NFL Week 6 Wrap Up

There has been a snowstorm here all day. It is October 18th and there is a snowstorm. This is going to be a LONG winter!

NFL Week 6 Wrap Up
Once again some crazy action in the NFL, so here we go.

New Orleans Saints 48, New York Giants 27
An amazing effort by the Saints as they light up the Giants for 48 points. The Saints rushed for well over 100 yards, and thus as predicted here, won the game.

What can you say about Drew Brees? The guy is a monster. Brees level of concentration is amazing. He is a true leader and delivered the goods in a huge game. Marquis Colston made the Giants secondary look terrible, and the offense line handled the Giants pass rush with no problem. I cannot even remember a part of the game where a Giant was within reach of Brees. The New Orleans defense continues to play inspired ball, and they contained the Giants well.

So are the Saints the best team in the NFL? The Giants were #1, in my mind, going into this game so I would rate the Saints #1. Still, the Giants I think were not really sharp after playing Tampa Bay and Oakland, so I think they will bounce right back. Any way you slice it this was a great win for the Saints.

New England Patriots 59, Tennessee Titans 0
So can somebody explain to me how in the world Tom Brady cannot hit a receiver in no wind and 60 degree weather but he cannot miss in a driving snowstorm and high wind?

To be upfront, the Titans looked befuddled by the snow, confused on defense, and thoroughly uninterested in playing this game. That said, Brady throws for a first time (modern era) ever 5 touchdowns in ONE QUARTER?! Brady finally stopped looking 10 yards and closer for his reads and found Randy Moss several times for scores as well as Wes Welker deep very often. Note to Tom, its been there all year, glad you finally noticed.

The Patriots defense was brutal physical today forcing many turnovers on vicious hits. The running game was excellent, but Sammy Morris went down and it does not look good for his return. Hello, trade for Steven Jackson (St. Louis Rams) please!!

Back to the offense; this will either be a wake up call or a one game aberration. The Pats go to England next week to play the Bucs and then have a bye week. I am hopeful they have finally gotten in rhythm. The rest of the NFL hopes they have not.

Oakland Raiders 13, Philadelphia Eagles 9
I want to offer my public apologies to the Raiders for my comments last post. A week after the Giants humiliated the Raiders and the Giants said the game was like a "scrimmage" I thought the Raiders should be barred from playing this season.

Instead they played inspired football today and really surprised the Eagles. Philly is known for losing concentration in games against poor opponents and they really were asleep here. Still, the Raiders went out and took the game and I am sorry if I was dismissive of them. Good job guys.

Minnesota Vikings 33, Baltimore Ravens 31
I do not have much to say about this game. The Ravens are playing terrible defense and making too many mistakes to be a top flight team right now. The Vikings are solid and a little Brett Favre magic late sealed the win. The Ravens are really in trouble right now and are giving up tons of points.

Other Games
-Obviously the Bengals can only beat great teams in the final minute. They were totally dominated by the Texans, losing 28-17.

-How did Cleveland get two touchdowns against the Steelers?

-St. Louis at 0-6, can you please deal Steven Jackson to New England please?

-Arizona is wildly inconsistent

-Detroit without Stafford is a totally different team

-The illegal hit and then behavior of Carolina's Dante Wesley should be worth a 2 game vacation. Dangerous and very dirty

-Washington is a disaster as a franchise. Overpaying for talent and still nothing to show for it.

-The game just ended and the NY Jets lose to the Buffalo Bills 16-13 in overtime. I want, right now, the entire cast of ESPN's NFL shows to tell me right now are the Jets still the best team, hands down, in the AFC? Are you ready to shut the f#ck up about Mark Sanchez (5 interceptions today)? Are you ready to concede that after a few games to look at on film the Rex Ryan Defense is not all that? Will you please answer me? I am talking to you Tom Jackson and Chris Berman. J-E-T-S, are they the best in the NFL, really? You guys need to work on your objectivity.

That's the wrap. Plenty to look forward to next week, but that's next week. Enjoy the night game!

Have a good night.

Saturday NFL Preview

Winterized the lawn today. Seeing that it was 40 degrees most of this week I figured I should get it wrapped up for the season. It may even snow tomorrow again so you can imagine how excited I am. I have extra time so I thought I would throw up an NFL post.

Voting is still open for the inaugural Friday Night Video Fights. I am a bit surprised that Billy Idol's "Dancing with Myself" is winning by such a large margin. I have not seen a beating like that since Roberto Duran stopped Davey Moore in New York!

Week 6 in the NFL
This week is stacked with some great games, and some real loser games. Let's take a look.

NY Giants at New Orleans Saints
The biggest game of the weekend. The best team in the NFC (and likely the NFL) Giants bring their ferocious pass defense into the Superdome. The Saints have a chance to make a real statement about where they are after 2 years out of the playoffs. Key parameter to watch, if the Saints run for over 100 yards, they will win. Great game, but I think the Giants pull this one off.

