Thursday Collection of Jumbled Thoughts

My commute home today was complicated by the huge "operation" in Watertown and Brookline which are right across the river a ways from where I work. Allegedly some money couriers that were involved with fund movement in the NYC truck bomb attempt were being arrested. Of course the local authorities only reported an "immigration related arrest" which is so stupid because Cambridge is a Sanctuary city and the whole Boston Metro area could not care less about such things. In any case my drive home was a mess because some roads were blocked due to TV coverage and all that stuff.

I am adding FINVIZ.com to the blogroll. It is a really wonderful poor man's Bloomberg terminal. Check out the "Bubbles" feature, it is really a cool view.

Anyways,
Tomorrow is Friday night and I would like to open it up a bit. Get creative with song requests or some other new ideas for some fun. I am open to anything at all. Let it fly!

Are People Fuming About the Wrong Perfect Banking Quarter Issue?
Kid Dynamite had an expansive post which really layed out the particulars of just where the profit in the perfect quarters for the banks came from. For those who were not sure, it was only partially the kind of trading that gets everyone all riled up:
Big Bank Perfect Trading Quarters - The Real Story
The entire piece is nice original work. Mr. Dynamite combed through the 10Q reports and found some hard data all should be aware of. The big take away point:

Still, its disappointing that the analysis to come out thus far has focused on irrelevant demonstrations of how impossible it is to have 63 consecutive winning days if your probability of winning on each day is 50%. Or on how this means that the big boys must be "cheating" "fixing the game" or "frontrunning all of their orders." See, the probability of winning when your cost of funds is near zero and you can invest at positive interest rates at assets which are already being supported by the Government is probably closer to 100% than 50%. As for the complete misunderstanding of "frontrunning" and all that crap: people have no clue that only roughly TWENTY PERCENT of these earnings that we're talking about are coming from equities businesses! By focusing the anger on the wrong "causes," we guarantee that we won't change the patterns. People have a right to be angry about these earnings - but not because of banks manipulating equity markets - it's because the Fed is feeding them with free money and asset price support.

Leave it to the poker player to get the real odds right. Quite a few bigger bloggers ran with the 50% of the time thing even though the channels of revenue for the banks were not random events like a coin flip.

In the comments section I opined:

KD,
I hear you and I do get the point you are getting across. I think the issue here is that many people are internalizing the banks "edges" mostly in the trading end of things. I think many traders and average joe personal brokerage account users read many blogs and they see the HFT angle (and others) and get very mad. They know getting one winning day can seem hard most of the time so they fail to see where most of the real money is being made. I get that. Myself, and I imagine almost everyone else on earth, cannot borrow from the FED and lend back to them (love how this makes sense) for a spread so that does not resonate quite as hard. You are correct that the offloading of crap paper into the hole of FNM, FRE, FHA is the real outrage here.

Later I added:

The edge the banks have due to ALL the subsidies means they have the best hand going into the river card and also have redraws with 16 outs to a better hand. This is NOT a 50% coin flip but a freeroll!
I like this analogy!

If you know poker I have to say this was pretty good! I know, I am humble.

Pragmatic Capitalism adds on this issue:

Everyone is making a big fuss over the fact that four U.S. banks went 61 days in a row without any losses. Well, the better question in this environment is how did any bank manage to not make a profit on all 61 days? These big banks are borrowing from the Fed for nothing and can effectively sell low risk bonds back to the government for a 3%+ annualized gain. This is a no-brainer when it comes to making money. If you’re a big bank you’re just laddering into a massive fixed income portfolio without almost no risk. The confusion or misrepresentations made by many regarding this “phenomenal performance” is that these firms are just sitting around “trading” the Nasdaq 100 like Joe Schmo does at home. That couldn’t be farther from the truth. These firms make most of their “trading” revenues by playing market maker or “trading” in these low risk fixed income markets. They’re essentially just pairing buyers and sellers and scraping a fee off inbeteween.

Add in the dreaded "Mark Ups" in Level III assets (remember those) and the illusion is now complete. Now you can get angry about all the right things! Have at it.

Dripping With Irony
Tonight's visual fun comes courtesy of Time Magazine.

From 1999, consider:
The Committee to Save the World

Three men who were wrong about almost everything at the helms of almost unlimited power posts. How did that work out?

And from 2010:
The New Sheriffs of Wall Street

Three women who are mostly right about things in positions with next to zero power to do anything.

Let me know how this works out.

On a related note, we have Ratings Agency Reform! Are you excited? You should be, if you like the old way of doing things:

Senate measure would lower boom on credit-rating agencies
WASHINGTON — The Senate took strong steps Thursday to fix a key cause of the recent financial crisis, approving measures to limit the ability of Wall Street firms to shop around for favorable ratings from now-discredited credit rating agencies.
Lawmakers approved two rating-agency amendments to a sweeping overhaul of financial regulation, despite objections from Senate Banking Committee Chairman Christopher Dodd , D- Conn.
Moody's Investors Service , Standard & Poor's and Fitch Ratings were all key players in the nation's financial meltdown, giving blue-chip ratings to complex mortgage-backed bonds that turned out to be junk.
A McClatchy investigation last October revealed how Moody's and its competitors sold out investors by trading their ratings for huge fees that came from rating complex deals.
Sen. Al Franken , D- Minn. , offered an amendment aimed at putting an end to this Wall Street behavior that passed on a bipartisan 64-35 vote.
"They shop around for their ratings. They select those agencies that tend to offer them the best ratings, and threaten to stay away from rating agencies that are too tough on them," Franken said.

