Thursday, June 17, 2010

Where's The Beef?

The Boston Celtics look to lose by less than 20 points, I mean win another title tonight. I am rooting for the boys to win but the game on Tuesday was so disastrous I am not sure how they are going to turn this one around. You never know though!

More Fannie and Freddie Comments
Yesterday I asked why FNM and FRE were going to be delisted now after they had met the criteria for that very thing many times. A reader pointed out a suspension of the rule when almost all stocks were under $1 for a while (kidding, not all!) and yes I knew that. What I wanted to point out was that there are a million ways to avoid delisting, and certainly if FNM and FRE were deemed "too important to delist" whatever rules about that would not be applied. Sorry if I was not clear about all this but I figured readers would figure that one out.

Anyways, I am of the opinion that some kind of new mega agency is in the works and this will involve FNM/FRE/FHA and some kind of all encompassing mortgage credit market backed by the US government. There are no other interested parties. For a litle humor on this, here is LOLFed and their take.

Gold Essay
A thoughtful essay by Jesse deserves a look and some of your time:
US Dollar: The Mother of All Bubbles

As an aside, I am close to making the decision to stop writing myself about gold or silver. The arguments at this point are so stupid that I wearing thin on them all. You love gold? Buy all you can. You hate it? Short the crap out of it and use leverage. Either way, the level of discussion is getting bad. I will link stories like the one above that I find relevant, but I will not offer commentary, I think, going forward. My disclosure is that I own physical gold and silver and that's all you need know I should think.

Headline Fun
Just like late night comedy, I can always rely on Yahoo Finance to provide me with material.

Here is one from today after the deflationary CPI reading:
Consumer prices dip again -- break for shoppers
Consumer prices dip for second straight month, extending break for American pocketbooks
It is pure beauty! While Boom Boom Bernanke does all he can to defeat deflation, little did he know it will HELP SHOPPERS!! Is deflation not GDP positive? What gives?

Of course deflation is a great thing if the right things are deflating. Here are the good things:
-Food
-Gas
-Electronics
-Waistline

The Bad?:
-Home prices
-Stock prices
-Wages (especially Wall Street)
-Bank balance sheets

It's a complicated world out there!

Where's the Beef?
A vintage Wendy's commercial will set the tone for the next segment:

Indeed, where's the beef? (I have no position in Wendy's, but i do love their fries!)

For over a year I have been deluged with the standard "things are improving" lines or "the rate of change is highly positive year over year" or my favorite "the second derivative is turning up as things get worse more slowly!". To any and all that like to play these games, it is now put up or shut up time.

Today brought plenty of information to digest including:
-Initial jobless claims moved up and have never been low enough to suggest much job growth and certainly nowhere near the kind of job creation needed to make any dent on unemployment
-David Rosenberg shows two very different charts of US industrial production; year over year change and two year change. Please take a look at these charts, it shoots the rate of change crowd down and also shows lower highs and lower lows for all your chart geeks out there
-The Philadelphia FED Business outlook showed a huge downward move, and Mish has a chart showing how expectations are outpacing reality by quite a margin (sound familiar? Hope IS our plan!)
-Banking is doing well except for the smaller banks not repaying TARP funds
-Interest rates are still at zero and there is active discussion on how to make them negative. Not exactly a growth story
-Along the same lines, Illusion of Prosperity has these great charts up tonight showing Real yields going out to pasture at zero. Long term growth is suggested by such things
-Housing is perhaps the biggest facade of a recovery in the history of wishful thinking. Without government agencies making 97% of home loans there would be no mortgage market. I could put out a bunch of numbers but those that live in unicorn land will not hear them (like S&P expecting 50-70% of modified mortgages to re-default!) and I do not need to. My best evidence? Toll Brothers, who have seen and cheer leaded the housing "bottom" since 2006 are even trying to backpedal! This stands on it's own

The main point (there is one?) is that the recovery has been all show and no go. The same remedies that have worked in the past for a time period are now getting shorter and shorter half lives (what's the rate of change??).

Never fear, more of the same is one the way. I mean, we would not want to come up short at this time in history would we? Enter Mark Thoma and Brad Delong who accurately reflect mainstream economic thinking, you know, the kind the FED uses:
I'd make the usual plea that labor markets need more help, but what good would it do? Congress is not going to do anything substantial to try to help with the employment problem. Brad DeLong is equally frustrated:

"I tell you. Writing the history of this episode is going to be next to impossible. "But why didn't they see?!?" is what the students are all going to ask. And I have no answer..."

The austerians are winning, but at what cost? How does a stubbornly high unemployment rate increase business and market confidence?

One wonders how blind can anyone be. The same "pleas" they make now have been answered in spades for 2 decades and we are still where we are! Maybe another line of thought could be in order? Unreal.