Baltimore Ravens at Minnesota Vikings
After starting strong, the Ravens have lost two in a row. Their schedule gets no easier with a trip to Minnesota. The Vikings have been good, but there seems to be an air of danger to when on offense. Fumbles and other miscues have gone unnoticed because they have been winning, but they have been far from smooth. I think the Ravens bounce back with the upset win.

Tennessee Titans at New England Patriots
The Patriots have not lost 2 games in a row since 2006. The Titans have the worst pass defense in the league and have given up the most points in the NFL. If the Pats are going to get their offense in gear, this should be the game. Only one problem; weather forecast is for wind, rain, and possible some wet snow. Makes it hard to throw the football, yes? I think the Patriots win a nail biter late.

Denver Broncos at San Diego Chargers
This could be game of the week as well. The Chargers have to win this game or their season is finished, it's that simple. The Broncos have impressed so far, and coming off a big win against the Patriots they will have to guard against a letdown. I think the Chargers are going to forget about the run and just throw bombs down the field. As such look for Champ Bailey to make some big plays, and Denver wins going away. Bye Bye San Diego!

Other items:

-St. Louis vs Jacksonville, who cares?

-The Eagles travel to the Raiders to play a game that is already over.

-The Jets get better quick with a visit by the Bills.

-Pittsburgh hosts Cleveland, boring.

-The Texans play the first place Bengals. First place?? Wow.

-Chicago and Atlanta play an important game that could be a big tie breaker issue at playoff time so both teams need to win it.

-There are a few other games, but nothing too interesting.

Have a good night.

First Snow Friday

Now that was a LONG week! Super busy at work and to top it all off, it was SNOWING here this morning! Nothing major, not enough to stick, but it was snowing indeed. I kind of threw up a little and had to fight it off when I went out to the car this morning.

Add to that, I was stuck late at work, had to suffer Friday evening traffic, and came home late. Never fear, I will post some items of interest, and then the games will begin.

Best of the Web
My favorite kind of post, but this is all time will allow.

One could wonder why after all the blatant mortgage fraud easily seen on TV shows like "Flip this House" that almost nobody has done jail time over this. You could wonder that, but why waste your valuable time? Along these lines, enjoy a few examples of how bad things were (and most likely still are) in the home business:
A Birdie on Possible Foreclosure Frauds from Market Ticker

My favorite fraud is the amazing numbers game played by the big banks as they report "earnings". I think future archaeologists will unearth a JP Morgan earnings report in the future and arrive at the conclusion that this era of mathematicians were the greatest of all time:
JP Morgan 2009 Q3 Results – Miracle or Mirage? by Muhammad Refeeq

So deflation will rule the day and nothing anyone does can stop the freight train of destroyed credit? What if credit demand is only down, but on the move back up? What happens then? I have no idea but this article shows how focused those in Washington are at restarting the housing bubble:
More Stimulus, but No More Bubbles via Bubblemeter

Today's must read comes from Yves Smith of Naked Capitalism with a no holds barred look at how in the tank the mainstream media is when it comes to financial reporting (and it does not end there!):
MSM Reporting as Propaganda (No one Minds Our New Financial Lords and Masters Edition)
I would only add that the MSM does what they do because the average Americans attention span is about 60 seconds, unless it involves reality TV.

Final thought on the week. I had not really been looking at oil prices for a while, but now the price is closing in on $80 a barrel. I had no idea stocks needed oil to run higher, but it seems oil fuels the market? Every indicator I do look at (shipping, miles driven, etc) would imply Oil usage is was down, yet the price has broken out here on a technical basis. I have no ideas, how about you?

Friday Night Entertainment
I have no idea if the general readership even likes this section, but I do and I have a ton of fun writing it, so away we go!

FAIL!
Ok, Wikipedia may have finally met its match for my reading time! FailBlog has become a first and last stop for me, it is just too funny. Tonight's selections:
Anti swine-flu, or child endangerment?

see more Epic Fails

The best entries are the ones titled "WIN". Here an old man scores a victory at an Internet cafe:

see more Epic Fails
Epic WIN!

Must See Pictures
I love views that can really give some perspective as to how silly all the games, wasted time, and deprivation everywhere you look are on a grander level. I cannot post the picture here, because it is too large, but I would implore you to check out a snap shot the Mars Global Surveyor took while Earth and Jupiter were lined up in reference to Mars. Note, Jupiter is much further away from Mars than the Earth, yet it is a giant in this picture. Got Perspective?
See it here.
Just amazing.

Film Clips
A few cinematic captures for a possible weekend rental (download, whatever people do these days!)

Kevin Spacey is one of my favorite actors. While "American Beauty" was surely his most dynamic role, I think few scenes give me the chills as the car ride scene from the film "Seven":

Great stuff.

