I am real short on time this evening, so just a few quick words.
Only 1% Left Until ZIRP is Reached Boom Boom Bernanke and pals delivered the goods and cut rate by 50bps to 1%. This matches the cryptic 1% that ignited the credit bubble that is now the credit bust. Will doing what caused the problem fix the problem? Only time will tell but I think that is a stacked deck against!
With only 1% left to before we are in the Japanesque Zero Interest Rate Policy stage, what other tricks can the FED/Treasury pull out? Already there is some baloney plan of guaranteeing 3 million mortgages providing the "owners" can pay any amount at all on a mortgage. Great stuff.
New Addition to Blogroll There are simply so many blogs out there nobody has the time to pour over all the material out there. In the blogroll to the left I try to list the sites that I check every single day on multiple occasions to get the best and most thorough analysis. All the sites listed offer the very best in thought and value for your time spent. Tonight I am adding another.
Or use the blogroll. One recent post hit upon something related to my recent rants about the Treasury issuing massive amounts of debt as if there is no upper limit. Jesse takes this on in the following post: http://jessescrossroadscafe.blogspot.com/2008/10/in-2009-us-may-be-forced-to-selectively.html
Key Excerpt:
"We have seen estimates that next year the US will have to finance a $2 Trillion annual deficit. They may be able to push it further into the next Administration than that by the forbearance of the world, but not by much. We'd expect a significant drop in Treasuries by 2011 at the latest.
It should be obvious to anyone that we are approaching the apogee of the Treasury bubble, with the credit bubble having broken already.
When the Treasury says they are facing unprecedented challenges in financing the US public debt next year that is an understatement.
Once the deleveraging of the markets subsides, the dollar and Treasuries will drop, perhaps with some momentum, as the rest of the world realizes that the US has no choice but to default. This can be resolved in several ways, including continued subsidies from foreign sources in the form of virtual debt forgiveness, devaluation of the dollar, raising of taxes, and higher interest rates on debt.
The problem now is that the US has breached the point where it can service its debt out of real cash flows, and turning this around will require a severe devaluation of the US dollar.
Devaluation and selective default are the only foreseeable systemic alternatives. There are other exogenous paths of a more political nature such as consolidation and war that may color the default a slightly different color, but a selective default it remains.
This is the fundamental situation. Everything else is speculation and commentary."
The comments section was very active on the last post. I really like it when readers leave ideas and comments, it is one of the best things about doing this blog. I hate to bring it up, but it is already 40 degrees tonight and falling. I do not think I have ever told you readers that I HATE THE COLD. I really mean it.
Real American, True Patriot, Father of the New Revolution This story is going to be all over the world by tonight, but I was so pumped by it I had to include it here as well!
It seems there was a Hedge Fund manager that had the insight, balls, and cash to make huge bets against the entire mortgage industry. Of course the fund did spectacular, returning 866%. Yes, you read that right. This man named Andrew Lahde is now my hero. It is not because he made big bucks on the mortgage fiasco, it is for two other reasons: 1. Mr. Lahde is hanging it up after his windfall to pursue more meaningful things in life, I wish him all the best. 2. He wrote the single best letter to his investors ever written!
The Farewell letter is so amazing, so precise, so cutting that you simply must read the entire piece. I saw it on the Big Picture blog first, so I will link to that page: http://bigpicture.typepad.com/comments/2008/10/andrew-lahde-go.html#more
Scathing excerpt:
"Dear Investor: Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are."
Many things that I think and see are fully reflected in this letter. In the Biotech field there are plenty of people that think an education at some big time school makes them better at science. That is not the case. There are so many foolish people in government and positions of power in the financial world that are no smarter than you or I, and often much less so. The evidence speaks for itself; an economy built on selling houses at ever higher prices was deemed a swell idea by those "in the know". There can be no other explanation than pure ignorance. Economic Disconnect salutes Andrew Lahde!
Does the United States Have a Debt Chandrasekhar Limit? The entire financial mess that has engulfed the world is really quite easy to fix. I have seen many economists, bloggers, and others make the same argument over the past week that seems to be universal in its appeal. From Paul Krugman, to Nouriel Roubini and even the clearest heads at Minyanville all seem to have arrived at the same solution. Here it is in one sentence:
Have the US Treasury spend whatever it has to to fix the entire world.
