Friday, May 30, 2008

What Data IS reliable at This Point?

I have a chipmunk problem. The little buggers have been digging tunnels all over the front yard. If I fill in the tunnel opening, those little demons have it cleared out in a matter of hours. Now I have no wish to poison the chippies, so what is an effective chipmunk remedy? Thanks in advance to anyone with an idea.

What Data IS reliable at This Point?
Tanta over at Calculated Risk was allover some suspect reporting and crappy data that was let loose over the past couple of days. I refer you to her excellent analysis for details. The key point I want to hammer home is how amazingly unreliable almost every data point is at this point.

Today the Mortgage Insurance Companies of America reported that a major lender’s change to its methodology for recording delinquencies led to a dramatic increase in reported defaults, to 73,880 in April versus 58,131 in March. The HousingWire article ( article says:

"The jump essentially makes it impossible to know whether defaults actually did increase or decrease relative to April’s statistics; MICA did not release statistics summarizing the impact of the reporting change on overall reported defaults."

Well that's useful, yes? Add this to the bogus inflation stats, LIBOR being fudged, Level III asset games, and fixed unemployment stats and what we have is a mirage of data that is worthless as economic barometer. The GDP numbers are also suspect at this point as government spending may be goosed just to dodge a "technical" recession.

What this means to me is that it is very hard to value anything in this atmosphere. Stocks use P/E ratios as a gauge, but with so much balance sheet tomfoolery who knows about the P or E really. Put it this way; The DOW could be worth 20,000 or 2,000 at this point but there is no real way to tell! If markets hate "uncertainty" then all of the manipulated data and suspect reports must be really vexing.

Got a late start tonight, but I cannot skip out on Friday night entertainment!

Comic Picture
This is one tough kitty!
more cat pictures

Film Recommendation
An all time classic flick, "Three O'Clock High" is a sleeper not many have seen. I highly recommend it. Check out the book report scene. Skip to 3 minute mark and watch till end. Great stuff:

Rock Blogging
I love the woman from the band "Evanescence", her voice is both unique and powerful. The music rocks as well. Take a listen to "My Immortal":

The original "Planet Caravan" from Black Sabbath is a classic:

A little short on time, so that's all folks.

Have a good night.

Thursday, May 29, 2008

China Holds Tons of US Debt and They Have all the Vegetables

Every day brings more amazing news and pictures from the Phoenix Mars Lander. Hard to believe we can send a robot that far out into space and land it within 20 meters of where it was meant to land but we still cannot figure out that you cannot spend more than you make for long. Humans are a strange species indeed. In all the buzz of the new lander, do not forget the two little rover robots Spirit and Opportunity that are still rolling around Mars gathering data long after they should have ceased to function.

The Markets Need Daily Reassurance and Explanations To Function
It started with the FED way back in time when they started their BSC bail rigging followed by the lending of cash to banks of all kinds. As if as sea of cash swapped for toxic mortgage paper was not enough, no attacks are being levied at the evil of high oil prices.

Things are so bad right now that daily explanations of data and reassurance on a constant basis seems to be the only way to keep the markets from imploding. That's bullish, right?

Today there was a reported drop in oil inventory numbers that was significant in size while the expectation was for a slight increase. Of course, we can't have a panic so we get the following snippet from this AP story(

"In its weekly inventory report, the department's Energy Information Administration said crude oil inventories fell 8.8 million barrels last week, while gasoline supplies fell 3.2 million barrels. Analysts surveyed by energy research firm Platts had expected slight increases in supplies of both.
But the EIA also offered a rare explanatory note on the Gulf Coast tanker problems. Gulf ports have closed many times in recent months due to fog, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago."

Got that? The huge drops were due to recurring fog! Why not issue fog alerts ahead of time? Can we expect the fog to "moderate over the coming quarters" or is it here to stay? Will there be fog futures? Who knows. What I do know is that when every piece of good news needs to be pumped hard and every piece of bad news has to be explained away, delusion is running high. That means that right now risk is high. Very high. Higher than Jeff Spicoli.

China Holds Tons of US Debt and They Have all the Vegetables
We all know the deal. China is sitting on so much US debt that they cannot reasonably expect to ever get paid back. HaHa! I have written before that the price of this debt being called will one day cost the US by having to agree to a China invasion/takeover of Taiwan at some point. Sorry guys!

While I was looking into what kinds of things to plant in the garden, I kept coming across the same data tidbit; China produces most of the vegetables that are eaten worldwide. Think about that for a moment. Look at this list of Chinese production (all from 2005 stats on Wiki):
  • Carrots and Turnips - China accounted for at least one third of the global output
  • Tomato - 125 million tonnes of tomatoes were produced in the world in 2005, with China, the largest producer, accounting for about one-fourth of the global output
  • Lettuce - China is largest world producer
  • Potato - China accounted for one-fourth of the global output
  • Cucumber - China produced at least 60% of the global output of cucumber

I was too freaked out to research any more. As you can clearly see, China holds the most US debt and they also hold all the vegetables! I would rather have the veggies than the debt, but that is just me.

What does this mean? Maybe nothing at all. China has the most people so it makes sense that they produce tons of well, produce. Or maybe it is a good spot to be in to hold a bunch of debt and have a strangle-hold on veggie production. Who can say. One can guess though.

Have a good night.

Wednesday, May 28, 2008

GDP Will Be Fine, As Long as Consumers Buy Tchotchkes

Wild rain and heavy winds here last night. No damage to the plants however. The garden is looking strong indeed. Loyal reader Watchtower had asked if I had seen any pictures form the Mars Phoenix lander. I watched the whole thing on NASA TV live! I love space stuff, and the phoenix lander is amazing. Plenty of good photos out there with my two favorites being the lander being photographed during its descent by the Mars recon orbiter, and the picture of the camera shadow from the lander itself. Check out all relevant info here:

Sudden Assault on Bubbles Obvious to All
It seems that the shear hypocrisy of the "some bubbles are bad" line of thinking is getting a fair amount of coverage. Mish has a good discussion going and Tim Iacono over at The Mess That Greenspan Made has the best one liner yet from one of his posts today:

"Aside from the remarkable surety with which many analysts are now able to identify a "commodities bubble" in real-time, a feat that seemed impossible for both the stock market bubble and the housing bubble just a few year ago, the one part of the "commodities bubble" discussion that seems most ill-reasoned these days is the eagerness to pop it."

I spilled a ton of virtual ink on this already. Tim's line is perfect as it captures everything that is so wrong with the entire system. You had to basically have every possible data point corroborate that there was a stock (2000) and housing bubble (2005) before the bulls were dragged kicking and screaming to see the truth, but now Oil and food are sure fire bubbles that need intervention. Ok I'll play.

Say oil is overpriced relative to some fundamental analysis by, for the sake of argument, by 50%. So oil should be at the $60-$65 a barrel range. No problem. I am sure the stock market would rally huge on that oil price collapse. Now reduce home prices by the 20-40% that they are still out of line with fundamentals and hows that action? Still like bubble popping? I sure as hell would! Vote on the new poll which asks which bubble is/was the most hurtful.

GDP Will Be Fine, As Long as Consumers Buy Tchotchkes
As you may know already, I am a huge fan of the major news outlets and their stories on finance. I think they are very revealing, not through insight or rugged analysis, but because they are the face the MSM wants to put on things. The facade if you will. Sometimes though you get a nugget that shows the underlining belief under the surface, and today was one of those days.

