Friday, November 28, 2008

Holiday Friday Night

My wife bought a bag of squirrel food and put some out yesterday. I think these two monster fat squirrels that came to it stayed there all day and were back at the bin again today. They ate all of what she put out there (about 2 cups). Will a squirrel eat until it pops? Just wondering.

Black Friday
Would you like my "on the street" report for "Black Friday"? Ok. I did not leave the house today at all. Aside from the shopper that was trampled at Walmart, the news reports I saw seemed pretty good. We will have to wait for the hard numbers to know for sure. Never fear, the US consumer cannot be stopped!

My Silver Buying Saga
I hold a bunch of gold mining shares, and I was thinking of putting some money into physical silver. My mom gave me a nice 10oz Johnson and Matthney silver bar about 6 years ago for Christmas (My mom and her long term boyfriend spent a long time in the Sacramento area; He is a gold panner enthusiast and loves all the metals!)and I just love the feel of the thing. I wanted to get maybe 60-70 1oz bars. So it begins.

Trying to get around having to have the silver bars shipped, I called 4 shops in the area that sell silver/gold coins and bullion. Here are the 4 responses I got from them:
1-Have not had any coins or bars for 8 months
2-Could make some calls and get back to me
3-Maybe, possibly could have a few in a month or so if I was interested
4-No longer tries to get any; cannot help

Ok, well in truth these shops were pretty small outfits, so I said to myself "Self, I guess we will look online". As I listen to myself as much as possible, I started my search.

What I found was pretty disappointing. Most sites had big banners saying "NOT AVAILABLE". When the silver bullion was available, we are talking crazy premiums! One site I saw had a 10oz JM bar (the one I have) going for $160. Silver is at $10 and ounce, so that is $100 for the metal and another 60% markup from there! Wowza.

On a tip from a comment left at Calculated Risk (I had asked for help) I was pointed towards a very nice site, Northwest Territorial Mint. It seems that they do indeed have silver available, but the disclaimer says at least 30 days until the order can be filled. The pricing was a bit less onerous (10oz bar for $140) and they offer Pan American Silver minted items, which I used to own a bunch of PAAS stock.

I wrote to the site support and asked about the 30-60 delivery delay. If I can be assured that I will get my order I think I will buy 65 1oz bars. Anyone out there know a better way to go? Leave a comment if you have any input.

Here is their site:

Economic Wrap Up
So November reaches a close and only 1 more month left in a wildly exciting 2008. What is going to happen is anyone's guess, but I am sure it will be a wild ride.

My overall take on things as of now is this:
There seems to be a huge sigh of relief and a bunch of cautious pats on the back going on. CNBC was all happy about todays session, capping 5 up days in a row, and visibly were all giddy about the future. The markets have moved way up over the last week and all seems quiet.

I have written a ton about how you cannot have a bottom when half of market players are looking for a move up. I actually saw guys on the TV today giving estimates for UP percentages the markets will return next year. UP! In the face of a recession, higher unemployment, and more credit issues too many are already setting high goals.

Confidence is too high, and risk perception is again going awry (that rhymes!). The FED/Treasury guaranteeing basically everything is seen as the green light. It very well may be. I just think pretty soon that guarantee is not going to mean a whole hell of a lot. The 10 Trillion mark is going to get hit soon as far as bailouts and guarantees. At some point this has to matter. If it does not I fear the US government may see their own green light to really get going on spending.

Friday Night Entertainment
I was a little pressed for material tonight, but then I remembered it is still a Friday, so I can add a bunch of fun stuff to fill out the post!

Funny Pic
Speaking of squirrels and the evils of financial leverage, I give you:
funny pictures of cats with captions
more animals

Film Clips
I have been watching movies over the holiday so I have a buch of scenes on my mind.

A great film is "Patton" starring George C Scott. The intorduction speech scene is an all time classic:

One of the more chilling scenes ever is when the super computer Hal9000 denies David Bowman entry back into the Discovery in the film "2001: A Space Odyssey". What would you do stuck outside a space ship billions of miles away from earth?:

Music, Sweet Music
While one can debate the merits of wearing "Sunglasses at Night", certainly the terrible video buy catchy song is worth a listen:

One of the all time greats is Pat Benatar. One of may favorites is "Shadows of the Night":

Heard this one on the radio and remembered how much I like this song. try out Roy Orbison with "I Drove All Night":

Now for some creepy piano work. Take a listen to "Tubular Bells" for the piano and guess the film it is featured in. NO CHEATING!:

Have a good night.

