Economists Can Only Answer How, Not the Why

It is going to be a two topic post tonight, as I found two items that require attention. Neither will be very market related, and I feel I have nothing to add on that front anyways. There was at least 5 stories today that highlighted baloney coverage of junk statistics that were pumped by the media. There were several hard hitting items concerning some very suspect games being played by Wells Fargo.

Please note that I will be attending a dinner function tomorrow night, and am not sure that I will be able to post the usual Friday night festivities. Perhaps a Sunday post to make up for it, but no guarantees, the NFL has several huge games this weekend!

In Communist Russia, Government Educates YOU!
Economic Disconnect has spilled enough pixels detailing how the US government is now responsible for 80% of all home sales via mortgage guarantees, and really 100% by keeping rates artificially down in the mortgage market. Maybe an entire generation of home owners will owe their payments towards a government backed entity, and another whole generation will rely on the government to supply loans for a home purchase. If your primary place of residence, and your ability to access one is not too much authority to place in the government, how about the higher education of your young adults?

In a process that started in earnest quite a long time ago (and covered here) the US government is ready to make their next step (via Clusterstock):
Congress Ready To Make Student Loan Industry 100% Government Controlled

As with housing, funding education is one area where the government has never wanted to let the market set prices.
Is it any shock, then, that at the college level, with the federally-backed student lending machine, that inflation has outstripped that of the general economy?
Now the government looks set to make this problem worse, as the House is prepared to vote on a bill that would eliminate the role of private student lenders altogether, bringing all funding under government control, where it can be expanded with ease and targeted politically. There's already lots of "No child should ever be denied..." rhetoric.
Is this more evidence that the government is eager to keep expanding the bubble in student loan debt? You bet.

What I find to be the most galling, the most annoying, the most bang your head against a wall until the wall itself collapses stupefying is the belief that by offering lower finance charges, thus making something "cheaper", the thing gets cheaper. Like most strongly held economic beliefs, very little hard evidence backs it up, and most real world examples refute it entirely.

Perhaps in older times business was not as savvy as they are today, or maybe they were just not as greedy. If a supplier of an item knows you are getting a deal on financing, they just jack up the price.

I should have warned on the outset that this post is going to get very nasty, well, too late!

Get a load of the mess of ideas and total incoherence of policy in this Yahoo Finance piece:
House college aid bill would boost Pell Grants, kill subsidized student loans

WASHINGTON (AP) -- The House voted Thursday in favor of the biggest overhaul of college aid programs since their creation in the 1960s -- a bill to oust private lenders from the student loan business and put the government in charge.

I already feel sick. Moving on:

...The measure ends subsidies for private lenders, boosts Pell Grants for needy students and creates a grant program to improve community colleges, among other things...
...Ending loan subsidies and turning control over to the government would save taxpayers an estimated $87 billion, according to the Congressional Budget Office. Lawmakers would use that money to help make college more affordable, increasing the maximum Pell Grant by $1,400 to $6,900 over the next decade.

Whatever the increase in the grant amount, I hereby guarantee college tuition will eclipse said increase by over 30% in the same time frame. Any takers?. Moving on:

"The choice before us is clear. We can either keep sending these subsidies to banks or we can start sending them directly to students," said the bill's sponsor

I really had to stop laughing on this one. Now the US congress is ready, willing, and able to say no to padding bank pockets at the expense of the public!? This is almost comedy that cannot be topped.

To end this segment, I will just say when you relinquish access to the government for anything of vital need, you are making a mistake. How long until political influences start to affect who gets what loan? You may think this no big deal, but imagine if a very liberal president and congress filter funding to favor crappy liberal arts program students. What if a crazy righty gets the top office and wants to subsidise evangelical schools only? I think you get my point. This move is wrong, and there is no real defense of it on economic or philosophical grounds. I am ashamed there is not any opposition to this at all. As I have said many times, you get what you deserve, and we shall, exactly.

Economists Can Only Answer How, Not the Why
I warned you above this post would be snarky, if you are ready for more, then read on by all means!

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. Some science.

I bring this up in light of an article by my second favorite Keynesian Mark Thoma of Economists View. Today the blog had a very special piece of absolute garbage up, and it even referenced a more useless piece of work as well. Lets dig in.

In Mr. Thoma's post he seems confused as to why this recession does not look like all those in his textbooks, and why policy to this point is not making the difference he would expect:

As this picture (see link) from the SF Fed shows, the employment series does not yet display the "fishhook" shape shown in other series that are the source of the declarations that the worst is behind us. And as the experience of the last recession in the graph below shows, the trough in employment can be far behind the trough in output.

