all see the videos of the breadlines and assume thats what everyone went though, but was that really representative?

70 years from now, once all of us are gone, they may detail this rescession/depression and show the tent cities in sacramento, sarasota, etc. People at the time will think, wow, the whole country was on the skids back in 08-09. They will not realize it didnt affect some of us in the slightest.

The reality is it is alot more nuanced than what the statistics & videos portend. For all the brealines & hoovervilles we saw in the GD, I read of other people who were adults during the GD and insisted it was basically like nothing bad happened.

Stagflationary Mark said...

Anonymous,

I think you make a great point.

In 2004, when I first turned bearish I remember walking my dog around a local lake. The sun was out. I was happy. It was enough to almost make me think I was being silly being bearish.

I then thought of this. The sun was out during the Great Depression too. There was no doubt some guy walking his dog around a local lake and feeling pretty good too. It's not like unemployment went to 100%.

That's not what we see when we look at the footage though. It's grainy black and white. It "looks" depressing.

getyourselfconnected said...

Anon and Mark,
I was thinking about that very thing a couple of days ago. It is hard to bring up when I KNOW many people are having a very hard time, but it does seem like things go on, jujst like the GD. Maybe a few thoughts on this tonight.

RANDALL said...

This one will do GYC.
http://www.youtube.com/watch?v=ZaI2IlHwmgQ

getyourselfconnected said...

Looks good, Fergie ceratinly does!

Dave in Denver said...

Hey man. Big 12 is going to be toast. CU to Pac 10, Texas, Oklahoma, Okie St and a couple others have said they would go to the Pac 10 if the invite is extended.

Boise St. to Mountain West. Texas AnM may go to the SEC.

WOW. This is much bigger than what's going on in the real world LOL.

getyourselfconnected said...

I did not even hear that, why the change??

Re the real world, I have had enough this week and am writing an extended fun post for a Friday night break. Long week.

Moneta said...

Too funny. One minute everyone is freaking out about socialism and the size of stimulus and now everyone seems to be freaking out about the new austerity plans.

What if it's just like a bad flu. You can take all the medicine you want, only time will fix it!

As for Japan, markets are going to get side-swiped...

http://www.theglobeandmail.com/report-on-business/economy/japan-warns-of-greece-like-debt-crisis/article1600339/actions.jsp

http://www.theglobeandmail.com/globe-investor/markets/streetwise/how-to-make-bonds-sexy/article1599129/?cid=art-rail-streetwise

getyourselfconnected said...

"One minute everyone is freaking out about socialism and the size of stimulus and now everyone seems to be freaking out about the new austerity plans."

Its a crazy world.