Wednesday, November 26, 2008

Things to be Thankful For

I just finished Stephen King's new book "Duma Key" and I must say, in my opinion, the book is King's best work in a long time. Novel storyline, tension, surprises, and great writing make for a powerful novel. highly recommended!

Another Day, Another Pep Talk
As written last night, today was the THIRD DAY in a row president Elect Obama held a press conference to assure the folks of America that "Help is on the way." What kind of help he did not mention, but some help nonetheless.

What was a good sign was that advisor Paul Volcker has been assigned to an advisory committee and seems that he will indeed have a hand in crafting policy. Three cheers for the Obama camp for this addition. Mr. Volcker is a solid, stand up kind of guy and he has some real world brains.

Still, one has to wonder how much influence Volcker is going to have unless he has taken a big drink from the Keynesian Kool Aid Bowl. Calculated Risk has excerpts of a 2005 Volcker speech that would seem to both correctly identify the underlying economic issues and be in direct opposition to current "more spending" plans to fix things. Excerpts from Calculated Risk:

"Altogether, the circumstances seem as dangerous and intractable as I can remember."
"Boomers are spending like there is no tomorrow."
"Home ownership has become a vehicle for borrowing and leveraging as much as a source of financial security."
"I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? - High consumption - high leverage - government deficits - What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day."

How he is going to square this with bailouts galore and forced consumption will be intellectual gymnastics.

Things to be Thankful For
On this Thanksgiving eve I would like to write a list of things I am thankful for. Some will be pretty basic, others sarcastic, and others insightful (I hope anyways!). Up front I am thankful for Blogger which allows me to make this site without any charge to me and to the readers for taking the time to check out my own little piece of the web.

Things to be Thankful For
-The New England Patriots never giving up
-The 2008 Infiniti G35X; The sweetest ride I have ever been in
-The 2008 election results were clear and known very quickly (No Florida 2000)
-Iran has no way to effectively deliver a nuclear bomb should they have one
-The Argentinian Prime Minister is a complete babe
-That unemployment during the biggest crisis since the GREAT DEPRESSION will reach only as high as 8%
-That the US can fund bailouts of any amount because the world can't do a thing about it
-For the freedom to print money without the whole currency devaluation problem
-Calculated Risk, Minyanville, and Mish
-A chance to shatter the bullshit gold COMEX market
-That our children and not us will have to pay for all of our mistakes
-Harvard Business School for all the great minds they turned out that have ruined America
-That there is no accountability in America
-Due to the recession, illegal immigration will slow down
-There is a whole new generation in their formative years that will believe the government will solve all their problems
-Prime Rib
-The bottom is in for stocks
-Inbev has stated they will not change the Budweiser formula (big one!)
-That 90% of the US population is brain dead, otherwise we are in the midst of a revolution
-Reserve Currency Status
-That banks deemed "too big to fail" are merging with as many banks as possible to become "too huge to have a bad quarter"
-Soon you will buy your electronics from Best Buy and everything else from Walmart as they are the only two retailers left
-You have less freedom of choice on all levels and that saves you from thinking for yourself
-Now that Democrats hold the White House and both houses of Congress the mainstream news and newspapers will be decidedly upbeat on everything

That's all I have for now. Add your own in the comments section.

For all the readers, enjoy your holiday. Thanks for reading.

Have a good night.

Tuesday, November 25, 2008

There is No Going Back to a Free Market

I really liked last night's post, and there were quite a few comments on it. One of my rewards for writing this blog is an active comment section and I thank all that participate. I am off from work until next Monday, so it is like a mini vacation for me.

Obama Overload
I congratulate president elect Obama on a good campaign and I thank him for beating a liberal dressed like a conservative in John McCain. Obama won pretty big, and that is what it is. I understand all the glowing news stories and all the excitement. But I am starting to get worried.

Two days and two press conferences into this week I am getting a feeling that Mr. Obama may be much like a Bill Clinton and feel he needs to communicate with the masses on a regular basis. I mean, how many times is Obama going to come out and say "balance the budget after a recovery, etc"? I know one of the gripes about Bush was that he was not in touch with the people, but I do not think I need daily pep talks from our president either.

Another Obama question that I have is why does he not request that Hank Paulson and Ben Bernanke stop shoveling out cash at a record pace? Why not ask that no other monies be handed out until Obama's new team can review programs and see if it is in line with their goals? That would be the first thing I would do. Either Mr. Obama does not want to rock the economic boat, or his team would be doing the same thing. Either way, not inspiring.