Now some have various wrinkles to this plan, but they all boil down to the same thing. There is a growing consensus as bailout after bailout falls flat and a TARP Plan cannot even begin to cover the problem that wild spending is both desireable and harmless. Krugman himself penned an article today for the Times that says "Do not worry about budget deficits!" Give that man another Nobel Prize! Brilliant!
Now as I am one of the sorry uneducated masses, my question for Roubini, Krugman, et al is simple: Does the United States Have a Debt Chandrasekhar Limit?
The Chandrasekhar Limit is defined as: "For main-sequence stars with a mass below approximately 8 solar masses, the mass of this core will remain below the Chandrasekhar limit, and they will eventually lose mass (as planetary nebulae) until only the core, which becomes a white dwarf, remains. Stars with higher mass will develop a degenerate core whose mass will grow until it exceeds the limit. At this point the star will explode in a core-collapse supernova, leaving behind either a neutron star or a black hole.".
What I am asking is whether there is a limit on the amount of debt the US can generate before a total implosion occurs (the end result of a supernova). Is there a limit? It seems Iceland could not print or generate enough debt to save itself. Zimbabwe has the market cornered in the 10 Billion dollar note market as they print away. How come the US can make all the money they want?
I realize I am being a bit sarcastic here, but the question is a serious one. At present the US has around 3 Trillion dollars committed to this "rescue" effort. Is 6 trillion too much? 9 Trillion? 30 Trillion? At what point will the system break down and go supernova? Like the FED thinks they know what interest rates have to be in exact percentage points, do economists know how far we can push the debt envelope? I invite any and all to leave their answer in the comments section, or to vote in the new poll question along these lines.
If the US can just make all the money they need, why not make every US citizen a Billionaire? How about making the illegal immigrants millionaires? Why not? It is semantics to say the US can take on another 3-6 Trillion in deficit that will never be paid back but not 30 Trillion as that would be too much. It is not an intellectually honest argument. We will wait for an answer. It may be a while.
Friday Night Entertainment After a weeks hiatus, the good old fun blog is back on the attack.
Book Excerpt Tonights book passage comes from a great Star Wars novel that I really love.
"Peace is a lie. There is only passion. Through passion, I gain strength. Through strength, I gain power. Through power, I gain victory. Through victory my chains are broken."
The Sith Code from "Darth Bane: Path of Destruction" by Drew Karpyshyn
Film Clip This clip is from a TV series actually. "The Highlander" series was the best television show ever made, I know you all agree. One of the best sword fights was the final conflict between the lead character Duncan McCloud and his arch nemesis Kalas. They fight their final fight atop the Eiffel Tower, and it is a real battle (from season 3, tiled "Finale"):
Musical Interlude Some tunes to start your weekend off right.
By popular request, as well as my own favorite Filter song, take a listen to "Hey, Man Nice Shot":
Full disclosure; I wanted to marry Stevie Nicks for most of my life so I am biased! Take a listen to "Stand Back":
Want to get rocking? Want to get rolling? Get jacked up with Motley Crue and "Kickstart My Heart":
You may or may not have ever seen the classic film "Flash Gordon", well I liked it. Queen did the entire soundtrack and the music was great. Here is the theme song:
How was that for a wild ride? Dow up 150 points, sinks to down 150 points to close up, up and away over 400 points to the upside! Volatility, hallowed be thy name. I am a bit bemused by the late day action so bear with me.
Stupid is as Stupid Does There is no real details as yet on the Resolution Trust Corporation (RTC) plan that maybe, might be in the works as reported by that pillar of integrity, CNBC. While the talking heads ( think Maria Bartiromo) are almost orgasmic with their excitement, think one second about what this means:
The RTC takes on bad debts, thus removing them from the books of banks; The bad debts now reside at the US treasury; Somehow some way this ends the credit crunch
.
If a reader can make a reasonable case how that works, leave me a comment, I am puzzled.
In addition, the US is now in the works of banning all short selling, just as the British has done. Why not just stop all trading on bad days like Russia? Why not just put a floor under stock prices like Pakistan?
We are quickly going over the deep end here. Here is one comment I lifted from the Yahoo Washington Mutual (WM) message boards tonight:
Title: Government To Take On Bad Bank Debts Body: WOOOOHOOOO! We are off to the races tomorrow! Up day ahead!