Faced with a durable goods number that was a bit better than expected, the market rallied, pulled back, and closed higher based on a line that a recession will not occur. Leave that debate out of it for a bit and check out today's Yahoo Finance lead headline story:
Stocks rise after durable goods data
Wednesday May 28, 6:01 pm ET By Tim Paradis, AP Business Writer
Stocks rise after smaller-than-expected drop in durable goods, but oil weighs on investors
NEW YORK (AP) -- Wall Street managed to finish an erratic session with a moderate gain Wednesday as investors found some comfort in upbeat data on durable goods orders.
Oil prices, however, remain a big focus on Wall Street. Crude's recovery from its lows Wednesday ate into some of the stock market's enthusiasm over the Commerce Department's durable goods report; the government said orders for items including aircraft, machinery, cars, refrigerators and computers slipped 0.5 percent last month.

Wall Street expected a steeper decline. Excluding transportation, orders rose 2.5 percent -- the sharpest increase in nine months. And orders for electrical equipment and appliances jumped 27.8 percent, the largest-ever increase.
"There's a lot of commentary especially out of the Fed that the oil prices are rising because of basic demand as opposed to speculation in the market. I think that has a chilling effect on the stock market," said Kim Caughey, equity research analyst at Fort Pitt Capital Group.
A drop of more than $3 a barrel helped stocks finish higher Tuesday, the first day of trading for the week after Memorial Day. But last week, oil saw a fresh record of $135, and the major stock market indexes lost more than 3 percent as investors worried that a surge in oil and gas prices would dull discretionary spending and upend whatever growth the economy might manage.
"The consumer's behavior is changing. They're not getting in their car, driving to Wal-Mart and loading up on tchotchkes that they may or may not need," Caughey said."

I have to admit, I had to look up "Tchotchke", and here is the Wiki entry:
Tchotchke originally from Yiddish because there is no standardized transliteration; trinket, ultimately from a Slavic word for "toys" are trinkets, small toys, knickknacks, baubles, or kitsch. The term has a connotation of worthlessness or disposability, as well as tackiness. The term was long used in the Jewish-American community and in the regional speech of New York City.

Imagine this, consumers may not be buying up crap they do not need by the bushel going forward! Oh No! What will become of our economy if every single dollar made, and plenty more that are borrowed on debt, are not spent with reckless abandon?

If you are one of these type of people that are the perfect consumer, take a minute and look over that line again. You are counted on to be a damn fool and spend money on things you do not need to line the pockets of rich people. Too funny. I hope someday soon the severity of how screwed up things have become is somehow brought to bear on many US "consumers".

Until then, I have to open up an online "Tchotchke" business!

Have a good night.

Tuesday, May 27, 2008

Oil is all the Rage

Long weekends are good and bad. The good is the time away from your actual job, sleeping later than 5am, and time aplenty to do whatever you want. The bad is the first day back to reality. I really did not want tot get up this morning. Tough time.

Anyway, I had a good weekend. The dry aged steaks were amazing. The new fishing rod and reel setup work extremely well. My potato plants are growing like crazy now. I hope you all had a good holiday weekend as well.

Airline Bailout on the Way?
I read a story this morning (I can't remember where I read it or who wrote it; it was early this morning and I was half awake!) that was discussing the price of oil and how much it costs the airlines to buy fuel in the current high price era. The numbers were pretty scary and towards the end the writer remarked that the airline industry will be calling for their own bailout by years end if things do not moderate on the oil price front and fast.

While I am certain that the price of oil will "moderate in the coming quarters" this line of thinking certainly has become first response as of late. Industry in trouble? Bail them out! This is what happens when you ignore moral hazard.

So we are currently bailing out the following:
  • Insolvent banks that caused the mortgage mess due to greed and poor management
  • Insolvent home mortgage borrowers that chased prices up

Airlines a possible next bail? How about this list of possible bailouts that will be needed:

  • Airlines broke from fuel costs
  • American auto makers
  • Home builders at some point
  • Realtors and finance jobs that are being lost

At what point can we just bail on the USA? The speed at which we have arrived at complete acceptance of pure socialism is scary. No debate. No vote. Nothing but the FED along with the money folks screwing the taxpayer so they can stay rich. Ugly stuff.

Oil is all the Rage

I have about had my fill already of the oil stories. As I have said oil speculation is bad while speculating in housing is awesome. Oil speculation should be investigated by congress while home speculation should be encouraged by tax breaks and bills from congress. You get the idea.

The oil price angle, and the causes of the higher prices may be good in one way. Finally there may be a fair and objective look at what Greenspan/Bernanke easy money has done to the dollar and commodities as functions of excess liquidity. I would not hold on to that hope too hard.

Have a good night.

Friday, May 23, 2008

With Housing's Bust, How Will People Exhibit Their "Success"

The warmer weather should arrive tonight, and the wild winds should diminish as well. 3 day weekend and I have a ton of stuff to do. I finally see some potato plant tops sprouting out of the ground at last. With a bit of warmth things should get growing in a good way.

Inflation Expectations Pulling Up Anchor and Sailing Away
One of the FED's favorite statements to make is the good old "inflation expectations remain well anchored". I have always hated that statement because it is clear that actual inflation makes zero difference to the FED, only the expectation of more of it scares them. Well Boom Boom Bernanke and company should start wearing their depends undergarments after the scare stories being run on all the major TV networks and throughout the mainstream media concerning gasoline and oil prices.

One segment talked to some "experts" about how bad things could get. One crazy guy was saying oil at $200 a barrel will mean $6-$7 dollar a gallon gasoline. I am not quibbling with the numbers, perhaps that is correct. The key here is that expectations of higher prices are starting to become ingrained, and they are starting to run a little out of control. If the FED has failed at basically every aspect of their job (they have) at least they could have done this one thing right!

I have no idea how high oil/gas can go. The move from reporting that things are ok and getting better is giving way to panic reports at an alarming rate. Going to be a long summer.

The Week After the Worst Was Behind Us
It was only just last week that the final touches on the whole "the worst is behind us" thought line were finished that the markets took another beating. Maybe the worst will be over next week? Here is this weeks DOW chart which clearly shows the end of the problems facing the markets:

If this happens after the worst is over, I am scared to see what happens if things get worse!

The housing numbers today were abysmal as usual and existing home inventory is at an all time high. HELOC's are going south faster than any models can predict. JP Morgan defrauded Jefferson County Alabama. Moody's was caught in a cover up. Yup, I'd say next week is a better bet for the worst being over. Until the next week after that.....

With Housing's Bust, How Will People Exhibit Their "Success"
Really owning one's own home used to mean so many things. It used to mean the buyers were able to put away 20% of the purchase price. It used to mean a bank went over the buyers finances with a microscope. It used to mean the buyer was committed to becoming a part of the neighborhood. It used to mean the buyers were in great financial shape. I think you know none of this applies anymore.

Expanded into the bubblemania, things like granite covering every surface was the exhibit of "wealth" and "success". Travertine tiles were also a big showoff item. Huge SUV's the size of small cities were a clear sign of a big penis, er wallet. You know the things I mean.

So what will replace these former wealth markers? How about T-Shirts with your actual net worth printed on them after being certified by a independent firm? No, that would not work as there is no way to lie. Will piling cans of gasoline in your front yard become the new status symbol? Maybe. Some guy will cheat and fill them with water though.

So what is it going to be? If a home may mean some sign of success, but it could also mean a subprime slime on your block, what will be the new showoff item(s)? Here are some ideas, but please leave some more in the comments section. I will put a bunch of the best ones up on Sunday for the new poll question.

New Status Symbols To Replace a Big Home
  • Huge outdoor grills made out of Granite powered by their own barrel of Oil
  • Car up on blocks left running for hours to show gas prices don't hurt this family
  • An all American citizen landscaping crew, no illegal immigrants
  • Travertine tile driveways

Make up your own!

