Quick Hits for Monday

A bit short on time after marking off the electrical lines to be linked to the generator. Hopefully the process will be complete tomorrow. Generac 10Kw should save me from staying at any more hotels when the power goes out.

The Difference Between the Technology Bubble and the Housing Bubble? Who Ended up the Bagholder
A key theme I have harped upon for a long time is that the technology bubble went bust and hardly anyone missed a beat. Certainly no heroic efforts were attempted by the FED to help anyone. Just low rates to encourage new speculation. The housing bubble bust has been fought on all fronts. What is the difference? The big banks had unloaded their dot bomb shares on other people were as now they themselves sit on all the losses, or the losses that do not currently reside at the FED, HA!

Jesse's Cafe of course writes this up in a way that makes me jealous, so I will just point you that way with a small excerpt:

Is the FED Likely to Act if There is Another Stock Market Bubble?
The 'collateral damage' caused by the dot.com and housing bubbles, all those ruined lives and families, is really not a problem and can be addressed by monetary policy (inflation) after the bubble runs its course. The problem in this last financial crisis is that the housing collapse caused a bank run, and the banks themselves were injured, instead of profiting, in the bubble collapse. Talk about an unintended consequence. Good God, not the Banks! This is a fast being remedied by the enormous subsidies granted by the Fed, and their man Timmy at the Treasury, to set the Banks back up again at the roulette tables, bringing home those eight figure paydays.

You should read the whole thing.

Oil Nearing $90; Good Thing the Economy has Recovered
Funny headline at Clusterstock:
Holy S&*# Oil!
I seem to remember quite a few banks loading up tankers with oil a while back, it was January of 2009:
Banks Cannot Let Go of the Gambling Mindset
Which was centered on this Bloomberg item:
Goldman Sees ‘Swift, Violent’ Oil Rally Later in Year
I wrote at the time:

The process of filling a supertanker with oil and planning on selling it later at a higher profit sounds great as long as those "higher prices" manifest themselves. Was it not the banks like Morgan Stanley and Citigroup that were so sure "higher prices" in real estate were such a sure thing? Good to see taxpayer funds going to work on a commodity bet. I am sure this will work out well.

Well it looks like a winner but it took a bit longer!

I would say higher fuel prices may not be the shock to the economy it once was; when no one has a job there is much less driving! How's this for a bumper sticker:
Unemployment: The New Green Revolution!

Bond Rates Moving Up
While some writers (Calculated....) were high fiving the day after the FED MBS program ended because rates did not move up in one hour, it seems as time goes on the slow rise is gaining steam (via Market Ticker):
10 Year Bond Breakout!
Most bulls see this as proof positive the economy is on fire so this remains bullish for now.

Of course you have to love the idea that the government tempted a large number of home buyers into the market at all time low rates, gave them $8-$10k towards a home purchase, and expanded FNM/FRE/FHA loans to any and all. Now, looking out maybe 1 year, higher mortgage rates will make those buyers instantly underwater! This would be funny if it was not so sad.

Metals Make the Mainstream
You things are getting interesting when metal market commentary makes sites like The Huffington Post:
It's Ponzimonium in the Gold Market
Writer Nathan Lewis (who wrote "Gold: the Once and Future Money (2007)" which I have read) discusses the paper market and how that market vastly exceeds the physical gold market. This story is a great recap of all the crazy developments in metals over the past few weeks, including a hit and run perpetrated on a whistle blower not 2 days after his report was published.

As for the metals, my favorite, things are looking good.

Silver closed above $18 an ounce today and that is very strong. When silver was around $15 in February I was chomping at the bit to get some. I did not do any trades via the regular vehicles (SLV, miners, etc) but I could not pass up a deal on some physical to add to the Economic Disconnect holdings. Near term silver is bumping resistance at $18-19. Any break over $20 could be a big one so I will be watching this space.

Gold has not been as exciting, and my target of $900-$950 for accumulation looks to be dead at this time. Gold has been solid and the $1200 an ounce mark looms as resistance.

Have a good night.

Personal "Good Consumer; Bad Consumer" Bailout Plan

Even more snow all day and all night yesterday. There is really no place to put it anymore! All this shoveling is not too good for my back. At least the rest of the week looks to be snow free.

NFL Conference Championships
After a great post season run, the Baltimore Raven's rookie quarterback finally had a rookie like game. Joe Flacco looked lost at times and the Pittsburgh Steeler defense was almost airtight for the whole game. Congratulations to the Steelers on another Superbowl trip.

What can one say about the Arizona Cardinals? The Cards started fast and dominated to halftime. In the second half things went bad for them as the Philadelphia Eagles got hot. Facing a one point deficit in the late stages of the 4th quarter, I thought the Cards were done. They instead went on a sustained touchdown drive led by the ageless Kurt Warner that showed grit, resolve, and real poise. The Eagles never recovered from that drive. Huge congratulations to the Arizona Cardinals on their first trip to the Superbowl.

Asian Bird Flu
Loyal reader Watchtower inquired about if I had thoughts on the Asian Bird Flu (Influenza A virus subtype H5N1). My thoughts are that the virus that causes it scares the heck out of me!

Two things cause me to have some concern about it:
1.) The large base of primary producers (all those chickens!) means the sheer biomass of virus is huge. Because chicken is a major food base, that rich target population will always be available to some degree.
2.) This virus had shown a terrible ability to mutate very quickly. The virus seems to be a hyper gene shuffler which allows it to constantly change properties. The virus has even been shown to mutate to be able to infect more than one type of cell receptor in humans. That is not good.

Overall, the response has been pretty good, but it can be hard to know full details when dealing with a country like China. A global pandemic is unlikely, though that sentiment comes from the good old "it's never happened before" camp. Sadly, there is not a whole lot you can do personally except to avoid countries with infections being reported.

