The Panic of Correlation

Monster traffic issues getting home today. On top of the "students move in to the city" seasonal distortion of traffic data for September's first week, a huge truck also caught on fire on a highway I use to get home! How is that for a double header? After an annoying ride home I thought it best to relax and write a blog along with a cool brew or two. Spellcheck is a good thing.

Apple Shows New Products
A friend of mine thinks I am an Apple (AAPL) hater because I find it comical that a company that makes little cheapo electronic gadgets will be bigger in market cap then US GDP in a few years time. Call me crazy. As far as AAPL stuff goes, I have no idea. I have a PC that was a cheap buy and with it I write this blog, read Wikipedia endlessly, and watch old fights on YouTube. How much do I need for that?

Anyways, today Apple had a big unveil show and supplied magnifying glasses to the audience so they could see the next generation of AAPL products.

Think AAPL products but smaller. The newest item was a tiny TV that you can watch movies and TV on. Wow, what a breakthrough. I think I heard of this before:

Ok, I am kidding! The new AAPL TV is HD and streams stuff you can rent if you are near an internet connection. This will come in super handy when you are at home and want to watch HD movies but do not want to be bothered going to the living room to watch them on the monster HD TV you have with the surround sound and 20 foot picture because it reminds you of the HELOC you blew to buy it all. The new mini TV only costs $99! No problem!:

There was other stuff but the pictures were too small to see much. When will the Apple Femto line of products come out? I could think of better uses for the billions in revenue these time wasting, eye sight killing things will generate but at least they all have touch screens.

Disclosure: No position in AAPL and only picking on them as they were in the news; my grind is about the general love affair with silly toys in general.

Fall Mortgage Mega Refinance Plan Rumor?
All rumors for now, or early leaks, depending how you see it. Number 5 on the Yahoo search this morning was "Mortgage Modification" for what it's worth:

Which was beating "Apple Rumors" at number 9!

My Kind of Article
I have to admit I was having a great time reading this article this morning:
A Termite-Riddled House: Treasury Bonds
Now the title suggests the whole thing is about the treasuries market, but really there is much more. What made is super special to me was the all out assault on Modern Monetary Theory (MMT) which is something I really cannot stand as it requires a certain distance from any real world to make it believable. Another classroom book theorem which if true would have ushered in an unending era of full blown prosperity the world over by now had it any merit. It does not. On Zero Hedge, guest writer Gonzalo Lira minces no words and pulls no punches when he writes:

I think this MMT theory is full of shit, propagated by fucking idiots.

MMT is just a clever way to justify insurmountable levels of fiscal debt—it’s a rationalization of this insurmountable debt, using a veneer of economic terminology to cloak the purveyors’ political ideology of spend!-spend!-spend!-your way out of a recession or depression: In other words, Keynesianism-redux. Keynesianism on steroids—Keynesianism gone fucking in-sane.

Hard to beat that!
The whole thing is well worth a read, even on a mini screen. Heck, I even printed it out.

The Panic of Correlation
A monster move up in the markets today, and it was all over in about an hour. Get the job done and go home early, words to live by in my book!

I am not even going to talk about an ISM that at any point is the history of the world was terrible, it managed to beat "expectations" and many ascribed the whole rally to that alone. Why not just "expect" next time the ISM to be 10, have it print 55 and declare recovery victory? At that beat markets should be at old all time highs and all would be well. Via Pragmatic Capitalism, who checked out a Credit Suisse presentation we have this graph that shows how this recovery fits many others from history ISM wise:

The headline of "Markets Cheer 16 More Months of Flat ISM Rating and Rise 3%" just does not have a real ring to it. Is the market correctly priced for 16 months of the ISM print being 55-59? It must be, it is forward looking after all. (SNARK on high)

The ADP jobs number was bad, but who needs jobs when manufacturing is making more stuff for people to buy?

I was looking for the "what" this morning, as in what would have caused this panic buying? Clusterstock had the best answer:
Obama's September Surprise: A Shock Reversal On Tax Cuts?
Now we have something! As the article reads (which refers back to Reuters):

If it’s a one-year extension of all expiring tax provisions (including extenders), it would be a very smart political move for him.

He would triangulate his base and appeal to swing indies. It also undercuts one of the main GOP arguments. The stock market would surge. It’s a total no-brainer, unless you are just that ideologically-addled not to do it.