Not bad! This sounds like they finally get a key part of the whole debacle. So what's the new deal?:

His amendment would instruct the Securities and Exchange Commission to create a credit-rating board, composed mostly of investors, that would assign rating agencies to rate asset-backed securities such as bonds backed by mortgages.

WTF????
And this is different how? No need to answer, the stocks of ratings agencies are moving up after hours. Nothing ever changes it seems. Remember I said we get what we deserve, and we do.

Daily Reminder That There is Nothing Holding Things Up But Hope
In any closed system, any number of random events can influence the movement of the whole. The markets dropped a bit near the close, and this presser was out right before that (via CR):

Deutsche Bank CEO Expresses Doubts About Greece
"Ob Griechenland über die Zeit wirklich in der Lage ist, diese Leistungskraft aufzubringen, das wage ich zu bezweifeln"
Deutsche Bank CEO Josef Ackermann, May 13, 2010

Translation: "Whether Greece - over time – is really in a position to raise its [economic] performance [to repay its debt], I doubt it"

But everything was fixed last Monday so what gives?

Money Is All Powerful
It is said that money equals power which is attractive. I would not know, I am broke as a joke. How many 50 plus year old men have you seen drive around in red sports cars with women 20 somethings in the passenger seat living the high life? Maybe a few. Here we have the ultimate in insult:
Girls Plan To Sit In The Audience Robe-Less While Jamie Dimon Gives His Graduation Speech
Protest or not, Jamie Dimon may see some naked chicks due to his money. Here I steal from my favorite Edgar Allen Poe story (and NO it is not "Gold Bug"! Get off it!):

"The thousand injuries of Fortunato I had borne as I best could, but when he ventured upon insult...."

The Cask of Amontillado
In case anyone is silly, I was just working the Poe story in here, I am not threatening anyone. That I even have to write that should say something about today's climate.

Have a good night.

Gold and Silver with a Note of Caution

This post is going to be one of those all over the place deals because there are quite a few things I want to discuss. You have been warned!

Just Who Are These Serial Mortgage Refinancers?
I caught a snippet about the mortgage weekly application survey over at The Golden Truth blog and I have been thinking about it all day.

From the survey we see that refinance activity increased quite a bit (regular buying applications were falling, but that got skipped over by most media channels, go figure) and this really makes me confused. I need help!

From the press release:

“The recent plunge in rates on US Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefited US mortgage borrowers last week. Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks,”

Flight to quality makes me chuckle but let's stick with the topic on hand!

Does anyone out there seriously think home re-financers by and large were watching the Euro drama, saw US Treasuries yields dropping, and decided to refi their home? Really? Most people I know do not even know where their mortgage rate comes from much less how to time it.

So let's say I buy the idea that a nation of savvy rate watchers were ready to pounce on lower rates. How much are we talking? From the press release:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.96 percent from 5.02 percent, with points decreasing to 0.91 from 0.92 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The effective rate also decreased from last week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.32 percent from 4.34 percent, with points increasing to 0.81 from 0.80 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week.
The average contract interest rate for one-year ARMs decreased to 6.86 percent from 7.03 percent, with points increasing to 0.35 from 0.28 (including the origination fee) for 80 percent LTV loans.

So now I am supposed to believe THE SAME savvy rate watchers scrambled to catch these minute changes in mortgage rates? Mortgage rates (so far against my very confident call!!!!) are still so close to all time lows a re-finance makes no sense at all unless your mortgage note is older than the hills. But these are smart rate watchers so we now they have all refinanced before, right?

I find this to be impossible to square with any reality I know. Two idea I am throwing around:
-Refinancing has become the home ATM again, maybe on a lower scale, but it has returned
-Banks are somehow allowing or alerting folks in mortgage trouble to refi loans to keep them in homes they will lose

Anyone else have a guess? I welcome answers in the comments.

FED Rate Hikes and MBS Sales: Just Shut Up Already
With the re-opening of swap lines with Europe and the never ending purchase of all mortgages through Fannie, Freddie, The FHA and even the Veterans Program it should be clear that the FED will not raise rates nor sell off any of the Trillion plus mortgages they have bought. If you are still trying that one out I am not sure what else can be done for you. Tim Iacono, fresh off his move to Montana, sums it up very nicely:

The FED and Their Silly Talk of MBS Sales
Really. Does anyone seriously think that the Federal Reserve is going to be selling any part of their $1.25 trillion stash of mortgage backed securities anytime soon? With home prices already embarking on another leg down (due largely to the absence of $8,000 incentive checks from the U.S. government) and the possibility of the European debt crisis crossing the Atlantic, maybe they should be talking about buying mortgage debt that few others want, not selling it.
In another few months – as home sales stall, mortgage rates rise, and the foreclosure pipeline continues to dump its contents into an already saturated market – comments like these will look even sillier, that is, right along with the idea that the central bank will begin raising short-term interest rates anytime soon.