Banks Cannot Let Go of the Gambling Mindset
One would think that after bets on mortgage paper went about as wrong as they could have the banks would be more risk averse and try and repair some core business that was less volatile. Perhaps if the banks had to go it alone that would be the case. When you are stuffed to the gills with bailout cash though, you have to try and make some money! Consider this Bloomberg item:

Goldman Sees ‘Swift, Violent’ Oil Rally Later in Year
By Grant Smith
Jan. 19 (Bloomberg) -- Goldman Sachs Group Inc. commodity analyst Jeffrey Currie said he expects a “swift and violent rebound” in energy prices in the second half of the year.
Oil prices may have reached their lowest point already, after falling to $32.40 in mid-December, and are expected to rise to $65 by the end of this year, the analyst said. There is scope for a “new bull market” in oil, Currie said.
A recent tactic of using supertankers to store crude oil to take advantage of higher prices later this year is “difficult” to profit from and is “near the end of this process” anyway, the Goldman analyst said.
New York crude futures for delivery in December, trading near $56 a barrel, currently cost some $15 a barrel more than March futures, a market situation known as contango, where prices are higher for later delivery.
Morgan Stanley hired an oil tanker to store crude oil in the Gulf of Mexico, joining Citigroup Inc. and Royal Dutch Shell Plc in trying to profit from the contango, two shipbrokers said in reports earlier today.

The process of filling a supertanker with oil and planning on selling it later at a higher profit sounds great as long as those "higher prices" manifest themselves. Was it not the banks like Morgan Stanley and Citigroup that were so sure "higher prices" in real estate were such a sure thing? Good to see taxpayer funds going to work on a commodity bet. I am sure this will work out well.

Personal "Good Consumer; Bad Consumer" Bailout Plan
Between the English/Scotish/Irish banks pulling a flatline today and the continued talk of creating "Good Banks" and "Bad Banks" here in the US one cannot help but be confused. If banks can just state that the poor assets do not impair them anymore, then why all the fuss? If all that notional money can be ignored, then did it really exist in the first place? If a subprime mortgage default falls in the forest and nobody noticed, did it happen?

Here at Economic Disconnect I would point you toward setting up your very own "Good Consumer; Bad Consumer" divestment plan to repair your balance sheet and promote the "stability and well being" of your own finances. If the banks can do it with your tax money, surely you can do it with the little money you have left.

So how to do it? Transfer all of your credit card balances to one card; pick the one you think has the worst artwork or the worst color. Charge up any outstanding debts you can fit on that card. Try to get all you can onto it. Car loans, school loans, home equity loans, anything at all that can be charged. Set up a post office box and have the address listed as:
Bad Consumer Holdings for John Smith
PO Box 1234
Fantasy Land, Massachusetts

Now stop any payment when the bills come due. After a while you should get some notices in the mail about your non payment. Send the credit company a letter with your "Bad Consumer" letter head and state the following:

"To whom it may concern,
I, John Smith, have recently divested my debt into two groups: Bad Consumer Debt and Good Consumer Debt. I regret to inform you that your credit extension to me has been deemed to be "Bad Consumer Debt" and thus will be ignored. I suggest you reflect the disappearance of that debt on your balance sheet, as I have on mine. May I also suggest your company get in line early as the TARP money is going fast and would be terrible for you to miss out. Thank you."

The next issue will no doubt be an angry phone call from the attack dogs at the credit company. You will need to navigate that call and here is a sample to follow:

Credit Card Company (CCC)
Yourself (YOU)
Phone rings.....
CCC: Hello mr Smith, this is the credit card company. We received your letter and while we appreciate a good joke you must start paying your bill immediately, tacking on fees and late charges of course.
YOU: This is no joke. Your credit debt has been deemed "Bad" and must be ignored. I am sorry but there is no other way for me to meet minimum balance sheet requirements.
CCC: OK, ok. Enough jokes. You entered into an agreement in good faith to pay that money back sir, and now are legally bound to that contract.
YOU: When I took out that credit I had a model that I would win the lottery and be able to pay it back this year. As I have yet to hit the jackpot, we will have to ignore the debt until my model is proven correct.
CCC: Sir, thinking you are going to win the lottery is crazy and a poor financial decision.
YOU: Maybe, but my model said otherwise.
CCC: We will have to start collections sir, and that will ruin your credit rating.
YOU: Not so, Moody's and Fitch just reiterated my "AAA" rating and it was insured by AIG so you have no recourse there.
CCC: We will start collection process and your assets will be targeted to repay your debt sir.
YOU: You seem to still be a bit confused. The assets I have are all notional and their current market price is low due to "risk mispricing" and thus I choose to not sell into this environment. You will have to wait until the right price is offered to me on my car, my home, and my collectible Disney plates.
CCC: Sir, this is serious. Are you refusing to pay what you owe to this company?
YOU: Try not to think of it like that. Have you ever heard of "Systemic Risk"?
CCC: Is that the top number on a blood pressure reading?
YOU: No! "Systemic Risk" is when an institution is "too big to fail" and thus cannot be allowed to go under because it could hurt everyone. As a consumer I am responsible for 70% of the US GDP, well not personally, but as a whole. Therefore I must not be allowed to fail as it would pose great risk to the economy. Ben Bernanke and Hank Paulson have said as much.
CCC: Sir, really this is your last chance to try and make arrangements.
YOU: You have my "Bad Consumer" information, I suggest you try that avenue.
CCC: Click of hang up.

See, now even you can hide behind the veil of systemic risk! Imagine if we all made our own "Good vs Bad" asset pools! That would be fun.

Note: OBVIOUSLY A JOKE; This is not personal financial advice,
unless you are C, BAC, JPM and the like then it is ok.

Have a good night.