So this moron is excited about the US government (his money) taking the Billions 9Trillions?) of bad debt onto the books to allow insolvent banks to do.......just what exactly? This is the kind of lunacy that can drive a man insane.
I will point you towards two pieces tonight that have the best edge on the situation. Think carefully while you read them.
Mish-Sharp as always He may be the best out there, and he has a short, but sharp thought: http://globaleconomicanalysis.blogspot.com/2008/09/paulson-seeks-resolution-trust.html
No excerpt, read the whole thing.
Barry Ritholtz is also brilliant and he covers all the bases tonight: http://bigpicture.typepad.com/comments/2008/09/sec-ban-all-sho.html
Again, no excerpt, read the whole thing. Now.
Tomorrow will be interesting to say the least. I wonder if at some point anyone out there is going to wake up and realize how the average person is getting it royally in this deal. No vote, no say, just a bunch of clueless fools grasping at straws pushing the limits of debt possibility at our expense as some kind of crazy experiment. Something must be done. I doubt anything will.
Hello out there! It has been a while. I am going to try and put together a post this evening for once. It has been hectic at work, at home, and generally very busy. It is not easy to put together a good post, and I refuse to bore you with crap or just a list of links.
As an aside, I love car engines. The engine in the new car, the VQ35HR, is as well engineered as I have ever seen. If cutting edge technology is your game take a look at some of the high tech on this baby: http://www.vq35hr.com/tech.shtml Sweet stuff.
Also I have an early tennis match Saturday morning so I am going to practice tomorrow night. This means it will be Saturday night rock blogging instead of Friday! You are warned Watchtower!
This story is a few days old, and you can find the particulars on the web. I am sick and f#ing tired of tales like this. Which ever bank loaned this family of fools any money is a short to ZERO, did you get that SEC, a SHORT TO ZERO! I am so glad the new housing bill may allow us the taxpayer to forestall foreclosure for these guys, which brings me to....
72 Senators Deserve to Be Removed from Office The blasphemous, anti taxpayer, disgusting housing bill passed the senate by a whopping vote of 72-13. I have few words for the collection of retards that voted for this thing. There is nothing I can say that their vote does not already.
Here is what I am doing, you may copy, or at least pass it around. In September I am going to get the best polls I can find for any of the 72 incumbent senators who are up for reelection. If they have an opponent that is withing 5% of them in a good poll (Rasmussem, Zogby) I will donate $50 to the opponent. Money talks and hopefully a few of these a$$holes will walk. Republican, democrat, independent, green, rainbow coalition I don't care. Any one that voted for this bill MUST SIMPLY BE REMOVED from office. I will donate money to the cause. Will you? If not, at least try to spread this idea around. It can work, witness Tom Daschle's removal from his seat a while back, his opponent mainly helped by out of state money.
US Financial System a Joke; Sadly World in No Position to Laugh -The housing bill is as bad a deal as can be. Fannie and Freddie are essentially backed no matter what, and the taxpayer can expect this to come back on them sooner rather than later.
-The FDIC has little cash to take over failing banks, and yet we are just starting to see bank failures. Where is the FDIC insurance going to come from?
-The new FASB reporting rules are now delayed indefinitely, because they would render the financial world insolvent instantly. Better to pretend I guess.
-The alphabet soup of FED lending has been made basically permanent (nobody saw that coming right?) so the debt ceiling must be raised.
-The economy is for all PRACTICAL purposes in recession and going to get worse.
That is a bunch of bad. Big time bad.
What to make of it all? The FED is playing for more time in an effort to bounce banks higher so they can raise cash through stock sales. They have bumped, but nowhere near a place were cash is going to be easy. The markets have been trying to rally, but nothing solid can take place, while at the same time a real down run cannot occur either due to intervention and manipulation.
In a nutshell, the entire financial system of the US right now is a joke. From short selling prohibitions, to cooked books, to outright lying (see MER and their two step this month), to government officials saying silly things daily we know this has gone one step beyond.
The rub is the world at large cannot laugh. They have no leverage, they do, but the bad kind as they are holding all our debt which is not going to get paid back. HAHAHA. Kind of funny I guess.