I agree 100%!
The FED's actions can be termed:
"Talk Loudly and Carry a Toothpick"

Gold and Silver with a Note of Caution
By now regular readers know that I am invested in Gold and Silver. For anyone new, I am invested in Gold and Silver via physical holdings. That brings whatever bias it does and my long term view of the metals is such that I think much higher prices are in the future. On this blog I have always written that an average portfolio should hold 5% in metals with 10% being a bit more aggressive. I hold about 25% of mine in silver and gold bullion (a bit more silver than gold) which is higher than my normal 20% because I found a few deals over the past few months I liked. I have this up front so you know where I am coming from.

As a metal head I love headlines on bullish blogs like these:
via Gold Versus Paper:
Gold Bull, Bitches!
The line "Gold, Bitches" cracks me up every time.

via Zero Hedge (where I think the above line was born):
First Gold, Now Europe Running Out Of Silver

Of course some headlines are not as happy; here is an absurd one from Clusterstock:
Every Doctor, Dentist, And School Nurse Bought Gold This Week
Now I know for a fact that my doctor and my dentist have no gold or silver. They think I am a nut for buying it so this one is over the top. I would also doubt school nurses bought much either. Only one person I know in real life (ie, non blog connected) has any gold or silver. I cannot even get anyone to buy a little though I hammer them all the time. Some do trade in and out of some ETF's, but that's about it. So my own experience is that not many people own gold and/or silver. Results may vary in your circles.

After a strong couple of weeks I feel that it would only be fair to try and offer some thoughts I have regarding the metals that are more cautious in nature. While nothing here is investment advice (nobody in their right mind would listen to me!) I do harp on the metals a bit so some things have me a bit more cautious short term and I thought I would share.

In no particular order:
-Gold right now is being termed a "safe haven". While that may well turn out to be more true than you will believe, in the short term metals are about as safe as shaving with a samurai katana sword. It will work if all goes perfect but.....

Volatility can run heavy in metals (especially the miners) so a smooth ride is not really a fair expectation. Silver tends to move much more than gold up and down as well.

-Near term (3-6 months) I think gold $1500 and silver $25 are realistic targets. I also think that at some point gold (to a lesser degree silver) may become a target for government caps or restrictions on price movements. Of course this will only make physical metals go wild to the upside, but the paper proxies like GLD and SLV may fall on really hard times. There could be two metal markets; the paper and the real. It's kind of like the real housing market with no government help and the one we have now. Still, the paper proxies do have some tether to real bullion and this thought does bother me quite a bit. Of course if it comes to this I think it will resolve in gold's favor.

-Gold is money, real money. It has been for as long as gold was mined. Gold is the anti currency. Gold can be seen at times as all of the following:
inflation hedge
deflation protection
anti-dollar play
anti-euro play
pro-euro play
momentum play
waste of time
Volcano insurance
Contrary stock market play

And many more. Obviously gold cannot be all these things all the time. There may well be people buying gold for reasons that make little sense and this could change.

Of course I am still of the mind that over the next year we will see ever more currency issues and debt problems. Gold is "hard money" and it should be clear by now that many debts of all kinds are extremely "soft money" which depend on so much else to be made good. In the face of the wave of sovereign country issues, US state issues, pension issues, and back issues of Sports Illustrated I hold that more paper will be made to keep the system "liquid". The balance will be the metals. Stocks may well go up as well, maybe even more so than the metals, but there is only one true "hard asset" at the base of the value pyramid.

Have a good night.

Bits and Pieces for Tuesday

Somehow I have run out of time this evening though I have no idea what took so long to do. Puzzling. That said plenty going on so I will post some snippets and thoughts for the night.

One Time FED Audit Passes 96-0
After every other attempt to get any kind of look into the FED was shot down this microscopic win was had. I am going to try and be positive about this, but I feel that when both the White House and the FED were willing to go along with this small audit it means nothing will come out of it. You never know. I can see this note being left for the Congress and the press on the day of the audit by the FED:

Dearest All,
We gave out all the money and saved the entire financial system. Some were banks, some maybe were not, but that's all you need to know. Go back to debating Health Care now.
Ben Bernanke and company
Goldman Sachs

Still, I found a peculiar outlier in the following Yahoo Finance story on the bill:

Senate votes to examine Federal Reserve lending
WASHINGTON (AP) -- The Senate voted unanimously to peer into Federal Reserve decision-making Tuesday, authorizing an examination of the central bank's emergency lending to financial institutions in the months surrounding the 2008 financial crisis.
Separately, Democrats rejected a Republican plan to end the government's support of mortgage giants Fannie Mae and Freddie Mac -- a financial rescue that now stands at $145 billion. Instead, the Senate voted to instruct the Treasury to study and recommend how the government can end its relationship with the two housing finance companies.
The two measures that passed were amendments to a comprehensive financial regulation bill that the Senate intends to wrap up sometime next week.
Passed 96-0, the Fed measure requires a one-time audit of the central bank's more than $2 trillion in lending and the disclosure of all recipients of that assistance. A proposal for a broader review of the Fed failed.

Bla bla, same old kind of writing. Here is what caught my attention; a defeated proposal to put some kind of limits on Fannie and Freddie:

But Realtors and home builders lobbied against the GOP plan, arguing it would insert too much uncertainty into the housing industry. Government-related institutions -- mainly Fannie Mae, Freddie Mac, the Federal Housing Administration and the Veterans Administration -- backed nearly 97 percent of home loans in the first quarter of 2010, according to trade publication Inside Mortgage Finance

Still think there is a housing market in existence? You would be wrong.