The Fall of 2010 (no pun intended!) will see, by my high powered economic theory, the following:
-Renewed Quantitative Easing (QE 2.0) to the tune of 1 Trillion dollars
-Renewed homebuyer tax credit
-Renewed MBS purchases to the tune of 1 Trillion dollars
-New tax credits for car, toaster, microwave, intimate device purchases
-A ban on taxes for alcohol sales; it will ease the pain felt by so many as a major argument of money printers is to ease the people's suffering
-Other tricks yet unseen
And that is just the United States! Expect more funny business in Europe.

"Where's the Beef"? If there is a real recovery story not 90% dependant on some government handout please elucidate me in the comments section.

Have a good night.

5 comments:

Jeff said...

Wow

Were we drinking the same drinking water tonight?

Nice catch on the S&P mortgage news. I missed that today.

Great minds think alike!

getyourselfconnected said...

Jeff,
It happens! I had no water though, HAHA!

GawainsGhost said...

I suppose your decision to remain above the fray in the ongoing gold debate, which has taken a nasty turn for the worse, is based on the deteriorating to insult argument between Gordon Gekko and Karl Denninger. It's a wise move on your part, as defamatory mockery does no one any good.

There's always a place for informed discussion, and disagreements should be dealt with politely. Reasonable people can agree to disagree without resorting to ad hominem attacks. I think though that the deterioration of the discourse is a reflection of the larger coarsening of culture over the last few decades. And that is sad. But it's good to see you prove yourself to be a better man than to allow yourself to descend into the madness of incivililty, GYC.

Anyway, as to the GSEs, I'm of two minds on this issue. On the one hand, FNM, FRE and FHA have been horribly mismanaged by political appointees who used fraudulent accounting to enrich themselves. They became slush funds that not only encouraged but rewarded corruption. However, that only refers to top management positions.

On the other hand, the people I work with, lower level asset managers, are good people. These men and women work their tails off, and I'm not kidding. They put in long hours, working late nights and on weekends, because they're responsible for hundreds of properties at a time.

More to the point, the GSEs perform an important function. You're right, there would be no mortgage market without them, and then sales would come to a grinding halt. But it goes beyond that.

Consider the magnitude of the problem and the enormity of the situation. It's not just the people who work at FNM, FRE and FHA, but all the ancillary jobs they support--realtors, contractors, electricians, plumbers, a/c repairmen, and all the industries that supply them, not to mention city and county water and electricity departments. If you think unemployment is bad now, how high would it be if all those jobs disappeared?

And think of the blighted neighborhoods if abandoned or foreclosed homes were just left to rot. You saw the pictures of the disaster house. (It's since be cleaned and mowed, by the way.) Can you imagine what the streets of America would look like if trash dumps like that were littering communities everywhere? We'd all be living in a Mad Max World, or something like Detroit.

I'm not much for nationalization, but promoting the general welfare is one of the primary responsibilies of the federal government. Without proper maintenance of neighborhoods, the descent into anarchy would be swift and cruel.

That said, the problem here is not with government per se, but with ineffectual governance, corruption, fraud, waste, and abuse. The American people seldom get the government they deserve, but always get the government they elect. We would go a long way toward sorting out this mess if we simply started putting competent people in office.

getyourselfconnected said...

Gawains,
yes i think the nasty exchange between the two writers you mentioned have put me off on the whole thing. If you cannot keep it clean and stick to a reasonable debate amybe both sides have gone off the deep end; just like politics, HA!

You make great points about FNM et all as usual, and this is why it is so important that government is kept out of such things because now as you note there breally is not much else that can be done at this point.

Home early today and looking forward tyo Friday night!

Kid Dynamite said...

it's not worth your angst to debate gold. sorry - i don't want to put words in your mouth. it's not worth MY angst to debate gold. you know what? i think that in many senses gold is the ultimate greater fools game. as the critics note, it provides no cash flow, and has limited actual use. but fiat currency is also a greater fools game. gold's value, which is hard to enunciate, is, simply, as a currency (and currencies like gold or fiat are all confidence games!). and although i think it's a relatively worthless asset in terms of actual cash flow or production, i am long it, along with silver, because i think more fools will want to pay more for it. kinda like how if i buy stock in MSFT, i'm not buying it because i am psyched about the potential earnings stream over the next 10 years - i just think someone else will pay more for it!

by the way - Denninger is way out of line attacking anonymity. an article should be evaluated based on its content. ALWAYS. people complain that Bill Gross is talking his book, or EInhorn is talking his book, or Buffet is talking his book - yes - and so what? do you disagree with their argument or not - THAT is the key. and it relates right back to the anonymous author subject. it doesn't matter if Gordon Gecko writes the post under that name, or his real name - THE POST IS THE SAME!