So this economist admits himself the current atmosphere does not match the textbook case. I agree. Sadly, the writer lashes out and uses a textbook piece to try and reconcile all of his beliefs in Keynes:

Will Obama, Fed tolerate another jobless recovery?
-GYSC, with this title, you know this will be bad. As if the FED or Obama can really influence real job creation, but anyways, moving on:

NEW YORK — Politicians, pundits and even the Federal Reserve chairman have declared the recession over, but what's coming next is likely to prove as vexing as the deep economic crisis that Americans hope to leave behind.

I interrupt here because this intro is actually pretty neutral and leads you to believe the piece will tackle some real issues. We shall see:

As the economy begins to grow again, the nation faces a huge challenge: Consumers drive roughly 70 percent of U.S. economic activity, but job growth is expected to be quite slow even as the recovery gains steam. Without a rebounding job market, consumer spending is unlikely to return to robust levels, slowing a return to full employment.
Think of it as America's chicken-and-egg dilemma: The economy needs a big jump in consumer spending to spur exceptional growth, but that won't happen as long as unemployment remains high.

This section sounds harmless, but here we already see no discussion of the fact that a credit fueled real estate bubble binge of consumption may not be easily replicated. And so:

"Unless the economy grows significantly faster than its longer-term growth rate," which economists peg at about 3 percent annually, "it will be relatively slow in creating jobs over and above people coming into the labor force," Bernanke said. "And therefore the unemployment rate would tend to come down quite slowly. That's a risk, a possibility."

Even PIMCO is looking at less than 3% annually, but whatever here we have a rainbow watcher:

Not all analysts are glum. James Glassman, senior economist and managing director at JP Morgan Chase, the nation's strongest large bank, thinks that the Federal Reserve and the Obama administration will do what it takes to improve the jobs outlook.
"We're going to have to grow faster than trend to get unemployment to come down, which means that it is going to happen — unless you believe zero (percent) interest rates don't matter," Glassman said in an interview at bank headquarters.

Three things, 1.)zero rates have not helped yet 2.)this is a director at JP Morgan saying this junk and 3.) still think metals are stupid? See the phrase "which means its going to happen" which translates "anything is on the table to improve statistics". As if you need more:

His logic goes like this: Because the Fed has held its benchmark interest rate near zero since last December and is expected to leave it there for quite a while longer, lending rates across the economy will remain unusually low as the Fed tries to engineer full employment, which economists consider to be when the jobless rate is around 5 percent.
"The economy is not going to have the same robustness that it normally has. Returning to 5 percent (unemployment) is a national goal. That means they are not going to take their foot off of the gas until they can see that coming into view," Glassman said.
"It doesn't take a brain surgeon to figure out that you should gun it to get the economy to full employment. And it's not a Republican idea or Democrat idea, because we've seen both the Bush and Obama administrations do it," he said.

Thanks be to all the gods being an economist is not brain surgery.

I highlight these items tonight so that you can see where we are headed. The so called best minds all see things the same way. In their world there are no bond revolts, bad allocations of wealth, nor rabbit holes with no end. They only see the HOW and never ask WHY or SHOULD.

Stock toilet paper, soup, or BBY preferred shares, but I would think Au and Ag would be a better idea when all the pretending stops.

Have a good night.

Debts in Many Forms

I had the day off from work for some dental attention. I think work is more fun. The air up in the northeast today has the cool, fall smell to it and I think I am going to throw up if I go back outside.

Reader Catch
Loyal reader Kevin alerted me to Mr. Practicals latest missive. I would like to say that the new format over at Minyanville (where Mr. Practical usually posts) takes forever to load, is hard to find the new articles, and is just too busy for my tastes. Just my 2 cents.

In any case, Mr. Practical offers another informative take on our present state of affairs, and while you should read the whole thing, I will temp you with this snippet:

When the market realizes that the Fed can't create inflation (a full monetization of the majority of debt; something that would make even Ben blink), it'll see that the S&P 500 is really trading at 20 times earnings that are not growing.

Always a great read.

It is not Even Halloween Yet
It is well known that Economic Disconnect is of the bearish bent as it relates to stocks and government intervention. I am also not a believer that we need the big banks to be saved so that we can survive at more than a neolithic standard of subsistence using rocks and growing potatoes (until the Monolith arrives of course). Still, I would say I am more of a "gloomer" than a "doomer".