"Fat City"
Kevin Depew of Minyanville hits a home run with today's missive:
Five Things You Need to Know: EU Announces "Shock and Awe" Campaign for Fat City
The whole thing is well worth a look, but this jumped out at me:

It's not important, nor is it even possible, to understand what specifically occurred that day to cause the market's drop. Better to understand the conditions that caused it to happen. If you peel back the layers of market activity from March 2009, you'll find that the majority of the market's surge occurred in overnight trading on virtually no volume. Similarly, away from the market, in the economy, virtually all real economic activity was replaced by government programs with incomes replaced by transfer payments. This had the effect of supplanting economic activity that had been sharply dampened by the deflationary force of too much debt.

The lesson from last Thursday is that there's no real market based on anything remotely resembling real value anymore. CNBC commentator Jim Cramer on Thursday afternoon looked at the stock of Procter & Gamble (PG), down more than 20%, and observed "that's not a real price." Well, neither was the price 24% higher any more real, it was just higher. Is Procter & Gamble at $65 truly reflective of investor expectations of future production? I don't think so. Today, almost all asset prices are functions of government intervention in markets and the consequences of currency debasement.

A key insight.

The Law of Diminishing Returns
Jesse has yet another strong entry with:
Here is Why the FED Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates
Key snippet:

The return on each new dollar of US debt is plummeting to new lows according to figures from the Federal Reserve.
The chart below is from the essay, Not Just Another Greek Tragedy by Cornerstone:

I have been watching this chart for the past ten years, as part of the dynamic of the sustainability of the bond and the dollar as the limiting factor on the Fed's ability to expand the money supply.
The ability to expand debt is contingent on the ability to service debt. If the cost of the debt rises over the net income of the country's capital investment, or even gets close to it, the currency issuing entity is trapped in a debt spiral to default without a radical reform.

It takes more and more to do less and less. A trillion today, 10 trillion tomorrow?

Metals Gone Wild
Today the metals gold and silver ran higher. I hope you did not think I missed that! Silver crossing $19 per ounce was a big breakout by my way of looking at things. On a day when the 3 Year Treasury Auction saw huge interest it seems off that gold and silver were also on a tear. As Tyler Durden at Zero Hedge observed:

And so liquidity overflows once more, with investors stampeding to get first into stocks and now into bonds, with the 3 year $38 billion auction closing at 1.414% and an all time high BTC of 3.27. But no, there is no bubble. It is just that investors are diversifying by buying bonds, stocks, commodities and gold all at the same time.

Too funny!

My macro view has not changed and the metals should continue to do well. I would expect a nasty pullback, maybe as soon as tomorrow, but these sell offs have not been scaring people away like they used to at all.

The Housing Time Bomb offers a take I liked very much:

The reason gold is ignoring the huge rise in the dollar appears pretty clear: One currency that rises versus another currency isn't all that impressive if BOTH are essentially worthless as a result of the massive debts that back both of them.

This has created what I call "The Value Crisis" where investors are beginning to realize that there is nowhere to hide in this market.

In the comments I chimed in:

I think if China's bubbles bust then US treasuries are in for a bad time. Of course the FED will just issue money to the banks to buy the bonds, but then gold and silver will really run. It's all coming together.

If you are watching the China Stock indices they are really looking bad. If China runs into trouble the monster US treasury sales will be in trouble. Now understand the sales will always go off very well on the surface, but as I wrote above they may be bought using our own printed cash. This possibility (inevitability?) is another longer term metals plus.

Things are a mess out there and now the whole picture is a jumble of opposing forces:
-All the new money has not been able to add jobs because it is not making into the real economy (for various reasons)
-No jobs = no wage growth = no metric based inflation which allows.....
-More new money to be printed the world over
-Should jobs appear and spending grow then all that hot money will find a way into something causing metric inflation....
-Which would prompt (one can dream) rate hikes and stimulus withdrawal which would...
-Kill off any recovery

It is a mix/mash of moral hazard and conflicting goals. An economy the size of the United States cannot be managed by a table of academics and a bunch of bankers with their own goals in mind. Still they are going to keep trying. And we all lose more and more every day they do it.

Have a good night.

The Big Do Over

This morning it was 38 degrees! I am thinking this will be yet another cool Spring/Summer which does not work for me at all.

The Big Do Over
By now I am sure you have all looked over the massive program put in place this weekend by the ECB/IMF/FED to backstop the Eurozone. The details are not really that important, just take away that about 1 Trillion dollars will be at work to support the Euro banking system and serve as aid packages to struggling countries.

This is almost a carbon copy of the US TARP plan, though I do think the European plan is more than 1 page long. I think it is two and a half pages, though one page is a cartoon. Indeed the old world is more refined than the US.

For a great write up on the particulars and some reading of the leaves I would suggest The Baseline Scenario article:
What happened to the global economy and what we can do about it
Eurozone: The Kitchen Sink Goes In – Now It’s All About Solvency
A great read though I would find fault with one of the summary lines:

To ultimately get out of this mess, the euro zone needs to grow fast enough to allow nations to grow out of debt. The global backdrop here is very positive in the short term. The jobs numbers in the US last week and strong numbers out of core northern Europe suggest the world can grow. No doubt the ECB and the Fed will use the eurozone scare to justify longer loose policies.