It is indeed Friday night, and that means it is time for laughs, films, music, and whatever else I can think up.

Comic Relief

more cat pictures

Film Recommendation

If you have not seen the film "No Country for Old Men" then you have to. Soon. A new era classic that will be a timeless hit. In a scene that will become as remembered as any other classic, take a look at "The Coin Toss":

Music Time

Loyal reader Watchtower recommended The Smashing Pumpkins and the song "1979", which I confess I know the song well but had no idea the title was 1979!:

A little older tune, listen to Norman Greenbaum's "Spirit in the Sky":

One of my favorite Guns and Roses songs is "The Garden" and I thought in honor of Kevin's and my own garden I would play it, take a listen:

Have a good night.

Thursday, May 22, 2008

Thursday Musings

The dry aged steaks arrived today. They look amazing, definitely nothing like grocery store meat. The dry aging makes a deep red coloring, not the bright crimson of non aged meat. I will try to wait until Saturday to make them. My fishing gear also arrived. Two tidbits; first I highly recommend a pair of good polarized sunglasses. While perfect for seeing underwater objects up to 20 feet deep in clear water, they also provide excellent sun protection and no glare. Point two is for Watchtower. I got the St. Croix premier 6 foot one piece medium power rod, and paired it with a Shimano Sidestab reel (seems like the ONLY rear drag reel made now!) on clearance from Cabelas. The rod was $70, but the reel was only $30. For $100 you can have a bullet proof, sensitive, world class set up. Not to shabby.

Market Ticker Hit Dick Bove Again as Well
In last nights post I recounted the saga of analyst Dick Bove who thought as recently as March that the financials were a "once in a generation" buy. Now Mr. Bove is backing away from that call, and I was all over him. Market Ticker's Karl Denninger also has a good memory and hits on Bove as well:

I love this kind of thing. Maybe Mr. Bove is just early on his call and I will look like a fool next year, but that's the name of the game.

If I Only Had the Time
One of the hard things about trying to run a real time blog covering things financial is having enough time. To write a good post that has the kind of content I am proud of and that I feel adds some value for readers takes a while. It is also hard to have all the needed data put together in a reasonable amount of time to be a current event. With the summer approaching and a decision needing to be made concerning my living conditions (buy the mom in laws house we are in, add an in law suite for her vs. having to buy in a collapsing market), fishing season, the yard work, regular work (yes I have a job), cooking dinner (yes I do all the cooking, my wife has it all!), and trying to read and watch some sports....well you get it. It can be hard.

I am so jealous of masterful writers like Mike "The Mish" Shedlock. If I had the time I wish I could do proper research quickly and write a post that has so much detailed information that is so very relevant that YOU MUST READ IT NOW! Here is a prime example concerning how the older members of our working society are increasingly facing tough times and tough decisions:

Mish blends today's headlines with his demographic post from the other day in a way that really shows you where things are headed. Great stuff.

Now I really enjoy doing this blog and I am going to keep up with it, but try to remember that I am just a hack trying my best, not a pro. I still think my Friday Night Rock Blogging simply has no peer on the Internet, or Internets if you are the president!

So to better serve you, the reading public, try to leave some story ideas in the comments section. Sometimes, like tonight, I am short of post ideas. I can just copy your idea, do a little research, and post a blog and call it all mine. Let me know what topics you want to have discussed here. I am open to all ideas, but keep it reasonably clean, HAHA.

I leave you with a clip from "The Outlaw Josey Wales" a great film based on the novel "Gone to Texas" by Forrest Carter. If you buy the book, included is the story "The Vengeance Trail of Josey Wales" which is an excellent story as well. Maybe they can make a part II?

Anyways this is where Josey meets Ten Bears:

As always, I am taking film, music, or "other" ideas for Friday night's post.

Have a good night.

Wednesday, May 21, 2008

The FED Cries "No Mas, No Mas" and Throws in the Towel

Another crappy weather day here. Friday things should improve, and this weekend should see temps in the low 80's! I have Monday off and I get out of work at noon om Friday when my company closes for the weekend. Too sweet.

Reader Watchtower wanted to know my opinion of the G-Loomis rods as well as my impressions of the St. Croix line. Well, I exclusively use St. Croix Premier rods for my fishing in sensitive situations. I fish Senkos in extra clear water a lot, and subtle pickups are best transferred along a solid graphite blank. I can feel the senko bait wriggle and fall by touching just above the rod handle. I can even feel a fish mouth the bait and spit it out at times! For $65-$90 dollars there is no finer rod available. The cork handles are extra nice as well. G-Loomis is comparable, but more expensive. Still a fine rod. I use the good old shakespeare "Rhino Rod" when I go Carp fishing because I am always afraid of hooking a huge carp and the rod snapping in two, as has happened on 3 occasions in my fishing career.

Anecdotal Evidence Warning
I love anecdotal evidence because it is so amorphous in value. So many "maybes" can be attached that they either offer a cutting edge insight, or a worthless one off observation. I offer the following item I saw this week for inspection.

On Monday, Tuesday, and today I saw a car pulled over in the breakdown lane and the Massachusetts highway assistance truck pulled over behind it. Nothing weird there, as those puke green vans stop to help flat tires, overheating radiators, etc. In the three instances I saw this week, the mass highway worker was at the gas filler cap putting gasoline into the car!

I realize that cars run out of gas, and I do remember seeing this about 4 other times, but that was over the past 2 years. 3 times in 3 days? Right as gas prices are climbing? Coincidence? You be the judge, but I think folks are trying real hard to stretch the gas as far as possible. Anyone else see anything like this?

Mainstream Media Stories Almost Reflect Reality
If the current trend of reasonable news stories continues, this blog might wither and die. I saw no less than 5 stories that actually asked a few questions and made some basic observations. What a concept, I know. Check out this one of the many that stood out to me, full link here:

The article goes over the Freddie Mac mythical earnings report from a while back. Good reporting overall on the balance sheet shenanigans. At the end the author, Jonathan Weil, hits it out of the park and resonates just like this humble blog with this quip:

"While the accounting-rule makers can't fix Freddie, they can fix the rules, by treating all securities the same and counting all gains and losses in net income. That would render the meaning of the word ``temporary'' irrelevant, eliminating the opportunity to abuse it.
Until then, we're left with a system in which the only reason Freddie Mac is now solvent is that everyone who matters has agreed to believe it's true. That can't last forever, either."

Perfecto! Welcome to the "pretend, deny, delay" club!

Dick Bove Already Squirming Away from his Ridiculous March Call
Loyal readers may remember my favorite clueless shill, Dick Bove formerly of Punk Ziegel, now Ladenburg Thalmann company. My March 20th post can be reviewed here:

Basically Mr Bove said that the US financial crisis was over. Done. No uncertain terms, no ifs ands or buts (butts?). Here was the quote from then:

The U.S. financial crisis is over but problems facing the economy are not, said Richard Bove, financial analyst with broker Punk Ziegel, adding that this was a "once in a generation" opportunity to buy bank stocks."I do, in fact, believe that the crisis is over. There will be more negative developments but they will be meaningless," Bove wrote in a note to clients."This comment sounds ridiculous given the conviction on the part of most commentators that the worst is yet to come; the extent of the decline is unknown; and that the length of the decline is similarly unclear," Bove wrote."An environment has been created that will pump profits into the American banking system," Bove said

Certainly a gutsy call! How is Mr. Bove doing on his rosy forecast? Well, let's take a looky loo:
Shares of Lehman fall amid hedging concerns
Wednesday May 21, 4:52 pm ET
Lehman shares fall amid speculation hedging losses and severance will hinder 2nd-qtr results
NEW YORK (AP) -- Shares of Lehman Brothers Holdings Inc. fell Wednesday as an analyst said less-effective hedging strategies, and severance costs, may hurt the investment bank during the current quarter.
Lehman's shares fell $2.44, or 5.8 percent, to $39.56. Shares have traded between $20.25 and $82.05 during the past year.