A must see classic is "Real Men" with John Ritter and Jim Belushi. Perhaps the most off center comedy I have ever seen, it never ceases to both amuse and surprise. Take this one scene as an example:

"Who are those clowns?" Too funny!

Rock Blogging
Well, the nominations for fight night were a bit slow and sporadic. I will lead off with a few songs, and then we will have our first fight to end the show.

Maybe my favorite Eagles song is "Tequila Sunrise". Something about that steel guitar that really gets me:


In a rare combination of themes of music, film, and pure comedy I offer a scene from the box office bomb film "Rhinestone" where Sylvester Stallone shows his country music skills. You are going to hate me after this, some things cannot be unseen!:

OMG, my eyes and ears!!!!

Last undercard song before the main event!

I noticed Barry Ritholtz (The Big picture) had a Pink Floyd themed post up tonight. I have to admit, I am not a Pink Floyd fan. Still, I do like the song "Learning to Fly" and so I will jump on the train and post it:


It is now time for the Main Event of the evening, one round of boxing, for the right to move on in the Tournament of Greatest Songs!

Tonights fight is for the punk rock genre entry to the tournament. Well, at least semi punk rock. Here are your fighters:

In the Blue corner, we have the fabled band "The Ramones" who need no introduction anywhere. Entering the ring is the classic rock out tune "Somebody Put Something in My Drink":

Tough song!

Introducing, fighting out of the red corner, Billy Idol (Generation X band days) and his timeless get your freak on song, "Dancing with Myself":

I am energized!!

Please vote for the winner between these two gladiators. Tough call! Only one moves on.

Have a good night.

Deflation Makes for Ugly Headlines

I wanted to take a minute and apologise to the readers. Last post I was a bit edgy, and I let my own frustrations bleed out into my writing. I think my post was still about where I wanted it to be, but if it was harder that usual I meant no offense to anyone. Of course there was plenty of debate and some great comments, including a personal response to my question put to Ilargi of the Automatic Earth, for which I am very grateful. Ok, back to the regularly scheduled programming.

You Know You Think About Economics Too Much When....
I have to admit that when I saw the pictures today of the balloon that was drifting across Colorado (and may have had a child inside; turns out he was hiding at home) a thought jumped into my head in about 5 seconds. First, the scene:

The first thought I had was:
-"Helicopter" Ben Bernanke has swapped his whirly bird for a balloon to drop billions in dollars across America. Not only will this be more random, it is eco friendly!

Discussion is a Good Thing
Plenty of discussion form last night! I really do love the comments section and I get plenty of ideas from the readers here and other stops on the blogroll.

First up, the author Ilargi made time to leave his answer to the question I posed last time out regarding his essay. His comment can be seen on that thread, and I will not repost it here. It was well thought out and well reasoned. My question perhaps was unfair, who can know the exact mechanism by which all the pretending will fall apart, assuming it does.

I will post a section from the latest missive at TAE, and the author I think answers my question the same way he did in the comments section:

Those who suggest that present practices of hide the baloney and have another trillion can go on for much longer seem to understand neither the costs incurred in doing so, nor the increasing instability of the underlying system.

It’ll take just a minor trigger, which could come from just about anywhere, including totally unexpected corners, to make investors lose their risk appetite faster than they can spell sell-off. That will force the hands of Washington all of them. Let them eat growth is not a slogan that wins elections when growth is nowhere to be found.

I agree, it is often small, seemingly inconsequential events that cause huge cracks to spilt. In this case it will be the "accumulation of hurt" from many small fissures that breaks the dam.

The pace of these things is what wears on me. I prefer to get things sorted out, deal with the pain, and move on. It seems policy makers are more than willing to roll around in their own slop, like pigs, and stay dirty. Sadly the people will accept what they can get out of this instead of taking what they deserve (not a call for arms, but by voting for reasonable candidates). Indeed it could be a long slow burn for the middle class.

As far as gold discussion goes, I am tapped out. I have stated my case for gold over the span of 2 years and cannot add anymore to that debate. For some recent items that I agree with in principle (the iTulip article is a bit too "inflationista" for me, but well thought out) about gold and what it stands for can be seen here:
Your dollars are just Monopoly money by Bill Fleckenstein

So What's Behind Moves in Gold? by Mish Shedlock

The Game - Part I: Queen of Hearts by Eric Janszen

While not gold specific, this story explains why confidence in the financial system (via extension, confidence in money itself) is struggling due to the clear corruption and lack of trust:
The Ongoing Cover Up of the Truth Behind the Financial Crisis May Lead to Another Crash by George Washington on Zero Hedge

And now onto tonight's main theme....