Today I read two articles, both my writers I respect at the highest level, that scared me. I would not say they were terrifying by their content, but through their logical explanation of how some scenarios may unfold.

First up was a Market Ticker offering by Karl Denninger today which highlighted the very real possibility of an outright deflationary collapse should the problems of bad debt not be addressed. There are charts galore and plenty of math to support his contentions. Read at your own risk!

The second item comes from Jesse's Cafe, and to me it is more scary because it follows my own line of thinking in many ways. Jesse argues that the dollar can and will break down. The author also covers a not so distant in history purposeful currency devaluation (Russia 1998) and how it may apply to the US should we have to go that route. An interesting read.

Debts in Many Forms
I came across yet another article today that focused on looking at external debt by the good old method of Debt/GDP ratio. The piece on Clusterstock was titled:
If We're Screwed By Our Debt, Then So Is The Rest Of The World
The author lets us know that:

The Economist's latest debt clock, highlighted by Lawrence earlier today, makes it clear that while the US debt is a huge problem, most of the industrialized world sits in a similar boat.
According to The Economist's 2010 forecast data, the USA's debt to GDP ratio will indeed be high, though it will be similar to that of Canada, Spain, the UK, and Germany. It will be lower than that of France, Italy, and Japan.

And this sure sounds great! Why all the tomfoolery about debt when it really is no big deal, and besides, every body's doing it.

So first stop is the external (total public and private debt) debt held by countries the world over, kindly provided by Wikipedia (and yes I have a job).
List of countries by external debt
The table is far too long to include here, but it offers both the total amount of debt as well as the debt/GDP ratio for every country in the world.

So just looking at Debt/GDP ratios, here are some that matter:
United States: 95%
Canada: 60%
Spain: 151%
UK: 375%
Germany: 160%

The UK print of 350% is astounding.

The champions:
Ireland: 961%
Monaco: 1844%

So judged on this basis alone, then yes, the USA does not look like it has debt problems.

Lets take a look at absolute debt number now (all amounts in dollars, and I rounded).
The World: as of 2008, $54 Trillion dollars of external debt
United States: $14 trillion
United Kingdom: $13 Trillion
So here we see that $27 Trillion of the worlds $54 Trillion of debt is held by just two countries. That is 50% of it all belongs to us and the Brits.

Compare with a country like China, with a debt/GDP ratio of 5%, and more importantly they hold only $363 Billion in debt. That's nothing! That is a small stimulus bill here, or the Quantitative Easing cash burn. No sweat!

What I am trying to point out is that the debt/GDP ratio is fine, but the absolute debt needs to be considered as well.

Moving away from these set numbers, one must consider the quality of debt as well. If all outstanding consumer debts (mortgage, credit cards, car loans) are going to be paid back in full, I can agree that we are not great shape, but not terrible shape to be sure.

Too bad that is not the case.

We were just witness to the biggest credit driven bubble in recorded history. Many countries participated in the real estate bonanza of debt fueled growth. You already know all the other ways credit was leveraged form home price extraction and plowed into unproductive uses. Now that home prices have fallen and will continue to do so, the quality of the debt still on the books tumbles downhill fast.

Add to this all the notional instruments (derivatives, CDO's) written against this debt and I think a far more troubling picture emerges about all things finance. Nobody really knows what number to assign to such things.

Putting it all together, we must understand that the US economy is a service based economy. We make very little by way of manufacturing, and our export income cannot support the economy in any way. We must make exotic financial instruments and sell them to the world at huge premiums to bring the money in. We need banks to lend money aggressively to any and all to allow purchases of big ticket items like cars and homes. In turn, these items fuel the service economy, by, well, servicing them. The US must eat out frequently, go to the movies, and buy video games to make the show go on. This is our service economy.

With unemployment at almost 10%, consumer spending trending down for the first time in over 20 years, the savings rate going up, and foreign players with money repudiating US financial engineering products, it is not as easy to feel comforted by a lower than our peers debt/GDP ratio.

Have a good night.

Can the Market Stay Irrational Longer than the FED can Stay Solvent?

It was just a crazy night of football here in Massachusetts. After 3 and a half quarters of terrible defense and uninspired play the New England Patriots were down 11 points with 5 minutes to go. Faced with a huge upset loss and a loss in the division (important for tiebreaks) Tom Brady goes to the huddle and says "We are going to win this game." Now of course what would you expect him to say? Maybe not "We are done boys, lets knock off early" but seriously. Of course every quarterback would say the same thing, but Brady pulled it of in no small part to a huge blunder by the Buffalo Bills on fumbled kick off. While very exciting to watch, I came away feeling this years team will be a work in progress, not a well oiled machine. Still 15 games to improve. The Pats may need them all.