What growth rates are assumed here? How can growth at a high rate come if fiscal cuts are made? How long a time frame are we talking? This could have been fleshed out a bit more, but still a great read.

I will leave the heavy lifting to those with more knowledge than I on these matters. I wanted to talk about some macro issues this all presents instead.

I often get into a debate with the author of Illusion of Prosperity about the whole deflation/inflation duel. Deflation has been the name of the game for a while now, but some think inflation has been non existent for about a decade. Of course this depends on what you are gauging inflation by as well as how you view "inflation" generally.

Here is an example from the real world:
Situation One:
Easy credit and no lending standards ignites a condo frenzy in a South Florida coastal community. Lego like condos that were selling for 200k one year now are flipped for 800k just 2 years later. This is a clear bubble and massive inflation of condo prices.

Situation Two:
3 years after the high of the market, the same lego land condo would be selling for 100k if banks were making the mortgage loan and regular loan standards applied. However, the FED has rigged rates at all time lows, the US government makes the mortgage loan, and all the worthless paper from the good old days resides not at the banks but at the FED for safe keeping and hiding of losses. The condos in this market now sell for 400k. This is clear inflation of prices as well.

This brings me to TARP, the Euro-TARP, and all the other circus antics employed by the world up to this point.

I call this The Big Do Over (copyright EconomicDisconnect 2010).

Faced with debt deflation and collapsing asset prices it was the decision on all sides to paper over the losses and replace the lost money with new money. Usually this is both criminal (counterfeiting) and leads to hyperinflation but some cute tricks have coincided with a useful market truth to keep that scenario on hold.

All the money that the FED has made for the banks had been kept under tight wraps. Usually printed cash is deployed by the banks via fractional reserve lending and this expands the money supply. This time banks simply sit on the new cash as it serves as a marker for losses they transferred to the government. Now do not get me wrong, the banks are making out well both by not having losses and they can use this money for some things:
-Buying US government debt and making a huge spread
-Goosing the stock market to the tune of an 80% rally off the lows. The FED likes this because a higher stock market is the only sign anything they have done has worked at all.

Both the US and the Eurozone have or will use the new money to buy their own debt to keep various rates low. Quantitative Easing is easily the most silly thing I have ever been witness too in my life. A government prints cash to buy it's own debt that it issues.....to raise cash and a worldwide market acts like they are some anonymous buyer making a purchase when everyone knows the deal. Some argue against conspiracy by saying there is now way X can happen because how could so many people stay quiet. It's easy, just do it in plain site! QE is a joke and a smack in the face of market players.

The market truth I mentioned above is simply everyone knows everyone is broke but nobody is in any position to do anything about it. While a negative most of the time, fiat currency does have the built in safe guard that if you call out one, you have to call them all out. They are all various degrees of baloney, which is just a big hot dog.

For a sampling of the kind of rhetoric now being used and the commentary that reads more like an Onion article than real life, here is a bunch of views from across the web:
Via The Daily Capitalist (on ZH):

The lead in this morning’s paper WSJ provides all necessary guidance for global wealth holders: “The European Union agreed on an audacious €750 billion ($956 billion) bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide.” This weekend’s behavior demonstrates without equivocation the thesis we have been following: naturally occurring credit deflation will be met with an overabundance of monetary inflation that will hyper-inflate the global economy.
Global policy makers continue to demonstrate that when push comes to shove they will forcefully apply policy that sustains the near term nominal values of financial assets. They continue to choose to use their unique powers to cover all bad bets with paper money and credit that only they can manufacture. In doing so, they claim victory when nominal financial asset prices predictably rise, as they must, and they hide the loss of real wealth denominated in their diluting paper currencies. The stock of real wealth is the same as it was a week ago and at every point between then and now, though there is a trillion more dollars (€750 billion) in the global system.
The EU is effectively proclaiming; “if you pour our brew down the drain we are just going to make more of it.” To defend the Euro, something has to be sold against it. The Fed (the tallest midget) has re-opened the USD swap line to the EU so that newly-digitized dollars can be sold for Euros in the market. Clearly, the bailout is USD bearish – not Euro bullish. If the EU was serious about saving the Euro, then the ECB would have to dump its gold and hike funding rates. They are going “all in” with a six of clubs. In the current backdrop it seems preferable for the Fed to inflate immediately, rather than the ECB, given the relative strength/weakness of the USD/EUR. This is the same playbook global central banks have been following for a while. The mere fact that all major currencies today need to be defended wreaks of fraud. If something is as it seems there is no need to defend it.

Spot on.

John Hussman:

Looking at the current state of the world economy, the underlying reality remains little changed: there is more debt outstanding than is capable of being properly serviced. It's certainly possible to issue government debt in order to bail out one borrower or another (and prevent their bondholders from taking a loss). However, this means that for every dollar of bad debt that should have been wiped off the books, the world economy is left with two - the initial dollar of debt that has been bailed out and must continue to be serviced, and an additional dollar of government debt that was issued to execute the bailout.
Notice also that the capital that is used to provide the bailout goes from the hands of savers into the hands of bondholders who made bad investments. We are not only allocating global savings to governments. We are further allocating global savings precisely to those who were the worst stewards of the world's capital. From a productivity standpoint, this is a nightmare. New investment capital, properly allocated, is almost invariably more productive than existing investment, and is undoubtedly more productive than past bad investment. By effectively re-capitalizing bad stewards of capital, at the expense of good investments that could otherwise occur, the policy of bailouts does violence to long-term prospects for growth. Looking out to a future population that will increasingly rely on the productivity of a smaller set of younger workers (and foreign labor) in order to provide for an aging demographic, this is not a luxury that our nation or the world can afford.