Try to guess which analyst! Try hard!

"The company's hedges which worked so well to blunt the impact of markdowns in the first fiscal quarter may not be working so well now," Ladenburg Thalmann analyst Richard Bove wrote in a research note. "Plus, Lehman has begun the process of laying off personnel."
If hedging strategies failed in the past three months, Lehman could post a quarterly loss when it reports fiscal second-quarter results, Bove said. Lehman's fiscal second quarter ends May 31.
The amount of money Lehman must pay out in severance as it slashes jobs is also unclear, Bove said. The size of the cuts and severance is likely to hurt financial results during the current quarter, he added.
Bove cut his price target to $38 from $48 and his fiscal 2008 earnings estimate to $2.36 per share from $3.87 per share. Lehman's fiscal year ends Nov. 30.

Well there you go. A once in a generation opportunity to buy financial stocks! Well maybe he meant it would take a generation to get your money back. HAHAHA. If you bought LEH on Mr. Bove's great call on March 20th at $48 bucks a share, you are looking at $40 bucks right now, a sweet 20% haircut. The worst is over crowd just got one smart ass smaller it seems. Way too funny.

The FED Cries "No Mas, No Mas" and Throws in the Towel

Fight fans may recall the rematch fight between Sugar Ray Leonard and Roberto Duran. Leonard was running around the ring, jabbing and clowning, and frustrating Duran so much, he tirned his back and said "No Mas, No Mas" (No More) to the referee and gave up the fight.

It seems the FED is at the same point. Embarrassed (hopefully) by the repeated "inflation is expected to moderate in the coming quarters" statement being disproved on a daily basis; Wrong about the whole "growth will rebound in the second half of the year" line that is trumped by Home Depot and Lowes saying no freaking way; and loss of all credibility in their craven attempt to bail out wall street, the FED has come to an inflection point.

The minutes of the last FED meeting were released today, and as soon as they were read, the markets had a fit. Barry Ritholtz at the blog The Big Picture had it perfectly summed up as thus:

"FED: Sorry Our Bad. FOMC minutes were released at 2:00pm this afternoon.
Upon reading the release, Candide suffered a fatal heart attack.
The reset of the cheerleading squad of pollyannas simply lost their arguments -- along with their lunch -- that growth is fine, inflation modest, the credit crisis contained.
The FOMC lowered their growth forecast, raised their inflation and unemployment forecast. The only omission in the announcement was their new policy, for the first time ever, of buying Index Puts to pay for all of the new Credit Lending Facilities.
Markets, which were positive, rolled over and fell 250 points."

The news that Moody's may have a computer issue that incorrectly valued certain debt instruments also did not help matters.

What to make of today's action? The FED minutes were pretty rough. Either it is time to buy guns, or it is time to load up on stocks! The FED is always wrong. Always. What we need to figure out is to which extreme is the FED wrong? On one hand we have a real recession that morphs into a major downturn (Depression, major recession?). Or a huge rebound occurs pushing markets to new highs. What is it going to be? Hard to say for sure, but I am going to go with the pretty terrible recession idea. Thought I do expect "the worst is over sentiment to moderate over the coming quarters". Bank on it!

Have a good night.

Tuesday, May 20, 2008

Oil is the Bad Kind of Bubble

Well it only dropped to 42 degrees last night and the plants in the garden seem to be ok. Lets go with the springtime temps already! Going to order some dry aged ribeyes tonight for dinner this weekend after I blog. I love the grill.

Massachusetts Senator Kennedy with Brain Tumor
My home state Senator, Ted Kennedy, has been diagnosed with a brain tumor. While I am not of the same politics as the esteemed Senator, I would like to pass along my best wishes for his health and a hopeful defeat of the tumor.

Fannie and Freddie Profits to Fund Housing Bill; What profits?
Some details came trickling out about the dumb housing bailout plan. Allegedly the plan will not cost the taxpayers any money because, get this, profits from the GSE's Fannie and Freddie will be used to fund the logistics of transferring the mortgage to the FHA or something. The plan is as convoluted and complex as any plan you would expect from the Senate.

FNM and FRE have had some issues first reporting correct earnings reports when they had profits, and now they have no profits anyway. Hard to see how mortgages guaranteed by the FHA are not going to cost the taxpayers any money, is the FHA part of the government or what? The crafters of this plan obviously think that home values are at THE BOTTOM and foreclosures are a thing of the past. What else can you expect from our leadership.

Oil is the Bad Kind of Bubble
The market had a rough go of it today. Most commentary attributed the drop to oil prices near $130 a barrel and a hot inflation number. Why oil at $100, $110, $120, or even $125 did not cause any issues is beyond me if oil at $130 is some mystic evil number. In fact, there was a quick jump in thinking that the major issue facing the economy going forward was now Oil prices!? Weird indeed. From Yahoo Finance:
Stocks stumble on record oil, inflation worries
Tuesday May 20, 5:47 pm ET By Joe Bel Bruno, AP Business Writer
Investors retreat as oil passes $129 a barrel, more worries about rising inflation
Analyst Stephen Leeb believes escalating oil prices and their fallout have now replaced the health of the financial sector as the market's biggest worry. He said rising energy creates a "very vicious circle" through the economy, and thinks the government must take some kind of action to bring down prices.
Oh Man! Already we are going to start hearing calls for more government intervention, this time in oil prices? An oil bailout? Can Fannie buy oil futures? Don't laugh, anything can now happen in the new era of socialist America.

"Stock investors are watching oil, period," said Leeb, whose New York-based Leeb Capital Management focuses on crude and its impact on equities. "The events that moved the market before revolved around write-offs and foreclosures, but all that's changed."
When did the housing crisis and credit issues stop being the main problem? I guess at 2:30pm today when oil prices won out.

But some analysts believe the market's slide gave investors an opportunity to collect profits. Peter Cardillo, chief market economist at New York-based brokerage Avalon Partners, said Tuesday's decline doesn't change the market's long-term prospects.
"The oil price rise is being done by speculators and does not reflect market fundamentals," he said. "But, it still has an effect on the consumer -- and investor confidence is equal to consumer confidence, which has been having swings as of late."

And we see a familiar pattern once again.

You see Oil prices are in a bubble that is disconnected from any fundamental valuation of the commodity. This is bad. This must stop.

When home prices were in a bubble that is disconnected from any fundamental valuation of the commodity, that was good. Awesome in fact. So great that while home prices are now falling to better reflect their value based on fundamentals, there is a furious effort to try and stop that process from occurring.

Is oil more important than housing? Both are life needs. Why the differential treatment? Where are the ads and talking heads saying "Buy Oil Now or You Will Be Priced Out Forever!" How about "Stunning Oil Barrel for Sale, Recently Updated and now with a Granite Barrel".

Nobody cared much for the people getting priced out of housing when prices were doing the parabolic thing. In fact smug home "owners" often taunted and jeered at people that opted to wait or could not afford to buy in the bubble mania. These same aloof fools are now whining for help. Unreal.

In summation, I had posted on May 5th that Oil was approaching and important psychological point. I had ended that post:

" I am struck by how strong the desire is out there to be optimistic about various things. Oil is becoming a major threat to that mindset. With all the FED bailout plans and emergency lending tricks have created a new bubble, a bubble in sentiment? If oil at $120 means nothing bad in a macro sense, then you know folks are pretending hard. It is shaping up to be a LONG summer."