Can the Market Stay Irrational Longer than the FED can Stay Solvent?
Lost among all the 1 year anniversary musing about the fall of Lehman Brothers was this small snippet from an Ambrose Evans-Pritchard article for the Telegraph (several bloggers picked it up):

As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows. No one can say that $2 trillion (£1.2 trillion) of sub-prime and Alt-A debt is still trading at panic levels, exaggerating losses. The dust has settled. What we can see is that creditors will never recoup their money.

So a year out from the alleged apex of the "panic" and this kind of mortgage debt is still selling (Who's buying? Look in Mirror for answer) at "distressed" prices.

Karl Denninger sums things up as:

More than a year later, it is clear: There was no panic; this was a JUSTIFIED level of trading and reflects the ugly reality - the investors in those bonds will NEVER get their money back.

So what does this all mean?

On a day when Ben Bernanke is calling the end of the recession, it may be a good exercise to look again at one of the most ardently held tenets by those in the FED and Treasury.

When the credit crisis really blew up, the government players were all very confident that the collapsing prices for mortgage backed paper were fantasy. They were out almost daily explaining that distressed prices were not reflective of real value, and that this liquidity crimp could be relaxed by central bank intervention and Treasury assistance for the banking sector.

It sounds pretty good, and heck, if that were the case you may (I said may) have even persuaded me to go along to help a short term crisis in the markets.

The problem is, and always was, that this mortgage paper is almost worthless. The values reported are very real. When you see mountains of foreclosures, and they are still rising, you know these securities are toast.

So it seems we are stuck at an impasse where the banks continue to hold this paper at almost full par value, and the FED even accepts this stuff as collateral for loans (maybe not the worst stuff, but plenty of the paper was taken. How much? Audit the FED to find out). Now if the assets are held to maturity, perhaps they will recoup some more value, but certainly no where near full price.

And this is the exact game that is on right now. Even a year out from the blow up, things are still looking bad. They will next year as well. I think 2013 will not look much better. Where do you stop? The banks have full backing of the FED and Treasury to hold off on recognizing losses on these assets. They are going to wait it out.

So while many are praising the efforts of all those involved in saving the entire world from collapse, understand they have not really saved anything. All that has been done was sweeping the issue under the rug in the hopes "rationality" came back to the markets. Maybe those values are indeed rational, and the government is irrational. With foreign interest in buying this kind of paper non existent, the FED will have to buy it all eventually. I am glad they are the "Buy and Hold" type.

Tornado Distraction
These pictures of Tornado's are a great distraction:
The astonishing twisters captured by storm-chasing photographer

Have a good night.

Monday Station Break

With the New England Patriots opening up tonight on Monday Night Football, and at a 7pm start, I will not have the time to post this evening.

Some items for review:

Kevin Depew's Five Things You Need to Know reviews some myths and misconceptions still lingering a year after Lehman.

Plenty of coverage was given to Singapore's Ghost Fleet of anchored freight transport ships, and it certainly is a contrarian take on the "All is Well" mindset.

Judge Rakoff refuses to play ball and allow the SEC to pretend they are doing their job by rejecting the BAC/SEC settlement and moving forward with a trial. This is going to have to go away very soon unless you want to replay "systemic risk" marathon.

As I am a Wikipedia addict and read probably over 50 articles a day, I tend to come across little tidbits here and there. While learning about president Hoover this morning, I found it interesting to learn that FDR ran against Hoovers' policies, then later adopted said policies and expanded them! Relevant section (under the Economy Header section):

Franklin D. Roosevelt blasted the Republican incumbent for spending and taxing too much, increasing national debt, raising tariffs and blocking trade, as well as placing millions on the dole of the government. Roosevelt attacked Hoover for "reckless and extravagant" spending, of thinking "that we ought to center control of everything in Washington as rapidly as possible," and of leading "the greatest spending administration in peacetime in all of history."[37] Roosevelt's running mate, John Nance Garner, accused the Republican of "leading the country down the path of socialism".[38]

These policies pale beside the more drastic steps taken later as part of the New Deal. Hoover's opponents charge that his policies came too little, and too late, and did not work. Even as he asked Congress for legislation, he reiterated his view that while people must not suffer from hunger and cold, caring for them must be primarily a local and voluntary responsibility.

Even so, New Dealer Rexford Tugwell[39] later remarked that although no one would say so at the time, "practically the whole New Deal was extrapolated from programs that Hoover started."