Deflation Makes for Ugly Headlines
When people that follow economics discuss inflation and deflation they understand basic concepts of money. Ask a hard core follower of monetary issues about "real returns" over time or "inflation adjusted prices" and you will see all kinds of strange things pop up. Take this strange tidbit (via Zero hedge):

While in absolute terms the Dow may cross whatever the Fed thinks is a necessary and sufficient mark before QE begins to taper off (Dow crosses 10k just as Treasury purchases expire), the truth is that over the past 10 years (the first time the DJIA was at 10,000) the dollar has lost 25% of its value. Therefore, we present the Dow over the last decade indexed for the DXY, which has dropped from 100 to about 75. On a real basis (not nominal) the Dow at 10,000 ten years ago is equivalent to 7,537 today! In other words, not only have we had a lost decade for all those who focus on the absolute flatness of the DJIA, but it is also a decade where the US Consumer has lost 25% of purchasing power from the perspective of stocks!

Very interesting. Everyday people are not aware and do not care about such things. To them a $10 bill is worth roughly what they remember it was worth in 1999.

What is curious is that inflation results in sexy headlines like "home prices double" and "Nasdaq 5000 last stop before 10,000" or what have you. Maybe slow theft of purchasing power has been pushed like a drug over time, yes?

Of course right now deflation rules the landscape. This is not helpful at this juncture because deflation headlines are not exciting. In fact, they will almost always mean less money coming your way. Some points just from the past couple of days.

No cost of living increases in 2010, Social Security says
And you thought the health care debate got seniors mad, wait for this one!

Of course, any US administration (any party,anytime) would be terrified of the over-65 voter block and so on the same day the above hits the wires we also get this:

Obama calls for $250 payments to seniors
WASHINGTON (AP) - President Barack Obama called on Congress Wednesday to approve $250 payments to more than 50 million seniors to make up for no increase in Social Security next year. The Social Security Administration is scheduled to announce Thursday that there will be no cost of living increase next year. By law, increases are pegged to inflation, which has been negative this year.
It would mark the first year without an increase in Social Security payments since automatic adjustments were adopted in 1975.

Wow, not since 1975!

Of course I thought that a $250 is really not even worth the bother. By my back of the envelope account (I lied, I am using a calculator) this comes to a whopping $20.83 a month bonus per check for those that qualify. 20 Bucks! Is this where we are now?

Of course not everyone thinks a mere $20 is small potatoes. Later in the article we have this:

"The likelihood of losing an average annual COLA increase of about $200 to $300 in 2010 may sound like no big deal to some, but for millions of seniors who've already seen a third of their Social Security eaten up by health care costs, this proposed COLA relief could truly make the difference" said Barbara B. Kennelly, a former Democratic member of Congress from Connecticut who now heads the National Committee to Preserve Social Security and Medicare.

I stand corrected. I guess this kind of money is a big deal in these circles.

Mish has all the deflation headlines and they are all ugly. Consider:
Year-Over-Year CPI Negative for 7th Consecutive Month; Rents Decline First Time in 17 Years

So this is good, right? Paying less for things saves you money and lower rents may help struggling renters who have been ignored in the whole "save peoples homes" crusade. It is no less sad for a unemployed renter to be evicted from their home. They too may have to abandon pets, they too may have to take a credit hit. Of course, banks have limited exposure to renters, so the renter can go screw themselves as far as the government is concerned. Free markets are rough if you are in the wrong crowd.

So what is scary here you ask? Of course what kinds of things are tied to the CPI? We already saw that social security would get no increase (no matter, the government will give it to them anyway). What about the minimum wage? Uh oh! You mean people WILL BE MAKING LESS during deflation! This is a problem.

Now let me be very clear here. This is in no way what the government wants. They want a great CPI print of 2% plus. They want to pay out more. They want to get money velocity going. This is in no way, shape or form a way for the government to save money, and it is not their intention.

Deflation makes for ugly headlines because the hand out programs get smaller. Of course in time your paycheck will get smaller. With less on hand, the fear is of a deflationary spiral. Here I think things get twisted by definitions.

A deflationary spiral is thought of as a process where a person thinks item X will cost less money next week, or next month so they hold off on buying. This causes a feedback loop. I would argue that a real deflationary spiral occurs at the point of recognition (POR) that yes, item X will be cheaper next month, but I will be getting less as well, so I do not buy.

To me this is a key concept. Inflationists and Deflationists are so very close in end result thinking, they only differ on mechanism. Perhaps they only differ in terminology of the overall construct of the argument.

Is there a difference between:
-Money is worth less going forward and things go up in price so you cannot afford them

-Money is worth more and things cost less but you have much less money with which to buy them

Either way, you have a problem!

In closing, deflation is a real political problem. Headlines as we have seen today will garner negative feelings towards elected leaders. This is why deflation is enemy number one of the government.