And today we see an AP article that says what I said, well kind of. One can dream that reality has come back to the market, but I imagine today's action will have no follow through. When the Oil price bailout plans start to circulate, you know it is time to kiss your money goodbye as the government is going to need all of it very soon. Vote in the new poll!

Have a good night.

Monday, May 19, 2008

Cheering the Housing Bailout Bill: Wall Street says Thanks Taxpayers!

What a crappy day today. Temps on the low 50's, and high wind gusts that make it hard to hear anything while outside. Not expected to break 55 degrees for the next 5 days. Kevin, I was glad to hear that your spinach survived snow because it may hit a low 0f 38 here tonight and I am hoping the garden will not die off!

Robert Shiller's New York Times Piece
The weekend was dominated in the blogosphere by the NY Times piece done by Mr. Robert Shiller. Shiller, if you did not know, has been an early whistle blower on the housing bubble, and he has his own home price index (the Case-Shiller index) which is referenced quite a bit. I saw a post on Shiller's article on every single major blog. You can read the piece here:

I am not sure what all the rage was about this story. Mr. Shiller argues, much like Nouriel Roubini, that the housing bust must be actively managed to prevent a widespread panic. Whatever. I mean either you feel that a bailout is wrong no matter what or you think a bailout is ok if it averts some kind of disaster. You know where I stand, disaster please come faster!

The most important thought I took away from the article feeds right into the previous question about bailouts in general. Mr. Shiller makes an argument that widespread foreclosures would be a "Psychological Scar" for many. He is most likely correct. The key point is that in a debt based economy that is built on ever expanding credit, psychology IS king. Any serious financial reader know that the banks are a joke and in fact insolvent by any realistic metric. But the belief that they are ok still holds, and thus they hold. Home prices are coming down, but belief is still high that homes do not "go to zero" like tech stocks once did. Maybe, maybe not. Zero is not possible, but there is nothing easy about a 80-90% markdown. Almost zero is pretty bad. Again psychology is king.

This brings us back to the bailout question. With a system as broken and stupid as ours, a collapse is the only way to start new. It will suck. It will be terrible. It will not be Disney Land. The alternative is to continue to prop up psychology until a collapse happens at a time NOT OF OUR CHOOSING. Decide how you want to play it. If all those so called "I do everything for my kid" type parents really meant anything that they said, they would not be guaranteeing little junior a nightmare financial collapse is the near future but would instead take steps to combat the problem now. As evidenced by reality, you know the deal.

Cheering the Housing Bailout Bill: Wall Street says Thanks Taxpayers!
Late word that our magnificent US Senate has forged a deal to pass some kind of Housing Bailout bill. The bill will most likely look exactly like Senator Todd's silly $300 Billion package to hand the taxpayer a sure loss. No details as yet, but I can all but promise that Mr. President will not veto this baby. No way.

Already if you look at some of the message boards for companies like CFC, BAC, MER, and others there is a giddy glee of excitement. Free money tends to do that. When I discussed moral hazard in depth a while back this was the kind of thing I was most pissed off at. First the f#ckos on wall street package and sell off all these terrible mortgages. Then they all blow up. Massive losses result. The FED and the government spare no expense to make sure the banks that did this experience not even a 1 day lack of access to cash. Now the risk will be passed onto taxpayers and wall street will now play the stocks to their utmost benefit. What a way to game the system.

Any talking head that says this bill is a positive is instantly a loser. If you are so desperate that the FED has to loan out it's entire balance sheet, and the US government has to take on the risk of over 300 Billion dollars in loans, the market is not "strong" The market is on life support. Delay, deny, and hope. How much time will this bill buy? We will see.

Still makes me sick.

Have a good night and don't puke.

Saturday, May 17, 2008

Saturday Was a Long Day

Long day today! The wife and I did some Lowes Shopping to stimulate the economy. I got a bunch of stuff for the grill, you know a flat pad for the ground, a propane gauge, etc. I got a terrible sliver when I was using a rake, and it took almost an hour to dig it out. I will not forget my gloves again!

Ordered all my fishing gear as well. I am very excited about the new fishing season. I am aiming for next weekend to open the year. Weather dependent of course.

So after a long day like today I am tapped out, so no real post this evening. I saw some stuff I wanted to share though.

The film "Network" from 1976
I have never seen the film "Network" from 1976. Housing Panic had a clip from the film and it is terribly relevant to right now. It also has a smoking hot young Faye Dunaway in the film. Enjoy the clip:

Guitar Hero
Everybody I know plays the game "Guitar Hero". I really do not like games in general, but I do like to watch the youtube clips of various songs done on the game. I like how the button prompts can give a sense of motion to the song. I suggest watching a clip of a song you like to see what I mean.

Here is a "Crazy Train" Guitar Hero run:

"Hotel California" done on Guitar Hero:

And yes I am aware that I am very strange.

Have a good night.

Friday, May 16, 2008

Banks Taking Advantage of the FED and ECB? NO WAY!

Rain today and cool temperatures expected for the next 7-10 days. This month is not shaping up well. The opening of my fishing season will be pushed back if the temps do not improve soon. Oh well.
Happy Anniversary for loyal reader G this weekend!

Fannie Mae Setting Up the Taxpayer for a Big Time Payout
So as we all know easy money and extremely lax lending standards (if any) were the main enablers of the housing boom, now bust. No down payment, no income verification loans were all the rage and those loans sport the highest default numbers. Fannie Mae (FNM) had some of the more stringent lending rules, and had recently in December instituted a rule that required a 5% down payment for a loan in troubled markets. 5% down. Not 10%. Just 5%.

Well of course nobody has that kind of actual hard cash money, so the NAR and other housing pushers were screaming murder over the rule. Alas, here we are in May and FNM has made a move:
Fannie Mae scraps higher down-payment requirements
Friday May 16, 6:03 pm ET By Alan Zibel, AP Business Writer
Fannie Mae scraps increased minimum down-payment requirement for homes in flagging markets
WASHINGTON (AP) -- By relaxing down-payment requirements for borrowers in markets where home prices are falling, Fannie Mae aims to both resuscitate the flagging housing market and respond to pressure from industry groups, consumer advocates and lawmakers.
It's a balancing act that critics and investors worry exposes the company to more risk, as foreclosure rates spike and home prices keep falling.
Washington-based Fannie Mae said Friday it will require minimum down payments of 3 percent for loans made through its computerized underwriting system.
The new policy, effective June 1, replaces a December one that required a 5 percent down payment for home loans in areas with declining real estate prices. Fannie Mae predicts U.S. home prices will drop 7 percent to 9 percent on average this year.

I have said time and again that the only way to restart the housing boom is to lend like mad to anyone. Any, and I mean any, qualifying conditions will preclude 80% of prospective buyers right off the bat. Here is a prediction; by September the same people clamoring for the reduction from 5% to 3% will be screaming for no money down to be put in place. Guaranteed.

The last sentence really shows you how out of touch the markets, lawmakers, and the media are in this area. 3% down payment, on a home that will decline in value this year by 7-9% at least, means the new buyers are instantly underwater! Great idea! It is very good for us all that we have smart folks that can handle these issues for us. The stock was flat on the day even as the company itself admits it is going to make bad loans. Love it.