As usual, common held beliefs (FDR saved the country by ending Hoover's "hands off" approach) are not exactly that simple.

Have a good night.

NFL Opening Sunday

It is a rainy, dreary and cold day here so I thought why not punch some buttons and do a post.

Revealing Week
I had held off on a rant that was brewing since Thursday for a few reasons. One, I really hate to put anything at all that relates to things political on the blog. I think this is a financial (and miscellaneous fun stuff) site and not a ideological platform. Two, I find it best to keep one's own personal idea about politics to themselves so as not to turn off major parts of an audience to to garner attacks. That all said, I will say a few words about what was really bothering me last week, so if you are easily offended just skip down to the football section.

During my daily readings on Thursday and Friday I was alarmed by the sheer volume of blogger posts by economic sites which were overtly political in content. Many from the blogroll listed here along with many other stops I make had clearly written purely political sections. Now this is not a big "No No" to me, I just found it strange that in 4 years of reading some site I had never seen even one post like these.

To add to this, I was very surprised to see a clear liberal bent to all of the said sections. Economic Disconnect is a staunch Libertarian and of the firm belief that we have the Democrat party, and a Democrat Lite party known as the Republicans. But even this is no big deal to me, what do I care what kind of ideology people subscribe to?

No, what bothered me the most was the ridiculous defense of something like Universal Government run health care by the same sort of writers that have been amazing at pointing out how terribly the government has run things like the FDIC, the SEC, the FED, the Treasury, and the bailouts. I find it intellectually dishonest to argue against poorly run government monster entities on the financial side, and to then say everything will be just fine with health care.

Another thing that was really driving me insane was the orgasmic response many financial writers had to the presidents speech on Wednesday night. So President Obama can read a prepared speech off a teleprompter and sound good doing it. I mean, BFD. Descriptions included things like "powerful oratory" and "soaring rhetoric". Are you kidding me? Sadly coverage of the speech content was missing, I guess folks were too exhausted from being stimulated by President Obama's words to do any analysis. Former President Ronald Reagan was a much better orator that President Obama, yet I fail to remember people falling all over themselves after one of his speeches. What's the difference?

Anyways, sorry to chime in on this sort of thing, but it has been bothering me a lot and I wanted to get something written about it.

NFL 2009 Season Begins!
The only good thing about the return of the cold weather is that it will be football season!

I came to be a football fan pretty late. I never watched a game until sophomore year in high school and I never played on an organized team. We did used to play pick up games in the school parking lot because the parking lines could serve as distance and down markers. Getting tackled on cement does make you run a lot faster!

I fell in love with the New Orleans Saints in 1991. They had one of the all time great defenses and allowed only 211 points in 1991, and 202 points in 1992. Sadly they were not so hot on offense, and tended to choke in the playoffs. Still, the "46 defense" is my favorite way to play and I wish teams had the balls (and the personnel) to play it today.

Returning to the present, I think this year could be the most competitive season I have ever seen. I am not going to do my usual season long projections because I just do not think I have enough feel for how this season is going to go without seeing some games. There are at least 6 teams I think have a real shot at winning the Superbowl this year, and maybe another 2 or 3 that could even make a run. Usually I would put at most 4 teams at that level, not this year.

And now some random Football topics.

Most Dangerous Men in the NFL - Offense
When I study a team before a Patriots game (yes, sadly I do review tape and check formations, patterns, etc.) there are times you have to single out one player form the other teams offense as the absolute must stop. While there are many great players in the league, here are my 3 most dangerous men in the NFL on offense (no particular order):

1. Adrian Peterson, Minnesota Viking, RB
Every time Peterson gets the football, I hold my breath. This guy can go all the way every time he carries the ball. He is not a cutback or finesse runner, he just hits the hole and goes. In a league that has basically given up on running the ball (the Vikings and the Giants are exceptions) Adrian Peterson is easily the most dangerous running back in football.

2. Randy Moss, Wide Receiver, New England Patriots
On any play under 20-25 yards Moss would not make my list of top receivers. He is a below average blocker and he is not an "in traffic" kind of player. So how does he make the list? The field is longer than 25 yards of course! Randy Moss, once down the field, is almost uncoverable. Teams MUST commit their corner back on that side, the free safety has to be set 30 yards down field, and often times teams must rotate the other safety over to shade the Moss side, or play a dime package. If Moss was not so dangerous there would be no need to have 3 guys trying to watch him all game long. And he still gets open!