David Rosenberg (on ZH):

The emergency measures just announced buys some time but should help take some of the fear and illiquidity out of the market over the near-term. However, what were not addressed are the intense structural fiscal problems plaguing much of the Eurozone.
In the final analysis, if the EU lends money to Greece or to any other problem country in the zone, debt ratios (including contingent liabilities) in the region will only rise further. It will be interesting to see how the rating agencies end up handling this. It cannot be lost on them, or the global investment community, that while loans, guarantees and central bank provisioning can deal effectively with liquidity issues, they are ineffective in addressing what’s really at stake here, which are structural fiscal issues.

Everyone knows the issues but nothing can or will be done about it.

I take a bit of heat for being a gold and silver lover and a hater of fiat money. Most of the time I get the old "where's the hyperinflation?" call. What's the difference between Zimbabwe and the US? Size. What's the difference between the Eurozone and Argentina? Size. That's it, that's all. If anyone could do anything about any of this they would. If a viable alternative to US manipulation and reserve currency status was out there, we would be left high and dry in about 10 seconds. I guess that makes us very lucky.

I think two scenarios are possible going forward:
-After about 1 more year of bad debts and deflation the panic button gets hit very hard and we step outside the bounds of make believe and do in fact have a real crisis with our dollar
-After another year of the same the FED allows the banks to flood the markets with the money they never wanted really making it's way to regular people's pockets (no wage increases and no jobs after 2 or 3 Trillion in money? Geez, what a raw deal!) and we indeed get the inflation this kind of thing promises to deliver.

It is absurd to me how far this has all gone. I still believe we would be in a better spot if things just went sour a while back. The end of the world? I think not, just the end of the banking iron grip on the world of finance. Instead we muddle on dodging train wrecks.

Have a good night.

Sunday Cooking Pictures

We had some guests come over yesterday and I did my first BBQ cook for non family members on the Big Steel Keg. I think it came out pretty good and everyone had a good time.

I went with both big Beef Ribs and my first set of baby back pork ribs. I also did some burgers an dogs at the end for the kids and in case the ribs came out badly! You never know!

Here are the beef ribs before I prepped them:

Huge set this time. The local butcher has some good stuff.

Here are the two racks all rubbed up with the smoking spices:


Of course if I have plans, it rains! It was supposed to be light rain but it was coming down pretty solid. I set up a covered station to stay dry:


The cook took about 4 hours before the ribs were ready for the final saucing/crisping up step. Here they are about done:

Looking good!

Here they are on the cutting board:

Nice!

My friends are big BBQ fans and they were surprised how well they came out. Both racks were gone in about 30 minutes so I guess they must have been good. I know I loved the beef ribs and even the baby backs were very good.

I had a full beef rib, about 4 baby backs and I rounded it out with some potato salad, you know, for balance.

I am very pleased with this grill and glad I bought it. If I keep making these kinds of things I will see inflation.....of my waist size!

Have a good night.

Addendum:
Reader Gawains is picking on me in the comments so here are some more cooks on the Keg!

Steak tenderloins? The Keg can go 800 degrees plus so no problem:
Before:

At end of cook:

They were excellent!

How about a pizza? No problem:

Now the pizza addict wife will not order out for delivery anymore!

What about smoked SPAM (go long HRL!)? Here it comes:

SPAM with bacon, what could be better? After the cook:

Not bad at all!

For desert? My favorite:

2 Onza Mexico Libertad

How about a 1860 8 Reales from the Zacatecas mint?:

Nice after dinner.

Have a good night.

A Week to Remember?

I only worked 4 days this week but it felt like 10. The only thing I hate about vacations is getting back in a groove. I did get sucked into posting this week even though I was not 100% in the mindset. What can you do. I am way short on time tonight as I had to prep some beef ribs and baby back ribs for a BBQ tomorrow. My first cook for non family members as we are having guests. I am already feeling the pressure! A few quick thoughts and notes then on to the fun stuff.

Donation Button
Now do not panic! I do not need money and this site does not generate enough traffic to need a bigger host (I know, how can it not be bigger? LOL). I am as anti-ads as can be. So what's the deal?

I just figured that in case there is some millionaire out there that would like to make a donation why stand in the way? I also thought any donations I get can be used for the following:
-I donate across many of the sites I frequent, so I could pass it along that way
-I donate to charity quite a bit (ASPCA, American Cancer Society, VFW, others) so I could use any funds for that
-Grilling supplies like charcoal, meat, and a new camera to take pictures with
-Fishing supplies
-If I get enough, I will channel it to retiring more COMEX gold/silver delivery contracts

In reality I do not expect anything, but I thought I would give it a shot. The PayPal button is at the left.

Quote of the Day
It comes from Barry Ritholtz, see i can still be nice!
Via this post:

As a client of mine recently put it regarding flight to safety:
The U.S. is the best looking horse…at the glue factory

Love it!