Quantitative easing (QE1) on the Treasury buy side is done next week. How long until QE2 is opened up, making all the super smart bond types look like fools for defending FED actions saying "this is a one time deal" (you know who you are). The mortgage securities purchase program will end in March, but if you really believe that then you may need to think about step one, admitting you have a problem.

I hate the phrase "This time it's different" because it is used primarily as a crutch to hang an empty argument. I would submit that this juncture in time is different than any other. What would the Great Depression onset look like with both the internets available? Better? Worse? I have may own answer, but I would love to see reader answers to that one (hint, submit an answer in the comments!).

In closing, thanks to all for all the interaction. We need to keep thinking and we need to keep discussion going.

Also, I only have a few entries for "Friday Night Video Fights" so please get your fighters in. Poll results will determine winners each week.

Have a good night.

Mid Week Tensions

I am not sure if it is the weather (cold) or that the days are getting much shorter, but I find I am a bit on the edgy side. It could be DOW 10,000 plastered all over the place, rampant spinning of data, of just plain exhaustion at all things deflation/inflation debate related. As such, this post is an amalgam of various things, though they do share common ground in many ways.

Housing Still a Problem, and a Warning to the New Age Speculator
By now you have read the headlines that the newest (what iteration is this now?) mortgage modification plan of the US Administration is looking to deliver up to 500,000 loan mods to help housing. Others have parsed the number, and real mods number less than 50,000 in all cases, or 1/10th the advertised amount. Still, advertising is all about packaging and a number like 500,000 is pretty big.

So what is the problem? You, the reader, are well aware of the major ones, but let's review just one that surely should have been thought about before the process got started (via OC Register):

No Income, No Loan Modification
Here’s a quote from John Courson, president of the Mortgage Bankers Association:

“You can’t modify someone if they don’t have income or a job. We have to be realistic going forward. If we are going to play a numbers game, we are going to see a smaller percentage of borrowers in default able to be modified. It’s an unfortunate and difficult fact we are going to have to face.”

Now I know this kind of out of the box reasoning is very difficult to understand, but indeed having no income and no job will limit any possible loan workout. Of course these things made no difference when the loans where made, but that was so yesterday.

Of course, some are trying to squeeze anything they can out of bad loans (why would they need to do this, being well capitalized and all?) and are looking to the past for a new future. Consider this item from Bloomberg:

JPMorgan Pitches Interest-Only Mortgages to Boost Obama Plan
Oct. 13 (Bloomberg) -- Banks will push the Obama administration to expand its mortgage-modification program to allow interest-only periods on reworked loans, seeking to bring more homeowners into the initiative while recognizing concern that it may only postpone defaults, according to JPMorgan Chase & Co...
...The benefit of allowing interest-only periods as well would be “a significant pickup in terms of mods being done,” because the current methods often fail to allow loans to pass required tests on whether modifications serve lenders better than foreclosures, said JPMorgan’s Potolsky. The New York-based bank uses interest-only periods in many of the modifications it’s doing outside of the U.S. program, he said.

These games are getting old, but with the future holding so much promise, why not?

Promise in the housing market? Indeed there is, but here is my word of caution for the future (via Calculated Risk):

House Buying Frenzy
The real estate market has gone crazy. At the low end we've been seeing many offers per house for some time, and recently agents have been telling me there is almost no inventory. Jim the Realtor has been reporting on this in San Diego, see: Hot All Over and The “Euphoria Express”

And from Diana Olick at CNBC today: Lunacy in Las Vegas Housing (ht Larry)

Olick include an email from a real estate agent to a client "Katie":

- This market is crazy and many things are just not going to make any sense.
...
- Properties are selling in the blink of an eye.

- Properties are getting multiple offers within a few days of being on the market, the most offers I’ve heard a house had recently was 44 offers (I know, crazy).
...
- 40% of all transactions are cash purchases, which makes it harder for the buyers who are financing to get their offers accepted.
- We have 1/2 the inventory we had a year ago and 4 times as many buyers as we did a year ago.

Please note the bold face section.

Investors with real means are buying these homes with cash. Can they rent them out on a cash flow positive basis? I have no idea, and really I could not care less. These investors are taking a monster chance here though:

-By buying with cash they are not going to hurt anyone (read banks) but themselves, so there will be no help forthcoming should this go bad.

When it is the banks with their behinds on the line, the taxpayer is there to help. If aggressive personal investors lose their shirts, well helping them would be a moral hazard. Vegas is the gambling capital of the US, so this is indeed fitting.

Have no fear fellow taxpayer, we will all still pay for plenty of this, from later in the CNBC Diana Olick article:

Oh, and by the way, a fun factoid on Katie's Realtor: She bought her brand new home in 2005 for $240,000. According to the comps she runs daily, she says it's now worth between $90-110,000. So in January she decided to stop paying her mortgage. No financial hardship, she just figured she was throwing money away. The bank hasn't gotten to her yet, so she's just been living there for free. At some point, she knows, her bank will foreclose, but she's fine with that. She says she'll do far better financially renting for a while.