Banks Taking Advantage of the FED and ECB? NO WAY!
The Financial Times had a piece today that covered growing suspicion by the ECB that member banks in Europe may be, now prepare yourself, packaging toxic waste paper and stashing it at the central bank in exchange for ECB equivalent treasury bonds. You don't say?
Full story:

A while back I had a post about how the FED has no idea what kind of animals they are getting into bed with as they open their balance sheet to the banks, and investment banks in particular. While the ECB seems to have found a clue, the FED is in an even worse spot as I am sure our side of the Atlantic banks are being very aggressive with their swaps. Again, easy to see beforehand. Perhaps Bernanke will give a speech in a month where he calls on those fictitious "supervisors" to keep this kind of action from happening. Sweet stuff!

Is Borrowed Money Saved Money?
Remember the guy that emailed a CNN money show with this awesome question:

'Mark has a question. He asks, "I recently saved up about $20,000." That's good news. "Unfortunately, I have a little over $14,000 in credit card and medical debt. Eight of the accounts are in collections. Three are supposed to fall off my credit report by January 2009. Should I take my savings and pay off the collection accounts or continue to keep it in a savings account?"'

Not to be outdone, The Governantor of California would like to sell a bunch of bonds backed by the state lottery (that sure sounds good) which will provide 5 Billion dollars to close the budget gap, and 10 Billion for a reserve account. Borrowing money to have saved money? I think Mr. Schwarzenegger needs to get a lesson in finance. This is not Mars in "Total Recall" you know?

It is Friday, so you know what time it is, Yes?

Obligatory funny picture:

more cat pictures

OK, now its time;
To Bring forth the rhythym and the rhyme! (Thanks Marky Mark!)

Rock Blogging!
One reader (Big Dawg) requested some classic 80's rock, which I happen to love anyways! No specification for hair bands, metal bands, or other so I guess it is up to me.

One of may favorite 80's bands was Skid Row. Take a listen to "18 and Life":

The Van Halen tune "Everybody Wants Some" as seen in the classic film "Better Off Dead":

With the new hit fim "Iron Man" in theaters, I have to remind people that "Iron Man" was also a classic Black Sabbath song, one of the best ever in fact!:

Found the old video for Iron Maiden's "The Trooper". I remember when I had to stay up until after 12 midnight to see "Headbangers Ball" on MTV which was the only time thay played hard metal!:

Have a good night.

Thursday, May 15, 2008

Bernanke Says Banks Must Foresee the Risk the FED Ignored

I swear that I think the days are getting shorter or something. Maybe traffic is worse or I am moving slower, but it always seems I am running out of time. Reader Gawain had suggested Omaha Steaks in response to last nights inquiry. They are headquartered in Nebraska, which made me think of the film "Unforgiven" quote by little Bill Dagget: "Hell, I even thought I was dead 'til I found out it was just that I was in Nebraska." It was not clear if and how long they dry age their beef. I am ordering on Saturday, so I have to decide soon.

Loyal reader Watchtower says he has a Jon boat, and so I would like to know Watchtower if that boat is pretty stable on a river? I am of course in the market for a boat, and I plan on fishing a medium size river quite a bit. Let me know! And where is loyal reader G? I hope he is not working too hard.

Bernanke Says Banks Must Foresee the Risk the FED Ignored
Today was a good day. I love it when everyone, even the guys in the cheap seats, get an up close view of how clueless and broken the system is. Today Ben Bernanke, the FED Chief, gave a speech at a conference of reserve bankers (must be a wild crowd!) in Chicago. In the speech Mr. Boom Boom Bernanke tries to layoff the total failure of the FED to regulate banks in any way as it relates to mortgage issuance on those banks because they did not foresee the risks that the FED is tasked with regulating. Got all that? That is the translation in real terms. Bernanke's actual wording was a bit different:
Bernanke: Banks must get better at foreseeing risk
Thursday May 15, 11:36 am ET By Jeannine Aversa, AP Economics Writer
Bernanke: Banks need to beef up their ability to foresee risks like credit, mortgage troubles
WASHINGTON (AP) -- Commercial banks and other financial institutions need to beef up their ability to detect and protect themselves against risks like the credit and mortgage debacles, Federal Reserve Chairman Ben Bernanke said Thursday.
The trio of crises -- housing, credit and financial -- have exposed weaknesses in financial firms' so-called risk-management practices. That is their ability to sufficiently detect and hedge against risks. Banks and other financial players have racked up multibillion-dollar losses when investments in complex mortgage-backed securities soured with the collapse of the housing market. Credit problems in housing quickly spread to other areas, intensifying the turmoil.
"Improvements in banks' risk management will provide a more-stable financial system by making firms more resilient to shocks," Bernanke said in a speech to a Federal Reserve banking conference in Chicago.
"It is clear that supervisors must redouble their efforts to help organizations improve their risk-management practices," Bernanke said. "We have focused on the institutions in most need of improvement, but we will continue to remind the stronger institutions of the need to remain vigilant, particularly in light of the ongoing fragility of market conditions," he added.

OK. Basically Mr. Bernanke is saying that the "supervisors" must get better at risk assessment? What supervisors are these? Who is responsible for the banking system through money creation, bank overnight lending, interest rate setting and other tools? Is that not the FED itself?

Bernanke is pointing the finger at the banks here, and surely the banks are fully to blame for chasing risky investment ideas and flooding the markets with cheap credit. Guilty as charged. But where in the F#ING WORLD does Mr. Bernanke think this easy money came from? The tooth fairy? A pot of gold at the end of a rainbow? A scratch ticket?

No, the easy money from an ultra accommodating FED was the flood source. With interest rates so low for so long, money was forced to chase any return and thus here we are. The FED is trying to point a finger, but when you point a finger at someone, there are 4 fingers pointing back at yourself. The tone of the speech made me think that Bernanke thinks that worse things are down the road and he is trying lay blame off early. What a tool.

Leave Friday Night Rock Blogging suggestions in the comments!

Have a good night.

Wednesday, May 14, 2008

Level Three Assets - Estimate Your Own Net Worth!

I must say some nice beef tenderloin on an open flame is very good! I was hoping to buy some dry aged high quality steaks and I found some online sellers that seem pretty respectable. Can anyone here comment on meet products from:
Niman Ranch
Allen Brothers (not dry aged but seem popular)
Any help is appreciated.

Inflation Indeed Moderating Right on Schedule
The CPI came in pretty tame today at a measly 0.2 reading for April. Except for food prices which moved up a smallish 0.9%, which expanded across the year would mean 9% inflation in food prices! Gas prices fell, as long as you account for seasonal adjustment of the cost. What? Exactly, check out this snippet from the AP article on today's CPI number:

"For April, energy prices were unchanged and gasoline prices even fell by 2 percent, a decline that would strike motorists as strange, given that they have been watching the price of gasoline rise relentlessly in recent weeks.
However, since gasoline prices normally rise in April, the 5.6 percent increase in gasoline prices for the month was turned into a 2 percent drop after the government adjusted for normal seasonal variations -- little comfort to people now paying pump prices that hit a new national record of $3.758 per gallon on Thursday, up nearly 40 cents in the past month."

The lunacy of the inflation figures have been hammered for some time by some observers for some time, but now the tomfoolery is so blatant and incredible that even the MAINSTREAM media is doing some homework and trying to find out what gives. That should scare the powers that be. Even so, the market, which first was in rally mode on the idea that rising inflation was not denting the "real economy", rallied today on the idea that moderating inflation was a good thing. Have it both ways!

Deflation in the Face of Inflation - What Gives?
People that are much (and I mean much) smarter than me about things finance have been harping on the Deflation drum for a while. Well respected writers Mike Shedlock, and a bunch of the crew over at Minyanville are firmly entrenched in the deflation camp. I so strongly agree with their logic stream and evidence presentations that it makes it almost impossible to disagree with their final summation.