3. Brian Westbrook, Philadelphia Eagles, RB
Westbrook is not an every down player, nor is he a huge threat to carry the ball 25 times a game. Which is good for Eagle opponents, because Westbrook scores touchdowns. That what he does. He can catch them or he can run them in (the best goal to go runner in the NFL). teams must be aware of this guy to have success.

Most Dangerous Men in the NFL - Defense
While the offensive stars get all the coverage and all the girls, defense wins titles. You have to play defense to win in this league no matter how good your offense is (hearing me Saints and Patriots?). When I am looking at opponents, these players become number one priority to block, play away from, or try to trade for to avoid playing against them!:

1. Troy Polamalu, Pittsburgh Steelers, S
Note: Sadly Polamalu suffered a knee injury on opening night and will miss some games
Polamalu can come up and stuff the run as good as a middle linebacker. So he is big and slow? Hardly. Polamalu can cover one on one any receiver in the league. If you saw opening night, he can even make an interception with one hand while falling down. Clearly, when game planning for the Steelers you have to know where #43 is or you are in for a long night.

2. Albert Haynesworth, Washington Redskins, DT
While on a new team, he is still Albert Haynesworth. The most dominating lineman in the league, teams MUST account for him and commit a line blocker and a tight end or back for protection. Haynesworth is so disruptive on the line, most teams actually change the offense to an up tempo short game to avoid giving him time to work. I think Haynesworth will have a harder time this year in the NFC East (better lines, better blocking backs) but he is still very dangerous.

3. Baltimore Ravens, Entire Defense
Statics say there are better defenses, but really there is no finer a unit than the Ravens defense. When the Ravens are on defense, there is an air of danger for the offense. They hit hard, suffocate with pressure, and their secondary play (with Ed Reed in the lineup) forces turnovers at an amazing rate.

My Two Favorites
My two favorites are the New Orleans Saints and the New England Patriots. I guess I just like "New" in a teams name! Here are my takes on them this year.

The Saints
We know the offense can score. We know the defense cannot stop. What will change? The Saints did add some new blood on defense, and perhaps another year under their belt will help, but clearly they have issues still. That said, if the Saints can stop their turnover problems, I think they can overcome their defensive issues and return to the playoffs. Reggie Bush has yet to hit his full potential, and Drew Brees is the best QB you never heard of. Inconsistency is the major issue facing this team.

The Pats
A new, younger and faster defense will take some time to settle in. Led by Jarod Mayo at middle linebacker, this will be the most inexperienced defense New England has put on the field in years. Will it gel? I think it will take 8 weeks or more to see where this unit is going to be.

On offense, Tom Brady returns. Again, I think it will take a few weeks to see how Brady is coming back, but with Welker and Moss ready to go there should be plenty of fireworks this year. A top tier team, but the key will be the running game. If Fred Taylor can do what he has done his whole career, the whole picture changes. A bona fide running attack will only amplify Moss on the outside and take pressure off the defense. This is the key question for this team.

Random Items
Various things I am thinking about for the year.

-The NFC West and AFC West should surrender their guaranteed division winner playoff spot and be judged on record alone. The NFL really has to look at this as the West's of both conferences are terrible divisions, while divisions like the NFC East and NFC Central are highly competitive.

-We need a clear "in the grasp" rule on QB's. With the emergence of larger quarterbacks, they are wrapped up but not down and are allowed to try and extend the play. Someone is going to get hurt doing this.

-I cannot believe how well Michael Vick is being received and I do not think Donovan McNabb can like this no matter what he says openly.

-This is the last time I want to hear about the San Diego Chargers being the best team in the NFL. Everyone is healthy, so no more excuses. Put up or shut the heck up. This team is simply not as good as they look on paper, results bear me out.

-Will the Detroit Lions win a game? I hope not in week one (vs Saints) and I have one of those "bad" feelings about this game!

-Can football really be football without John Madden covering the game?

-Are the Atlanta Falcons going to have a slump, or be even better than last year? I think better.

-I have never seen a season taking shape to be so up in the air as this year. Anything, and everything could happen. I think the Superbowl winner this year may not be the best team (per se), but the team that can get through a tough season and playoff games against stand out opponents with the least amount of wear. Read as "those with an easier way to go" may wind up on top.

-I am just excited.

That's about it for tonight. Tomorrow here in the Northeast we get the Miami Dolphins vs. Atlanta Falcons for the early game (awesome game!) and the afternoon game will be the New York Giants vs. Washington Redskins (could care less). The night game promises to be awesome as the Chicago Bears (with Jay Cutler!) play the Green Bay Packers in a huge match up in the NFC Norris division.