Love it!

A Question
By know the readers know that I am daily reader of The Automatic Earth which really offers insight and perspective that I feel is unique in all the blogosphere. It is with rare occasion that I have a fundamental difference of opinion with the author Ilargi, but I find myself there tonight.

To start, to consider my question you will need to review the latest article "Chris Martenson, Stoneleigh, and Mish Shedlock" because there is plenty of material there which needs to be reviewed.

My question that I submitted to Ilargi follows (as in the comments section over there):

Ilargi,
very thoughtful post. I had one question which I did not really find a clear answer to in Stoneleighs writings. You had written:
"My initial reaction was that Martenson is better at gathering data than at drawing conclusions from them. And that stands. Then Mike Mish Shedlock tackled the one hand issue (see below), and concluded: "Pretending that defaulted debts do not exist is itself the "Sound of one hand clapping". Which is what I said: assuming that a central bank and Treasury, of any country, can keep losses hidden forever, means not understanding the dynamics at play."

I have to admit, I guess I do not understand the dynamics at play. The banks have indeed covered over losses and still refuse to recognize them, one better, they are writing UP the value of these instruments as of late. For over a year they have hidden them, why not 2 years? Why not 3? With a fully compliant government admitting this is policy prescription number one, I think the dare would have been called by now. What would be the trigger event?

Sorry for the question, but this gamesmanship by the Banks/Government is really starting to wear me thin.

So my question boils down to this:
-The banks have covered up losses, refused to write down loans, and have explicit backing of the US government to do so
-This has been ongoing for over 1 year
-What would change this a year from now? 2 Years from now? 5 years from now?

I am sure I am missing something here, but I cannot pin down what it is. I will return to this item if there is follow up.

Golden Conspiracies, and Metal Out performance
Last night I had written a small link about possible gold bullion problems with physical delivery. Loyal reader Stagflationary Mark had plenty to say, much of which I agree with. Of course there was some I did not.

Mark argues, and I think correctly, that gold price conspiracy is a pretty weak line of argument. I would submit that suppression of gold overall is no conspiracy, but governmental policy. There are many instances of FED minutes where Alan Greenspan clearly is concerned with gold prices and what that means for fiat currencies. IMF and central bank gold sales (except for the UK) are often used to lower gold prices. If the only use for gold was high end electronic contacts and jewelry for India, why on earth would the FED be even the least bit interested in gold prices?

Mark offers this as well about inflationary hedges:

Once again, aluminum is the SAME price it was 5 years ago. If hyperinflation was just around the corner (as implied by the movement in gold's price), then why aren't more people willing to hoard aluminum? I certainly don't have a problem hoarding aluminum foil. I don't see much harm in locking in the price. In fact, the higher the price of gold goes, the better aluminum looks to me and the worse gold looks to me. I'm a cheapskate.

Aluminum was certainly a good thing to hoard in the 1970s. So why isn't it now? Why isn't aluminum pricing confirming the gold story? Why isn't toilet paper pricing confirming the gold story? Seriously. I'd really like to know. Aluminum is a VERY useful metal. While it is true that aluminum is VERY common (roughly 8% of the earth's crust), this was also true in the 1970s. The same can also be said of toilet paper. The stuff practically grows on trees. ;)

Here I think we are talking about very different things.

In Marks comments he cites Mish many times, and thus I am sure he is aware of the times that gold had done well during inflation, and poorly during inflation. Gold has done well during deflation, and poorly during deflation. Mish has laid this all out before.

Surely Aluminum and toilet paper are not corroborating the gold price rise in terms of a framed idea of hyperinflation. I would add that neither is platinum, or corn, or soybeans.

I have written extensively about the repudiation of US financial engineering. When I started buying gold related assets in the early 2000's, it was due to an inflationary stance. After watching a cooked CPI basically kill off any real way to catch inflation via gold, I was a bit disenchanted. Then the credit bubble came. The housing bubble as well and the stock market blow off top in 2007. All through this I watched the gold (and silver) related buys rise higher, even as inflation was low or low historically.

Surely the rise in price of gold from 2002 until now is not based on inflationary expectations. If it is, then yes, things are wrong. Gold to me is a rock against which to hold against the massive issuance of money and credit. When it became clear the house flippers the world over would never be paying back any of their loans should house prices fall (I figured they had to) then the very meaning of money would fall into question. We saw that at the height of the crisis of late last year and into March this year, the very underpinnings of the banking system were called into question. In a twist, gold and silver were hammered in price during this time! Shows you what I know!

I think the questions still remain, and now that operators can be calm, gold becomes very appealing. We have been and are in deflation right now, and yet the dollar is lower and gold is higher. Another panic may be in the works and I think investment demand for gold serves this need for real assets. If money is not money (Think QE2), gold is always money and a great way to store portable value which will be accepted all over the world.