No we have something!

A minuscule ISM beat was not the reason for a ramp up in the markets so just stop trying on that line. A extension of the "Bush" tax cuts, now that has some teeth.

There were plenty of market player friendly tax breaks that were set to expire, as well as many fat cat friendly ones. This was the reason that almost the entire move up happened at the ring of the bell. This also fits nicely with what I wrote last night about serious efforts for give aways to commence right at the get go in September.

As an aside, the President would be risking whatever credibility he has left with a move like this. After railing against Bush tax cuts as "benefiting the top 1% of the people and helping no one" it's a long road back to "extending these tax cuts will help the economy". I am not trying to make political points here, it is just hard to square. That said Economic Disconnect is for any and all tax cuts where ever they may be! How about all of them? Ok, I will settle for the 15% flat tax and I am even open to a VAT tax if you can believe that! See, I fit no pattern.

In the end I feel more confident than ever in my words last night. It has already begun. With asset classes now correlated almost 100% every day is a move up or down and not much in between. Panic buying was seen today. Who knows what tomorrow brings. What should be clear is if the mere mention in a small WSJ piece gets rebounded on Reuters which makes Clusterstock and this moves markets 3%, then the situation is a powder keg. That swings both ways in case you did not figure that out.

I could be wrong; maybe the better ISM (better than all the regional ones, that's for sure!) was the real reason. Maybe the old "oversold" meme came out to play. Maybe there was no reason, it was just Wednesday. I will stick to my call on this one. I should think we will not have to wait long to find out.

Have a good night.

Elaborate Musings

Almost done, almost done! I had quite a few errands after work so I am pressed for time.

Care to Elaborate?
My post last night generated some questions over at the Seeking Alpha publication so I wanted to elaborate briefly.

I think that the mega refi/loan forgiveness deal is going to happen. I feel the US government will absorb the costs. I have no idea what the numbers will be, and I do not think it really matters. The question of morality and fairness to others is a waste of time as it has never stopped anything before so just leave that one out totally.

Now that said, many would wonder how the US can fund such a transfer of debt. My only answer is you have seen a bunch of it happen already. Consider how much additional debt was floated over the past year and now go check on some bond yields. See any problem? I do not. This in no way means I agree there will not be, but the first leg of the experiment went swimmingly well.

You can see what I mean whenever Paul Krugman writes a blog post titled something like:

"We spent a trillion (I wanted 10) and nobody batted an eye!"

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.

I would add that much of this action has moved to the big US banks through FED enabled trading games with guaranteed profit. Where are the bond vigilantes? Making cash hand over fist thank you very much don't bother them.

It is rare I disagree with Ilargi of The Automatic Earth, but in today's missive he opines:

Millions of homeowners get to live cheaper, enabling them to spend more, home prices would go up, and it would cost the government nary a penny. Why didn't anyone else think of that? Well, all you need to do is look at who indeed would pay the costs. Which is the lenders, who would now receive 2-3% less in monthly interest payments. Wall Street would never accept it, unless Washington makes up the difference. Which Washington would never accept to do.

I totally disagree.

If things are pretty good and getting better, why do we get a piece by PIMCO's Managing Director Paul McCulley that contains such wild statements as these (via Tim Iacono):

But that could change, if the risk of a return to recession continues to rise, spooking the equity market. A few thousand points of Dow might be what is needed to get the attention of Austerian legislators wanting to get re-elected! Am I forecasting that? Not yet, but the odds are rising, I think.

Hey, you have been warned. This is how monetary policy is made nowadays, by kneejerk reactions to asset prices. Some more printing press euphoria:

To generate increased growth in aggregate demand, some sector of the economy must be willing to pro-actively lever its balance sheet. And that must be the fiscal authority, if the private sector is intent on delevering. Yes, I know all about the perils of long-term fiscal unsustainability. But I also know that in the long run, we are all dead. I see no reason to die young from fiscal-orthodoxy-imposed anorexia.

This line of thought is workable if two things are true about you:
-You are already rich
-You are closer to the end than the beginning of your journey

When some of the biggest players and smartest people are talking crazy and using really large numbers you should be ready to have something handed to you, none of which will be fun, well for you anyway.

Have a good night.