Have a good night.

Friday Night Weekly Wrap Up

It is Friday! A short 4 day week, but it certainly seemed to go by very slowly. I just received my Allen Brothers USDA Prime Beef order by UPS. Included are Prime Beef hamburgers for opening NFL Sunday as well as 8 8oz Filet Mignons that have been aged to perfection for the last cookout of the year next weekend. Take that all you vegetarians!

While readership has been light on the site for a while, I did notice that I have not heard from the original loyal reader Kevin for a while. i hope all is well and Kevin is just on vacation. Gawains Ghost has also been MIA, but I imagine he is feverishly preparing for the NFL opening weekend.

I am a bit burnt out tonight, so I think I will cover some items that caught my eye and then move on to the more fun stuff we always have on Friday nights.

Weekend Reading
The Automatic Earth has a true work of art up today, and I would recommend you spend some time reading the entire article (Ilargi's intro and the J.S Kim expansive commentary) because it captures what is truly at risk now that the market manipulation has many thinking all is well.
Through The Prism of Fraud and Poverty
Truly, there is no Plan B.

Deflation Conquers All
It seems the ravages of deflation excoriates all in it's path:
States Face Drop in Gambling Revenues
Impossible! Inconceivable!

The Real Evil of Purposeful Inflation
There exists a line of thinking that to escape the huge debt load of the US, we could inflate it away over time by engineering "elevated" inflation. I will not debate such thinking as it implies the central bank can in fact target anything with any success. Instead I found out what the real evil of sustained inflation could be (from Clusterstock):
New America Foundation Urges US To Inflate Our Way Out Of Debt

A new paper from the New America Foundation urges that US to adopt a policy of moderate inflation in order to allevieate the massive public and private debt burden.
Authored by Chris Hayes, the Washington DC editor of the Nation, the paper argues that too much debt will have a deadening effect on the economy, as people are consigned to “debtor serfdom” and the government cannot afford to provide basic services because of the cost of making its debt payments.
“The surest way to avoid such a fate is to jettison a central, indeed the central axiom of post-1970s neoliberal global capitalism, and that is to embrace a period of moderate, sustained inflation,” Hayes argues.

Ok, so whats the possible downside?:

Fortunately, not everyone in DC is jumping on board the inflate our way to debt-freedom bandwagon. Daniel Indiviglio a the Atlantic spells out a number of problems with the idea.

Ready for the lead off item of terrible consequences?:

It would more or less make future Keynesian stimulus spending from debt impossible.

No more Keynesian stimulus! This evil must be opposed at all costs! I mean, Paul Krugman would be out of a job if this happens.

China and Gold
There has been plenty of rumblings about China and what they may or may not be doing min regards to gold. Zero Hedge has a great guest post up that covers all the bases:
Guest Post: What The Heck Is Going On With China

Friday Night Entertainment
Time to move on to more pressing matters, like a mixed bag of fun!

Movie Quotes Restructured for Finance
This week I had a bit of interaction with the great site Illusion of Prosperity and the author Stagflationary Mark. I had remarked, regarding all the commercial properties being built in China that had nobody to lease them:
"If you build it, they will come? Maybe they could try baseball fields on the roofs of the buildings?"
To which Stag Mark responded:
GYSC, Field of Ponzi Dreams! ;)

And this got me thinking about a certain scene near the end of the film "Field of Dreams" and how a perfect quote could be made by substituting some words. Here is what I came up with:

Closing scene when the poor retail trader sees his long since debt imploded dad as a younger entry in the ponzi scheme:
"I had not seen him until later in the pyramid, worn down by redemption's!"

Of course I could not think of anything else but this kind of word play all week and so I offer two more modified movie lines for your enjoyment (hopefully!).

From Star Wars; A New Hope (Episode IV):
The scene when Darth Vader is told how the Death Star is now the ultimate power in the universe, so he responds:

"Don't be too proud of this high frequency trading technological terror you've constructed. The ability to front run your own clients is insignificant next to the power of the derivatives market."

Last one is from "The Godfather II" and the scene is when Michael wants Tom Hagen to agree to kill Roth at the airport:

"Mike, is it worth it? You've won. You got paid out at 100 cents on the dollar for your hedges. Do you want to wipe everybody out?
"I don't feel I have to wipe everybody out, Tom. Just my counter parties."

A little attempt at humor. Very little!


From the Department of Cool
Forget "run flat" tires and just go airless instead:

Very Wild!