Of course you could do this with toilet paper, but getting 2 metric tons of toilet paper over a border may be an issue, while a few ounces of gold can fit in your wallet.

As always I could be wrong (very likely) and non of this is personal investment advice. Just my 2 cents as usual.

Have a good night.

Short and Sweet

Well, I was suckered into watching the entire Miami Dolphins vs NY Jets game last night! An incredible game with lead changes and momentum turns galore. I just wish they could kick off at 8pm eastern time so I could go to bed at a respectable hour.

On that note, a bit short on time tonight, so just a couple of thoughts.

-Intel (INTC) blew away earnings estimates, which was expected, but the company went above the "whisper number" as well. What should be clear to any observer is how silly the earnings estimate game is. Why is it that every quarter the analysts polled are off on the numbers by wide margins, both the upside and downside? Anyway, expect a rocket ship ride up tomorrow in the indices.

-Related to the INTC news, where did all these sales come from? Where are these chips going? Of course revenue is still down year over year, but I would be interested to know where this "unexpected" rebound came from.

-I am not familiar with the author of this post, so I offer his article with all the usual caveats. That said, if this story has any merit ......
Central Banking: A Blight On Humanity
Details a possible issue with gold bullion for physical delivery contracts being renegotiated for cash settlement instead, and at huge premiums to spot gold price.

For a chuckle, enjoy this Fail Blog post:

see more Epic Fails

Have a good night.

Rare (Presumed Extinct) Creature Sighting

Monday is always 10 times harder after a crushing defeat for your football team! I guess it could be worse, I could be a Raider fan. I will accept a Miami Dolphins victory against the NY Jets tonight as a consolation prize.

Delaying Tactics on Condominiums Runs Out of Time?
I came across the item from the always great Housing Doom site. It seems the FHA is seeing loan losses in the condo market that are bad enough to scare them out of making loans in that market. I think we should all be very scared that they are holding many loans like this right now.

Phoenix Condo Market Given a "Death Sentence"
The new restrictions won’t directly affect high-end, luxury condos that sell for more than the Federal Housing Administration’s roughly $350,000 lending limit, but Hoogendyk said FHA loans are by far the most commonly used loan among condo buyers. Without that option, buyers would have to obtain conventional loans, which are more expensive and difficult to qualify for, or they would have to pay cash.
Hoogendyk said the FHA rules amount to a death sentence for the Phoenix-area condo market, which had only been kept on life support by the continued availability of FHA loans.

The whole article is worth a read.

British Government are not "Idiots"
I spend plenty of time bemoaning the lack of sustainable economic policy here in the United States. Of course, the USA is not alone in their Keynesian journey to wonderland. The United Kingdom has long been on the fast track to bankruptcy and they are looking to take the next step very soon.

In an effort to raise capital, the British government is looking to sell off some public assets:

Britain sells off public assets to boost finances
Britain holds public asset fire sale as PM Brown warns that recession not yet over
LONDON (AP) -- The British government is holding a fire sale of public assets including the undersea Channel rail link to raise 16 billion pounds ($25 billion) as Prime Minister Gordon Brown warned on Monday that the country is "only halfway there" in overcoming the recession.

The sale of assets, which also includes the government's 33 percent stake in European uranium consortium Urenco, spearheads the ruling Labour Party's attempt to boost its economic credentials as it loses ground to the opposition Conservative Party ahead of next year's general election.

Brown has maintained that the government must continue to spend its way out of recession, in contrast to the Conservatives' position that spending cuts are necessary to prevent a blowout in the public finances and turn the economy around.

The asset sales will allow the government to raise money to pay down the public debt and the budget deficit -- the gap between spending and revenues. With Britain in the middle of its worst recession in decades, public borrowing is forecast to reach a record 175 billion pounds next year.

Brown said that it was essential to continue fiscal stimulus alongside reducing the deficit.

I have to admit, this guy rivals Greenspan and Bernanke with his own "FED-Speak". It seems ingrained that spending oneself out of recession is the only policy that can be tried, nothing else need be considered. Good luck on reducing deficits while expanding stimulus. More fun a bit later in the piece:

Nonfinancial assets to be sold over the next two years include the Channel Tunnel rail link, the Dartford bridge and tunnel crossing the River Thames and betting company the Tote.

Local governments will sell off another 13 billion pounds ($21 billion) in assets such as business parks and leisure centers.

The Liberal Democrat party, the secondary opposition in Britain, said the asset sales made sense in principle, but criticized the timing.

An earlier government attempt to sell off the Tote was abandoned after it failed to attract a high enough price.

"Attempts to sell off large amounts of government land into a very depressed market such as we have now would be frankly barmy," said Liberal Democrat economy spokesman Vince Cable. "These asset sales should be based on a financial calculation, not a political one."