A Week to Remember?
The events of Thursday May 6, 2010 are still quite amorphous and I will need to think things over a bit. As of now I think this could be a game changer as it relates to psychology, which is almost 100% of the market. If we did a word cloud concerning the markets and the banks I think the following would come up plenty:
-Fraud, Scam, Ponzi, Fake, Rigged, Manipulation, Bubble

As in the above quote is bemuses me that when things get ugly everyone runs to the US bond/stock markets for safety. We export financial crap around the world, run up Trillions in deficits for years, and rig our markets, yet it's the best thing going!? Sounds like a serious lack of options. At least we do buy back all our garbage (via the FED balance sheet) so we have that going for us, which is nice.

This past week may be one that stands out in the future or it may just be an aberration quickly forgotten. In my mind I think some things were broken this week and it will take some time for the full meaning of that to sink in. Any system based on confidence is fragile and it is my opinion that the cage has been rattled one too many times.

The only thing that stands out to me right now is stuff like this via Calculated Risk (see I can be nice again):

1) On Europe: there is a reasonable chance of a major announcement this weekend. Earlier today there were rumors of a €600 billion loan facility for European banks. One key analyst thinks the Fed might re-open the dollar swap lines for Europe - one, or both, or something else could be announced on Sunday.

This rumor included loans for banks in the EU at 1% for a year. I think you can guess that the metals gold and silver will enjoy this ginormous abuse of the printing press. Deflation will often bring about panic moves and these moves are what make a currency crisis. At some point all this free money going around will devalue all the money, after all, it does grow on trees it seems. For the banks anyway.

Friday Night Entertainment
After a long and heavy week, it's time to let loose and relax.

Picture Fun
Some visuals for the evening.

A scottish fold ear kitty looks for the tooth fairy gift:

see more Lolcats and funny pictures
AWEEEEEE!

Fitting for this week:

see more Lolcats and funny pictures
Another round!

If you do not know what "Photobombing" is, allow we to show you:

See more at Photobomb.

Rock Blogging
It is time for the tunes as I am out of time!

One day at the pool in the Bahamas one song came on that got everyone all riled up and ready to go. It could have been the included mixed drinks or it could have been "The Eye of the Tiger" by Survivor:

I am ready to rock and roll!

Michigan native Bob Seger celebrated a birthday on May 6 and thus as a special request by a friend here is "Turn the Page":

Great song.

Reader Lurker would like 3 Dog Night's classic "Old Fashioned Love Song" and who am I to deny:

Nice.

Going old school with some Beastie Boys and "Fight for Your Right":

It's in the constitution I think, the party part.

P-A-R-T-why? Because I've got to mister!

My friend Mark from this blog makes fun of me because I repeat myself on material. If it's good then go with it! One of my favorites that I have had on a bit is "Joey" by Concrete Blonde so hit it again:


Two more because you all want more!!!!!!!!!!!

Heard this on the radio today and I forgot how much I liked it. Take a ride with Foreigner and "Jukebox Hero":

Not bad.

Time to close the show. What to do, what to do.

As a default I have to go with a favorite of mine. It is my blog after all. Still, so many to choose from.

One of my favorites is the song "Anybody Listening" by Queensryche. The words are haunting and the music speaks for itself. Try it out for me:

At the 4:10 mark - "There's a warm wind from the south, hoist the sail and we'll be gone; by morning this will all seem like a dream".

Have a good night.

A Stable System for Your Finances Worthy of a Flight to Safety

If today was not enough to get you thinking than nothing will. If the activities of today were not enough to get people to start thinking about their own financial future then nothing will. If today was not enough to guarantee REAL financial reform then nothing can. I say maybe the first one will happen, sadly a big N-O on the other two.

Bernanke Speaks on Stress Tests and I get Annoyed by Calculated Risk
I keep trying not to do this but once I get annoyed it just builds up.....

Calculated Risk had a snippet of FED head Bernanke's speech which had some items on the "Stress Tests" which were staged, I mean held a while back to show just how rocking with capital the big banks were so they could place secondary offerings with foreign suckers, I mean investors. If you have been reading this space you know that I have had some issues with CR over the past year on many issues. Today was another.

from CR's snippet:

Bernanke:
"Importantly, we publicly released our comprehensive assessments of each of the firms' estimated losses and capital needs under the more-adverse scenario. Our objective in releasing the information was to encourage private investment in these institutions, and thus bolster their lending capacity. If private sources of capital turned out not to be forthcoming, however, U.S. government capital would be available."

Right off the bat, the whole thing is a sham. This was no more than a show to showcase an explicit backstop of any private investment. CR offers:

The good news is the economy has performed better than the "more adverse" scenario, especially house prices and GDP - although unemployment is still much worse than the "baseline" projections.
The bad news is one of the key goals has not been met: to "bolster lending"

So the two areas where the government can influence the data or put a floor in prices (GDP, home prices) were done, but the areas that the real economy takes care of did not even move. Great job.

I was fine with that, but But grab this CR comment from the comment section:

Demand for loans will only return when there is a need to expand. Manufacturing is a strong sector in the U.S., but capacity utilization is still far below the previous levels - so there is little need to build new plants.

