Monday, August 1, 2011

Going Too Far?

Last night it was cool and nice here but tonight the heavy humidity has returned. Yuck.

Market Operations/Observations
The market spiked up right at the open, but not as hard as I would have thought. Then there was a huge insta-reversal and everything was lower. Puzzling action. The numbers for the ISM were pretty bad which is another data point saying things are slowing down. More debt drama during the day and it was messy all around. No positions right now and chasing this market all over the place does not interest me. I have complained before about how slow things happen in finance and now is a good example; lets have a flush out and move on or leave the 200 moving day hugging and move higher and move on.

I will probably look at a bunch of screens tonight and will update if I see something. Would have to be a very appealing idea for me to want to get active in this tape.

Going Too Far?
The debt ceiling deal has passed tonight so the end of the world has been circumvented once again. Rejoice and all that.

With that mess hopefully in the rear view, I did want to say a few things about what I think about all this. But first, I have to set it up.

When you have a teenage kid you do your best to give them room and let them operate on their own. Within the boundaries set up, hopefully the kid plays by the rules and everyone is happy. This does not mean the kid is not out smoking stuff, drinking, and getting naked with others, it just means they are not throwing it the parents face who can then pretend it's not happening. Everyone is happy.

What happens when you have a kid that is sleeping in and missing school because they are drunk? What about the newly formed stoner who cannot act normal and will not stop eating all the chips? What happens when the police drop off the kid because they were caught "parking" in a state forest? I think you know, the clamps come down. Rules are increased and behavior more closely monitored. Maybe the parent will stop taking the kid's word anymore. It happens.

Is there a point? The kid here is the United States.

The US has the world's reserve currency. This rocks because we get to do all kinds of stuff no other place can. Kid Dynamite mused the other night:
It is this very reserve status that enables us to get “away” with some “imbalances” (I almost used the word “shenanigans”) that other countries might not be able to get away with, and if we lose that privilege it will accelerate our fiscal demise.

The whole debt debate was never a real issue. What is troubling is how quick and loose the US is using the reserve status to do whatever we want. Consider:
-Unlimited swap lines with foreign banks
-QE light
-QE3 by September (my guess)
-Deficits accelerating
-Forcing interest rates down for years
-Massive asset bubbles
-A financial bust that almost ended the world (so they tell me)
-Lack of political will to change anything
That is quite a list.

Now don't panic. No one is in any position to do anything about this. If the US wanted to print up 20 trillion next month to make every voter a millionaire, it would be tough crap for the world. Inflation expectations may actually go up so don't put this past someone like The Krugmonster. Still, the kabuki theater vote today and how poorly managed the whole thing was has got to start the wheels turning for the world at large. Being the world's reserve currency has special obligations and responsibilities. The US is a teenager drinking a 40 of St. Ides while driving dad's Porsche and texting all the way down the highway at 120mph. At some point you have to take the keys away.

Have a good night.


The Sovereign Bohemian said...

AAA awesome post GYSC...having raised a teenager already. Truer words were never spoken. And who said pulled pork is not good for the brain? Oh yea, nobody. I say it must be!

The sleepless nights come when you ponder cutting off the offending teenager or doing something that would land you in jail for the good of everyone, ie the neighbors.

Very insightful post. Keep it up! I, for one, appreciate your sensible approach to things.

getyourselfconnected said...

I have two sisters (one older, one younger) and had 1 brother (he died a few years back terrible thing) and I can tell you I was the only one that obeyed the rules!!! Well at least to my moms knowledge....

David Batista said...

Wow! Great post, man! I actually understood everything you said, and even learned a thing or two.

I never knew that about our reserve status. Veeeery interesting.

Hey, hope all is well up there with you. This heat can't stop soon enough for me. Arrrgh!

getyourselfconnected said...

USA got reserve staus after WW2 because we were the only ones open. What we are doing now is more 3rd world country stuff.

Good to see you David!!

Jake said...

Great analogy GYSC.

I was more of a Colt 45 kind of guy (hey, they gave you an extra 5 oz in the 45 oz special!).

GawainsGhost said...

We have these bailouts like TARP and QE (pick a number) because politicians are more interested in protecting their butt buddies in the banks than the American people.

We have massive deficits because of entitlements. (The Baby Boomers are the most narcisistic and irresponsible generation in world history.)

We have asset bubbles because low interest rates (cheap money) fuel speculation.

We have a financial crisis because of rampant fraud.

We lack the political will to change anything because we keep electing the same stupid so-called representatives.

When I was 15, one weekend I had to go down to the high school and do some drama stuff. An election was being held. As I was walking down the hall, this guy came up and said, "Here, kid." He gave me a Social Insecurity card. He was a Libertarian.

My Social Insecurity number is 000-00-000. The back of the card reads:

"KEEP this card, if you wish. It entitles you to absolutely nothing. HOWEVER, it has several advantages over your Social Security card:

1. It does not force you to invest money from your paycheck or profits in a fraudulent and financially doomed retirement scheme.

2. It will not be requested or required on any school or job application, tax form, or in any business or financial transaction.

3. It cannot be used to find you, audit you, intimidate or investigate you, or otherwise invade your privacy."

This is why my basic political philosophy is to vote against every incumbent.

Jennifer Hillier said...

This post wasn't about what I thought it was going to be about :) But I still learned something!

getyourselfconnected said...

JH, you have a one track mind......