Business Secretary Peter Mandelson rejected the criticism, saying the market "is looking up."

"Of course we're not going to sell at the bottom of the market ... we're not idiots," he told Sky News.

Leaving aside the question as to who would want to buy all this stuff, lets take a closer look at the British record on selling assets.

While Peter Mandelson is sure he and his ilk are not "idiots", his boss Gordon Brown has plenty of experience with selling assets at the best possible time and price. Namely, he was the force behind the UK selling half of their entire gold reserves in 1999-2000. This amounted to about 400 tons of the shiny stuff. As a visual picture for the wise and well timed sale, please consider the following graph of the gold spot price:

Heck of a job Brownie!

Rare (Presumed Extinct) Creature Sighting
I have a rare treat for the readers today. After setting up motion detecting night vision cameras, laying out bait in the form of common sense, and waiting patiently even in the face of despair, Economic Disconnect can report to you tonight that we have proof of one of the rarest, most reclusive creatures hoped to still exist. Rumors of their extinction were not true, I present a FED official that actually makes sense! I know, you don't believe me, but take a look (via Clusterstock):

Fed Governor Slams Krugman's "Output Gap" Argument
Paul Krugman has been a major proponent of the idea that since the economy is facing a so-called output gap, then we needn't worry about inflation. Basically, since we have so many idle workers and factories, there's really no chance we could overheat, face supply constraints, and thus cause prices to spike. So, we might as well keep printing.

Reuters' Rolfe Winkler points to a presentation given by the Fed's James Bullard that's clearly a direct rebuttal to Krugman. The argument is pretty simple and intuitive: When you're coming off of a bubble, the previous full potential of the economy is nothing that could be considered sustainable or re-achievable.

I about fell out of my chair this morning when I read that opening. Long time readers will note that I have been making this argument for a long time. From Mr. Bullard:

“It has been popular to describe recent events as a collapse of a bubble in housing. A look at the housing data makes a convincing case,” Bullard said. “But when it comes to calculating traditional output gaps, there is no notion of a bubble. If part or most of the fall in output was a collapsed bubble, then today’s output gap would be smaller than it appears.” This would mean that inflation risks in the medium term are higher than otherwise thought.

I most recently commented on this very subject in an article titled "Economists Can Only Answer How, Not the Why". Key excerpt from myself:
My own parable:

A man sits at a bar, and strikes up a conversation with the fellow next to him. He discovers the stranger is an economist, which delights the man, as he has a business quandary he needs help with. The man offers the economist a beer in exchange for advice on his current endeavor. The man asks "I am thinking about building this huge mall, that will sit vacant because business is so bad, but I just thought why not? Do you think this makes sense?. What do you think?"
To this the economist answers "I really cannot advise you on that at all, I have no opinion."
The man, a little put off, asks the economist "How can you have no opinion! I need to do this to save my company! How can it be done?"
At this the economist perks up and answers "My dear sir, you did not ask my why at first, but now you are asking me how, and on that I can greatly advise!".

Yes, very simplified, but still true to the core.

Ask an economist today about the "output gap" or the unemployment rate, and they will effuse mountains of words describing how to restore the old "normal". Ask them if the old normal is sustainable, or if it was a gross application of capital, and all you get is a shrug.

It seems there is one FED Governor that thinks like I do. Surely he will be fired very soon.

All kidding aside, there is a monstrous blind spot for economists (Keynesian ones mainly) about what is quality capital application, sustainable growth, and mania cycles (bubbles).

The basic refrain of an economist today is "The house is burning so we cannot argue principles, we must save the house!". This is a non starter. If it is the stated goal to enforce economic activity on par with the tops of asset (credit, stock, housing, etc) bubbles then you are not contributing anything of substance, merely providing a mechanism for an end result. It is the total lack of substance that upsets me when consider the policy desires of Keynesian clowns like Paul Krugman.

Can Mr Krugman answer in a Yes/No fashion the following question:
-At the height of the housing bubble, housing "output" was X. We have seen that this was clearly not sustainable, and even worse, dangerous. Should we attempt to bring housing output back to X? Yes or No.

Of course you are likely to get some kind of pie in the spending sky answer like:
-We should maintain housing output at .25X while at the same time making up the difference through government spending to reach output X until the economy magically resumes growth at that level all by itself, then we just unwind all the excess money. Got it? Great, let get a taco!

Hats off to my new hero, FED Governor James Bullard.

Friday Follow Up
I have very few selections for the Friday night video fight feature I wanted to present. Get involved and make a nomination!

One of the musical selections was the Thurston Harris tune "Little Bitty Pretty One" and there was a bonus trivia question related to the song. With no takers, here is the scene from the horror film "Christine" where the song is played:

Do not mess with a 1958 Plymouth Fury!

Have a good night.