How about a 5mm diameter gold piece hammered into a sheet a half meter square (small nugget at bottom of photo):

Now you know what malleable means.

It is not the size of the chicken in the fight, but the size of the fight in the chicken. Remember, size matters not!:

see more Lolcats and funny pictures

Film Clips
Inspired by Stagflation Marks unicorn cartoons, I found the key scene form the animated film "The Last Unicorn" in which King Haggard tells where all the unicorns have gone. Voice work by Christopher Lee (Count Dooku, Sauroman):


While not a film, one of my favorite scenes anywhere is a flash back scene from "The Highlander" series. Skip ahead to the 2:15 mark and you will see a tension filled head to head meeting between long time foes that cannot hide how much they hate one another:

Chilling.

Rock Blogging
After I was inundated with requests (haha) I will try and find some playable music for the masses.

Starting off with a great song that was on the "Silence of the Lambs" soundtrack, minus the disturbing imagery, try out Q. Lazarus with "Goodbye Horses":


I stumbled upon this wicked live show at Donnington of AC/DC and "Thunderstruck":


In the face of the manipulated bull market that will not quit, I will channel Dido and never throw up the "White Flag":


A song I used to listen to while boxing training was Iron Maiden's "The Loneliness of the Long Distance Runner" because it is inspirirng. For the best part, skip ahead to the 3:00 minute mark for the ultimate "keep going" push:


Last call! Time to close the show for tonight.

A little while back I gave some grief about somebody bringing up "Waynes World" in the comments section. I will credit the film with one major achievement, the band Queen finally got some of the credit they richly desreve as one of the finest bands of all time. Here is the song that caught most by surprise, but not if you already loved the band, "Bohemian Rhapsody:


Leave a comment, any comment, if you had a good time and....

Have a good night.

Thursday Items of Interest

It would figure that after about a week of having trouble finding compelling things to write about I would stumble upon about 20 things today that I wanted to spend time on! I am way short on time after getting home late and I have a hard stop at 8:30 to watch the opening game of the NFL season. I am very excited about this year in football and I think it could be one of the most competitive seasons in memory. My call tonight, Pittsburgh Steelers 17, Tennessee Titans 10 in a very physical game featuring two of the leagues best defenses.

I will probably do a weekend post because I have a few philosophical musings I want to get into writing. I am going to do a full Friday night post, so get your requests in for pictures (clean ones), film clips, book passages, music, you name it, I find it.

Items of Interest
Long time readers know I hate "link" posts, but that is about all I can muster tonight.

Barrick Gold Observations
The strange move by Barrick gold to end hedges, but pay current contracts in cash (not bullion delivery) by raising money via a stock offering can only be termed "puzzling". Two items on this:
From Jesse's Cafe:
Barrick Capitulates
Recounts the hedge contracts held by Barrick along with JP Morgan gold shorts and ties it all together

From The Golden Truth is this piece about Barrick hedge payouts of cash:
Adrian Douglas: Barrick can't get gold needed to cover hedges
Tantalizing indeed!

How In the World is this Even Possible?
Without hard numbers and projections for review, I have to say up front this story could be another "scare" job to get the kind of fee hand the banks demand in every area. That said, this story DEMANDS more attention:
Proposed Debit Card Regulations Could Cause 1,000 Banks and 2,000 Credit Unions to Fail
Excerpt:

According to Michael Moebs, an economic advisor for many banks and credit unions stated that Rep. Maloney’s legislation would effectively kill overdraft services, which could cause up to 1,000 banks and 2,000 credit unions to fold within the next two years. The reason for these potential failures is that 45% of banks collect more in overdraft fees than they make in profits.

I find this to be absurd, yet it is probably true. Can anyone shed more light on this?

You May be Right, I May be Crazy
This market has humbled anyone that has a brain and made heroes of anyone blindly buying equities by the boat load. Just like 1998-2000! Fun stuff.

The Housing Time Bomb wraps up all the dislocations across 4 major market indicators that no longer have any correlation at all which begs the question "what the heck is going on?":
Something Doesn't Add Up
Excerpt of the authors bottom line:

None of these correlations add up folks. The market is trading like it has 5 different personalities. You might as well just call it Sybil these days.
Today alone: Sybil acted bullish, feared deflation, feared inflation, and traded the US currency like its not worth the paper its printed on(which it probably isn't).
Sybil's price action is extremely unstable and inconsistent folks.
This should concern all investors regardless if you are bullish or bearish.

The questions the author raises would be a great exercise in thought for any interested.

Have a good night.