How can one reconcile the deflation argument with the stunning rise in energy, food, medical, education, etc prices? Kevin Depew in his splendid "5 Things You Need to Know" had a succinct, and to me, clear explanation of where this thing is right now in today's edition. Here is the relevant text from today's point number 3:

"3. So, What Do We Do Next?
So, the question before us is not, Are food and energy exhibiting symptoms of inflation? The question is what happens as a consequence of those symptoms. And here is where we see a massive disconnect emerging.
Today's "inflation" is illusory. It is the tail end of the Federal Reserve's mirage of economic production; credit creation. The mechanism of transfer between the Federal Reserve and the consumer are banks. (It should be noted that the rise of consumer lending units, and the dependence on them (at least until late last year) by companies in the original business of selling tangible products, companies ranging from General Electric (
GE) to General Motors (GM) and at one point even Target (TGT), are illustrative of the efficacy of the credit creation and transfer mechanism between the Federal Reserve and the people). And so the potential for this credit creation to fuel more inflationary symptoms is dependent entirely on the willingness both of banks to lend and consumers to borrow.
That is why this debt crisis is ultimately so deflationary. It chokes off credit at the nozzle while the hose (banks' balance sheets) itself is leaking.
Are you paying more for gas? Yes. Are you paying more for food? Certainly. The question is what are you going to do about it. Our bet is you are not going to borrow and spend more. The consequence of credit creation and a crisis of unproductive debt is deflation. This is not an event; it is a process. Step one is the process of banks unwinding debt. Meanwhile, today's symptomatic inflation in some high profile categories paves the way for tomorrow's unwinding of debt by consumers. If the unwinding of debt and tightening of credit for corporations is merely a whisper of deflation while symptoms of inflation persist, the unwinding of debt by consumers will be a roar."

I think the sentence "The question is what are you going to do about it" in the face of rising prices is most insightful. In the face of falling home prices and a closed home ATM, real world falling wages, and rising costs in things we need, even debt addicted US consumers are going to have to cut back. If banks ever want to make any money they are going to have to stop lending money that is not going to come back. This is deflationary. Kevin is correct yet again with the line "This is not an event; it is a process". This is what has most missing the point; Deflation will not happen next Tuesday in one fell swoop, but act like a slowly growing tumor of credit destruction.

So I guess I am a deflationist! Next step, how to make money in a macro deflation environment. As for that answer I am still clueless! Any help?

Level Three Assets - Estimate Your Own Net Worth!
Freddie Mac tried to add to the "worst is over" hysteria by reporting earnings that were not as loathsome as they could have been. All well and good an not really worthy of ink anymore. What was fun was the massive move to the fictitious LEVEL III asset class that FRE made to make the numbers work for them. From a Bloomberg article:

"Financial Accounting Standard 157 allows companies to estimate a value on holdings that aren't traded. Freddie Mac used FAS 157 to list $156.7 billion in so-called Level 3 assets, a category that indicates the holdings are so illiquid that they can only be priced using the firm's own valuation models.
The Level 3 holdings represent 23 percent of assets and are up from $31.9 billion as of December. "

So FRE goes from 32 Billion to 157 Billion (about 5X) in assets that they themselves can value as they see fit, and this earnings report was seen as strong? The early market action seemed to like it, but check out some quotes from the Bloomberg article:
  • "They put a lot of lipstick on this pig including several accounting changes that have given them a one time step-up,'' said Josh Rosner, an analyst at independent research firm Graham Fisher & Co. in New York.
  • Credit Suisse analyst Moshe Orenbuch, who has an underperform rating on Freddie Mac stock, said the accounting changes made the company's performance look better and was skeptical of the surge in stock price.
    ``Obviously people liked it,'' Orenbuch said. ``Management was selective as to how they applied certain accounting principles.''
  • Friedman, Billings, Ramsey & Co. analyst Paul Miller, who has an underperform on the stock, said investors should be concerned that the company hasn't set aside enough reserves, which pushes some credit losses to future quarters, Miller said.
    ``They're not provisioning in front of it so those losses are going to flow through their income statement for years,'' he said. ``Therefore we don't think that the earnings pickup over the next two or three years is going to be that meaningful.''

Full link here:

Wowza! Not too nice. What did FRE management think? They took a page from the good old play book of Level III accounting and now apply it to analysts as well! I am serious! If you do not like what some observers are saying, ignore them and focus on the good ones. This is called Level III Market Observation ( I will have the trademark!). Here it is in action, again from the Bloomberg article:

"Freddie Mac spokesman Michael Cosgrove said, ``clearly, based on the comments and reports this morning by the real, substantive analysts who follow this company, the Street is comfortable with our accounting and reporting, and encouraged by the results we presented today.''

So FRE only hears the real analysts that love them! Too funny. I love this stuff.

Vote in the new poll to Level III estimate your own personal worth. Considering my sword collection, some fishing equipment, my car, and a ton of books I will hazard a guess that I am worth about 3.2 Million Dollars. While the assets I have can be easily priced on eBay or at a garage sale, those sales are not MY PARTICULAR ASSETS and thus I will ignore them and instead rely on my own estimates of what my items are worth. What are you worth on a Level III basis? BE HONEST!

Have a good night.

Tuesday, May 13, 2008

Nationalization of Home Prices Not Far Away

Hello out there. Sorry for the spotty blogging, but I have been very busy at work, in the garden, using the new grill, and getting the fishing gear ready. I need to buy a new spinning rod this season so I get to buy a new St. Croix rod, my absolute favorite fishing pole ever made.

Thanks for the comments. I always thought that loyal reader G's letter G stood for "Gold" but perhaps he can elighten us otherwise?

Gold Getting Hammered
I sold out all of my gold and silver miners a while back, pocketing a nifty 160% profit. I have only been lightly following the gold price, but today was another beating. Over at The Mess That Greenspan Made Tim Iacono has a mid year price of gold and oil contest running. I have gold at $870, and oil at $98. Seems like I am going to be close for Gold, but WAY off for oil.

With the dollar catching a bid as of late, gold was sure to go down a bit. The current "stagflationary" environment may mean that thr gold rush is over, but I would expect most of the price of gold above $800 to remain intact. Should Gold get down to the $800 mark, I may be a buyer, and you know how much of a chicken I am!

FED Balance Sheet; Starting to Resemble The US Consumer's Balance Sheet
Calculated Risk had a graph that was presented by Janet Yellen (San Francisco Fed President) and it was a real good view into where the FED is headed. Just like the US consumer whose savings rate has been zero for some time, soon the FED will have lent out all their moolah in an attempt to bailout wall street. Take a look:

All the pretty colors represent all the assorted lending facilities in use by the desperate FED. Take home point: When the grey color of the graph is gone, the FED is going to have to go out and get some more money from someplace to keep helping the financial system avoid a "systemic collapse" or something. That cash is going to come from you, me, and the children of the future so millionaire bankers can stay millionaires and not have to take smaller limos. Imagine having to downsize your limo? The Horror!

The Next Bailout - SUV Prices in FreefallAll across the nation the same kind of blind fools that purchase huge SUV's are now trying to dump them for better mileage vehicles. The huge influx of SUV inventory has depressed used SUV prices, and thus are affecting new SUV prices as well. Prices offered can be as much as 30% lower that "bluebook" value at a dealership trade in.

So I have a proposal. Seeing the big push to bailout mortgage jokers has now been accepted as the right thing to do, how can we in good conscience leave these strapped SUV loan holders to endure a financial loss? Where is the bailout plan to save the vehicle market form "systemic collapase"? I mean, a car loan bailout must be smaller than a mortgage bailout, so why not?