My position was the stress tests were useful (I argued for them last year). I think they helped with confidence and stability.
But the real use is to do it every year. By publishing the two (or three) scenarios - and making public the capital needs of the banks - analysts and the public could have a much better grasp of the financial stability of the system. That would build confidence over the long term
best wishes

I do not have time to really savage this thing, but let's say CR is acting like the stress tests were real and not rigged. Furthermore no mention is made of mark to myth accounting nor hidden losses by sitting on foreclosures. Second liens never made it either. A few links on the stress tests CR argued for:
The Fake Stress Tests
Surprise! Stress Tests Produce Expected Results!
Why nobody seems to wants to say anything about this escapes me.

A Stable System for Your Finances Worthy of a Flight to Safety
As I had in the lead, if today cannot make the case that the financial system is still a mess than nothing I or anyone writes will make any difference. Still, here I go.

Today the Dow (and to a similar degree the S%P 500 and Nasdaq) were down as much as 10% and this occurred in a matter of minutes. That was not a typo.

As I write things are changing very fast and more and more information comes out. Blogging is a real time affair and thus I will go with what I know and think. I feel confident it will hold up.

The culprit blamed was one trade on Procter and Gamble stock (PG) which was entered as 15 Billion and not 15 Million. I am not a trader nor a big bank player but I think this kind of mistake must be near impossible to be executed. If it can, this speaks volumes about how out of control Wall Street is. Sell 15 Billion PG' shares (or whatever it was) and the computer says "OK"?? That is beyond belief and I do not buy it.

For about a year sites like Zero Hedge have discussed algo trading and high frequency trading. At first I was very skeptical (I am a scientist!) but after research and market observation I started to see the real fact behind it. I and many others better informed than me were shrugged off as "nuts" and "tin foil hat" types. That's aluminum foil by the way, tin (symbol SN) can cause some health problems so grow a brain!

The argument that maybe 60% or even 100% of the rally from the lows was accomplished on low volume computer buying and the swapping of shares ever higher by programs was laughed off as a refusal to grasp the new V shaped recovery and better economic data (there has been some not tied to government spending?). Today that lie was put to rest once and for all and I do not think people thinking rationally could argue other wise. They will argue, but they are not rational.

From Yahoo Finance comes some key quotes which are best in the heat of the moment as they tend to get lost or refined over time. From today (while article is unchanged):
Stocks plunge; Dow has record drop, then recovers
Key snippets:

"The market is now realizing that Greece is going to go through a depression over the next couple of years," said Peter Boockvar, equity strategist at Miller Tabak. "Europe is a major trading partner of ours, and this threatens the entire global growth story."

So glad they are NOW realizing. More:

"I think the machines just took over. There's not a lot of human interaction," said Charlie Smith, chief investment officer at Fort Pitt Capital Group. "We've known that automated trading can run away from you, and I think that's what we saw happen today."

Remember, automated trading was a small part of the big banks playbook, they told us so. A little more:

Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said the selling brought back memories of the 1987 crash.
"I've been watching the markets since 1982 and, believe me, I froze at the screen in '87," Ablin said. "But today ... caused me to fall out of my chair at one point. It felt like we lost control."

I hope he is ok. How wild did things get? Check this:

The impact on some stocks was enormous although brief. Stock in the consulting firm Accenture fell to 4 cents after closing at $42.17 on Wednesday. It closed at $41.09, down just over $1.

This happens all the time. It does.

Here are some scenarios, all about equal in my mind, that happened today:
One
A incorrect trade was entered on a 10X scale up and the trade went through without even a red flag. Algos and HFT poured in and took down the market, which we all know sees 6 months to a year ahead, in a matter of minutes. After this was somehow figured out after the fact, things recovered to just huge losses relative to recent past.

Two
The Greek riots, poor retails sales, and a leaked jobs number all made the big players that built up the false rally using FED channeled money (they don't lend it remember?) rushed for the exists and then were stopped by the FED/Treasury from fully getting out the door. They were ordered to go back in and make up some ground and provided funds to do so.

Three
Nobody knows what the heck is going on and there is no confidence anywhere other than in headline stories and speeches by our officials. Any sign of the musical chair game ending sent everyone out the door.

I do not think I can prove or be proven wrong on any of the above ideas. Try it if you like. The US is a safe place for your money and the US dollar is a quality asset in a world of uncertainty. Or is it all relative?

For further reading, here are the posts from today that you need to see. Also check these sites regular to see how things develop (also a good archive for later):
Zero Hedge
Jesse's Cafe Americain
The Housing Time Bomb
The Automatic Earth
Two from Mish:
No Citigroup Trading Error
Nasdaq to Cancel Trades on Pure Guesswork
60% margin of movement. Unreal. Flight to quality indeed.
Kid Dynamite
The Reformed Broker-added to the blogroll, this site is well worth the read

There is so much going on that I will try and set up for a better write up tomorrow and a post on Sunday when I have had time to digest all of this. I do have guests for smoked beef and baby back pork ribs on Saturday!

Tomorrow is of course Friday night, and all requests for entertainment are welcomed. What a mess, we will need some fun I should think.

PS:
After the CONgress let insider trading go by those in CONgress, I hoped something good would come. Nope. No way. Forget it. Ignore all I wrote, here you go:
Senate Rejects Brown-Kaufman Proposal To Break Up Largest Banks
Thats it. Thats all. Forget a FED audit as well. There is something we can do but having no spine kind of gets in the way.

Buy SPY, GOOG, BAIDU, AMZN, and BAC. Have fun.
Have a good night.