Tomorrow is Friday night so you should know what to do by now.
I am a bit on the unpleasant side of the ledger this evening so I hope this post goes off cooler than I feel.
Channeling Economic Disconnect
While having another thinker in the world does not make you right, it does make you feel better that you are not crazy! From Minyanville comes this piece by David Stockman titled:
How Pimco Is Holding American Homeowners Hostage
This final transformation of American taxpayers into indentured servants of HIDC (the Housing Investment & Debt Complex) has been underway for a long time, and is now unstoppable because all principled political opposition to Pimco-style crony capitalism has been extinguished.Nothing can stop it now.
Robots That Make me Mad
I used to work with my Dad doing railroad work on weekends and most summers when I was younger. We did everything, from installing switches to new rail installation. The worst job was the new rail installation. This required extremely hard work to lay ties, drill the spiking holes, place the plates, align the rails, and a spike the rails down. Labor intensive. It would take a crew of 6-8 about 3 days of murder effort to lay 100 yards of rail. We did this quite a few times. We had hand tools.
I watched a railroad job done in Cambridge the past couple of days that was at once amazing and scary. The job was railroad tie replacement. These are the black wooden things the rails sit on. They go bad over time. To do this you have to unspike the rails, remove the ties, dig new tie placements, get the ties under the rails, replace the plates, and then spike them down. Rough stuff. Not anymore. Now a series of robots do ALL THAT WORK in about an hour or two. Two hours! The robots do everything! Here is a link about the robot that hammers in the spikes and below is a picture:
I used to try and beat my Dad in a contest to spike down two full rails (I think it was 50 feet and maybe 100 spikes) but I was never even close. Nobody could beat this monster machine, not even John Henry.
In addition to the automated laboratory item I wrote about a while ago, this piece from Kid Dynamite today (not robots per say but automation could replace these workers one day soon), and high unemployment all around I can only say I am afraid of the robot revolution! They already do 70% of stock trading as well! There will be no quarter.
Treasury Meets With Blogger Part 2
I had no idea the Treasury meeting with some bloggers was going to be a recurring thing, and I have yet to get my invite! As it is here is a good recap by one of those to be selected John Lounsbury:
Further Thoughts on My Treasury Meeting
You can get the full attendance list at his write up and he was to update other blogger entries on the subject as well. Key take away:
The housing discussion crystallized again for me the overall policy direction that started with the previous administration and has continued with the current one. I have joined many others in using the term “kick the can down the road”. That is in fact the formal policy. It is nowhere written in bright lights, but that is the fundamental basis of policy.Ok, pretend and extend. Nothing new there. I did offer in the comments:
With housing, the policy has been to diffuse a foreclosure problem over a longer time frame to reduce economic shock. With finance, the policy has been to create a “workout” time line for large banks to “earn” their way out of balance sheet problems.
Kicking the can down the road has always clearly been policy. What I wonder most about is if money/process focused people miss the damage done by such bailout policies and free rides to cushion the storm. The structural shift in consumer/borrower psychology will be different going forward due to these policies and missing that key point is a huge blindspot for policy makers.It is hard to get more elaborate in a comment, but 6 people "liked" it so that is good I guess.
What I meant is that all the playing for time stuff maybe would be fine, but you have now taught terrible lessons that will not soon be forgotten. On the banking side the "we will get bailed out" hardwired belief is now a guarantee. More troubling, consumers may well be of the mind to get crazy again (should credit ever get extended) with thoughts of 2 years payment free in a home as well as two years of pretty good unemployment benefits. Not a good mix. Add to this you have a huge number of folks looking around and thinking they are doing things not only the hard way (paying what they take out) but possible the stupid way as well. Another great short sighted effort by our leaders.
When will they sit down with Denninger, Mish, Iacono, and Tyler Durden I wonder?
Know Your Role
Anytime I write about the bond market I know I should have hit "delete". I hate bonds and all debt instruments by nature. Anyways, I had said the rush to bonds was getting a bit crazy, well here is what I wrote last post:
The bond market is not making much sense right now; why bid up an asset (US debt) that can (and will?) be issued in unlimited amounts? I have no idea, but that short bus is as crowded as it gets without snapping a leaf spring.Of course today there were several top flight rebuttals of the possible "bond bubble" meme. To be fair I never said they were a bubble, just that I did not get the stampede.
EconomPic eviscerates some math used in a WSJ article in an item you really should read, like now.
My favorite way to get all tied up in intellectual knots is to read a Pragmatic Capitalist item on debt and another pretzel was served up today:
Why The "Bond Bubble" Is A Total Myth
Now reading one of these things is like "crossing the streams" in Ghostbusters so I will tempt you with this:
What exactly is the U.S. government bond market? In a country with monetary sovereignty in a floating exchange rate system (USA & Japan, for instance) the bond market is really nothing more than a mechanism through which the central bank controls the money supply. It doesn’t actually fund anything as it does in Europe or under a gold standard. This is best understood by studying the bond auction data in the USA. Despite constant shrieking of a potential lack of buyers in government bonds over the years we continue to see incredibly high demand for US debt. The auctions are always oversubscribed. They never fail. Why is this? Why do the buyers keep coming back for more? The simple answer is because the government puts the buyers there. The auctions are designed not to fail. How is this you ask?So when you hear that nothing is bigger than the bond market that is just a misunderstanding. It is a book keeping exercise. Nifty.
I would always defer to David Rosenberg on most things but a part of his commentary today got my wheels turning. Here is the relevant section:
So maybe Ma and Pa Kettle are moving to correct this mismatch on their balance sheet and adjusting it to capture more income, limit their risks and preserve their capital. We do know with certainty that the median age of the baby boom cohort is approaching 55. As strategists we have to come to the understanding that a powerful demographic trend is gathering momentum, which is generating this insatiable appetite for yield — an era of correcting the underweight in bonds in the aging (but not aged) boomer asset mix while correcting the lingering overweight in equities. This may prove to be a secular shift and it just makes sense to come to grips with what is likely to be a continued divergence in bond and stock performance in the future.Again, Rosie has the goods and I would not argue with any of this really.
The over riding thought that jumped out at me was this and I have thought about it all day:
First everyone bought the Dot-Bomb stocks and had their butts handed to them. Then everyone bought a monster home, leveraged it to the hilt and got bankrupted. Now in an effort to pay for bailouts and extend the can kick everyone is piling into government debt to pay for it (except it doesn't?) as well as getting taxed higher to do the same (do taxes finance anything PragCap and if so what about 28 out of 30 years of deficits?). Just seems to me like the proverbial "everyone" is a serious chump.
Have a good night.