Nationalization of Home Prices Not Far Away
Final thought for this evening. Even Nouriel Roubini is in favor of major move towards nationalization that the Barney Frank bill gurantees. Makes me want to puke. The reason why no plan has worked so far (Hope Now, CFC reworking, others) is because to make the plan palatable to the taxpayer and the more fiscal conservative of the government, the plans all have qualification criteria. The problem with that is any plan that will omit home flippers, fraud mortgage borrowers, and people that cannot afford the home at any loan structure is GOING TO MISS ALL THE PEOPLE LOSING THEIR HOMES. By definition any plan has to have some sort of rescue plan for the worst offenders of the housing bubble. Nobody seems to get this.

The next step is of course to put some kind of a floor under home prices. Price controls always work well. There was that time..., oh nope there never was. We are moving closer to a point where the FED, FHA, and you and me will basically write a new loan for all the losers out there for about half the original balance, have the new mortgage rate at about 3% fixed, and allow repayment over 50 years. Can't wait to see it.

Have a good night.

Monday, May 12, 2008

JP Morgan CEO Dimon Translator: "I Have No Idea What is Going On"

Well I went with a propane gas grill. The ease of use was the decider. I have successfully made dinner for two nights now using the new grill and I am very happy to have it. Much too long I was relegated to electric cooking hell. Flames are the only way to go when cooking meat. A little short on time tonight, so just a quick post.

JP Morgan CEO Dimon Translator: "I Have No Idea What is Going On"
When JP Morgan won the Bear Stearns FED bailout prize, the media was awash with glowing reports of CEO Jamie Dimon's amazing smarts and business acumen. I wondered at the time how smart and savvy you need to be to say "Yes" to a Federal reserve forced acquisition. Today Mr. Dimon was out in force giving confusing, contradictory, but amazingly hard number reads on the US economy.

Mr. Dimon estimated that the credit crunch is, get this, 75% of the way done. Why not 70%? 78%? Who knows. I guess he is saying the crunch is three quarters of the way done. Ok, I would say that is not an entirely crazy estimate, but then Mr. Dimon went on to say that the US recession is "just starting"!? Now I am confused.

I may be crazy, but when a recession happens credit gets HARDER to come by, and debt defaults get BIGGER. So if the credit issues are 75% over, but the US is just starting a recessionary period then something is amiss. Perhaps Mr. Dimon means that with the lending tree bank that is the FED the wall street banks have no credit issues! I would agree to that one. Mr. Dimon was also unclear as to how severe a recession may occur. Maybe it will rival the early 80's downturn instead of the baby early 2000 bust. After review of the entire set of stories and comments, I would offer that Mr. Dimon is guessing as much as anyone else is right now. That should inspire confidence.

Take a glance at the news stories today regarding Mr. Dimon's comments. At first the stories all were cheery over the 75% over comment, but after further review of Mr. Dimon's comments and their contradictory nature, the news reports stopped using the 75% figure and toned down the happy language a bit. You have to wonder about the media's objectivity when they trumpet positive news, and then bury poor news. Are you surprised?

Have a good night.

Friday, May 9, 2008

Tyranny of the Minority

Rain has arrived here in Massachusetts. Wonderful. I am in the market for a grill, so if anyone has a suggested model that they like please let me know in the comments. I would prefer a charcoal grill, but the mess and effort involved is more than a gas grill. I just want some grilled steaks! We had electric heat at the old apartment, and the oven here is electric and you cannot cook a good steak without a good gas oven broiler or an outdoor grill. Just my opinion.

Myanmar Relief - A Quick Word
The scale of disaster in Myanmar (Burma) is much larger than I thought, and seems to get bigger as more information is gathered. The major problem with aid efforts is a silly reclusive government that rules it's people with an iron fist. Any severe dictatorship worth it's weight in fascism is well schooled in keeping any outsiders outside, so their fragile hold on power can be maintained.

So what can I, you, or anyone do? I guess try to donate to major relief organizations that are involved. Hopefully the help will get there and not be hijacked by the government for their own personal usage. If I were Emperor of course, I would send 2 aircraft carriers and 3 divisions of amphibious Marines to invade and overthrow the government in less than 2 days. Then maybe the people there could get some kind of reasonable representation going. Instead of helping truly desperate people like those in Myanmar, we are stuck over in Iraq. What can you do.

The Tyranny of the Minority
There is indeed a new bubble to be aware of, and that bubble is the "bailout bubble". Programs of all sorts and acronyms have made the rounds over the last 6-8 months, each getting bigger and more dumb as we go along. The latest was the US House of Representatives passing a bill sponsored by Barney Frank (yes, he is from Massachusetts! Sorry Country!) which promises big time cash for mortgage bailouts, as well as cash to take care of empty homes. There is a speculative mania in bailouts right now, so beware buying any ETF's that specialize in tracking bailouts, we may be near a top!

What has really started to get me aggravated is this desperate rush to save a small number of retards that are in trouble with their mortgages. Let us assume a few numbers just for arguments sake, and yes I know what happens when you assume!

For this discussion, assume that 90% of of all outstanding mortgage holders are current and on time with their payments (I am sure it is higher) so that 10% of mortgage holders are in some stage of default. We will further assume that the entire 10% of late payers will be foreclosed (this would be high).

With that in mind, what the heck is the rush for all the bailout plans? Forget the "systemic banking collapse" argument for a moment, I want to focus on why more people across the country are not OUTRAGED at this blatant money drop for fools.

I think I have an idea. The 90% are mad and upset with the reward system being put in place for irresponsible borrowers. I am sure of it. I am equally sure that those same "homeowners" are terrified that their major asset, their home, will lose value over the next few years. They are only concerned that the bailout plans in effect prop up their home prices. A selfish and understandable desire.

It smacks me as disingenuous as public officials are out in force trying to act like they even care about people losing their homes. They don't. They are concerned with large numbers of voters losing equity in their homes though! If we could make it perfectly clear that these bailout plans will do nothing to stop home prices from falling (they won't stop that) I think the 90% out there would make more noise about the free ride being offered on their backs for the losers out there.

I realize this is subtle difference, but I think it is important to clearly define what is going on here. All the FED help, all the treasury plans, and all the bailout bills have one aim: to put some kind of artificial floor under home prices to maintain calm among middle class voters. Nobody gives two hoots about a bunch of fools getting kicked to the curb. When those curbside dwellers are dragging down the home values however, people care a whole lot. would like to stop the pretending that "preserving the American dream" or "keeping families in their homes" is anybodies main desire. It is not. If it was a fact that taking out foreclosure folks and shooting them dead and burying them in the back yard for fertilizer added $25,000 in garden equity to a home, gun sales would be way up. And yes, Americans are that greedy and craven.

So the current mess is clear example of the "Tyranny of the Minority" as failed flippers, dumb dreamers, wannabe real estate tycoons, and liars are holding the banking system and the home price scale hostage. It speaks volumes about the banking system that it can be this fragile. It says allot about how disconnected from fundamentals home prices became that they can rise and drop by huge percentages over a 6 year span. Both things are broken and both must be allowed to go where they must.

Ok, enough with the heavy stuff! It is Friday night and that means some entertainment, yes?

Here is a scene playing out all across America as adjustable rate teaser loans get reset:
lolcat - oh noez mah mortgage dun readjusted
more cat pictures

If you get pulled over for DUI, at least try and stand up during the field sobriety test:

Time for some Music!

One of my favorite bands was Queensryche. Check out "Silent Lucidity":

While I love almost all songs by the Eagles, I especially love "Tequila Sunrise":

Sadly they have already disbanded, but Audioslave for a brief moment showed how great rock and roll can be even today, sample "Like a Stone":

Have a good night.