As a play, I am looking for SKF and the like to move lower another 2% from here, and then I am in. Another round of pummeling is coming up for the financials this fall and you will want to be in on it. That is if shorting is going to be allowed.
Government Workers Must Go The news is out that California Governor Schwarzenegger is using an executive order to slash jobs and pay in an effort to fix the budget. The New York governor raised warnings about the same kind of thing yesterday. The two biggest economic states are clearly hurting. Rightly so, the public teat swilling state worker should be the first to go/get a pay cut. I really do not expect much to come of this at first, it will be overruled by the legislature, but in the long run there is one clear fundamental problem for all levels of government:
THERE ARE TOO MANY PEOPLE WORKING FOR THE GOVERNMENT
It is that simple. See GM and Ford for a long term idea where overpaid, overprotected, and unproductive workers gets a company. Yup, that bad.
Hello all loyal readers, as well as anyone else that stops by. Last week was a very difficult time. It is hard sometimes to try and get back into your routine after losing anybody in your life. Everything can seem unimportant. But alas, we all must go on. I enjoy posting my ideas and thoughts on the economic issues facing us today, so back at it!
Last Week Wrap-up There was a ton of action last week, and I cannot possibly recount it all here. Technical levels were breached. Talking heads finally were exposed as silly as they were changing their tunes almost daily from "the worst is over" to "second half recovery is a bust". The best full on wrap of the major issues going on right now can be found at Mish's site, this article in particular: http://globaleconomicanalysis.blogspot.com/2008/06/deflationary-hurricanes-to-hit-us-and.html
Yes, I am on board with Mish in the Deflation camp. His logic is sound and the evidence overwhelming. While oil, gold, and other commodities may rise even higher in price, the definition of deflation is a collapse of credit. That is exactly where we are going.
Indymac Bank Will Win the Dead Pool In the last poll Indymac Bank (IMB) got two votes for most likely to go bye bye. One of those votes was mine, so there is one other genius out there that voted. The structural issues facing IMB are too serious to overcome. It is now endgame time. Can the FED prop up IMB? It is doubtful with most of their balance sheet already gone. Can some kind of merger be forced? Maybe, but what entity can take on IMB? JP Morgan is already looking pretty smug about their Bear Stearns gift, and Bank of America is going to have to litigate lawsuits for years over CFC. Who is left?
Perhaps the FED may have learned their lesson and will allow a terrible bank to go bust. This bears watching to see how the situation is handled. IMB will not be the last to go, so how the close out is done will be of value information wise.
Grasping at the Last Few Threads of Fabric from a Debt Based Economy It has long been a central theorem here at Economic Disconnect that last summer the FED, the banks, the home builders, and the entire financial system tried to take a deep breathe and hold it as long as possible in a vain attempt to ride out a collapsing real estate debacle. I can kind of understand. The major players are well aware how ridiculous 80% of the mortgages written over the past 3 years are, they know how bad things will get now that prices are not rising. rather than attack the issue at the roots, everyone tried to pretend a miraculous 2nd half recovery would somehow, someway reignite the housing bubble.
Well, time is up. The FED is empty this summer. IMB is going down, and many others are not far behind. The stock market seems to finally caught a clue and is trending down. Home foreclosures are still accelerating. You know the drill. So what does this mean?
This summer will be a season of many firsts. Creative bank closures. Deleveraging of monoline useless insurance. Massive bank losses. Even more bone head moves by the US Congress.
There are still some out there that think continuing on in the same way that got us here is the answer. Even Robert Shiller, an early housing bubble caller, feels that stimulus plans should just be a perpetual thing to keep demand for junk artificially high. The US financial system is near a crisis because too many people felt they were entitled to live like a celebrity. For some time credit was easy enough to make a stab at it. Now too many are so deep in debt, there cannot be any reasonable expectation of debt payback. Exhaustion has finally been reached by the consumer.
And this will hurt. It will hurt everyone. Nobody likes a mess. I am not happy about what is going on. But the process must happen. It was delayed after the 2000 market bust, and now there is nothing to replace home equity. Nothing. What we need are grown ups that will steer the country through this mess and back to sustainable growth based on solid fundamentals. I have no idea where those people are going to come from, but rest assured none of them are in positions of power today!
I am looking for post ideas and topics as I settle back into writing, so leave a suggestion if interested.