Gold Watch
Do not forget that this coming Friday November 28th begins the gold settlements of COMEX that reflect the huge physical vs. spot price differences. This dynamic will be in play through December and bears watching. I found this crazy picture of a gold deposit along a quartz vein on Wikipedia, and I cannot imagine stumbling onto that baby!:

There is No Going Back to a Free Market
I am not going to go into detail with the new bailout programs announced today. More of the same with a focus on the Government buying toxic mortgage debt as well as packaged credit card and student loan securities. Please take particular notice that Hank Paulson did not even attempt the pretend that "The US taxpayer may make money on these purchases" as he left that nugget out. I think it says alot that this line was not used today.

So with the myriad of alphabet lending facilities and other credit programs, the US Government has now become the lender of only resort. While I would have loved a debate about whether this should have happened at all, that ship has sailed a while ago. I want to take a look at the future problems all this intervention will cause.

To me the biggest issue going forward is that there will not be any way for the government to get out of the loan racket. Guaranteed cash and government backed debt is going to be both preferred and demanded going forward. Nobody will go into the private sector for funding when cheap money can be had at the FED. Is there any way the FED/Treasury cannot understand this?

Reinforcing my theorem that the US financial sector and many businesses cannot function unless they are in an ultra low borrowing rate environment, the Government will have to do gymnastics to keep rates at all time lows for the foreseeable future.

What is going on right now is the elimination of the free market and its replacement by a centralized government mega bank. The repercussions of this will not be fully understood for some time. The true power in America will not reside at the White House and Congress, but at the FED and Treasury. The obscene power grab by those institutions did not require a shot to be fired, only a mere threat of "systemic collapse". I can only offer that it is lucky for America that a resurgent Russia or a nuclear armed rogue state has not seen fit to challenge America, because our too easily spooked leaders may have just handed over the country by now.

I feel frustrated because nobody seems to be motivated to yell "STOP RIGHT THERE" to the FED and Treasury. There is no debate, no discussion as to whether any of the actions taken are prudent or for the best. Look they may very well be, but without any intelligent discussion we can never know.

It is not enough that our elected leaders have taken a hands off approach. I understand that economics can be confusing. I do not expect any member of Congress to be a Nobel prize winning economist (it would be better if they were not!) but it is not acceptable for them to just give the FED/Treasury authority to do whatever the hell they want without bounds.

There is a sense that the lead guys, Paulson and Bernanke, have no idea what they are doing and are making things up daily. That is simply not good enough.

Have a good night.

Monday, November 24, 2008

25 Billion Here, 300 Billion There, Another Trillion Here and Pretty Soon You Are No Longer Talking About Real Money

In a game where the Patriots were facing playoff elimination, the entire team played about as well as an injury riddled team could. Matt Cassel showed great timing and better ball control than ever before as the Patriots beat the Miami Dolphins 48-28. While this team is not a super bowl contender, the discipline, poise, and will to win is remarkable. They are an inspiration.

Citigroup Latest Shameful Bailout
I am sure you have seen the details of the obscene bailout of Citigroup (C) by the US government. Just when you think you have seen it all, our Treasury finds new and exciting way to guarantee massive taxpayer losses for years on end. I have to admit, the talent the FED and Treasury have for throwing money away is far more imaginative than I could have thought possible. Cheers fellas!

The C bailout is basically a pyramid scheme where C takes a hit on the small stuff and the government guarantees everything else. Everything. To the tune of anywhere up to 300 Billion dollars, or about half a TARP. Naturally the market loves a any bail, and the action was to the upside. Why anyone would think C is a buy here is confusing, but I am easily confused anyway. Something like 5X dilution of shareholders, earnings will be suppressed for years as they pay back the government (yeah right), and now made into a zombie with their balance sheet stuck at the FED/Treasury. Screamer of a buy!

Naturally the same old excuses were in use; "systemic risk", "financial collapse", bla bla bla. Check out this little fear monger from the AP story on Yahoo:

"If they didn't help, the damage would be beyond imagination," said Teck-Kin Suan, economist at United Overseas Bank in Singapore."

Who's imagination Mr. Suan? Yours? Mine? Another choice bit from the same story:

"It would create chaos," said Winson Fong, managing director at SG Asset Management in Hong Kong, which oversees about $3 billion in equities in Asia. "Simply put, you couldn't borrow or lend for a while. This is a nightmare scenario."

Oh my god! No borrowing or lending for a while! Holy shit and fried eggs! Reread that one again and try to remain calm! I mean this is a f#cking CRISIS!

All this systemic risk garbage is wearing me thin. The only thing at risk is the massive notional money scams that enrich bankers. Of course they are scared, they are soon to become like UAW workers or Realtors; historical bin residents.

25 Billion Here, 300 Billion There, Another Trillion Here and Pretty Soon You Are No Longer Talking About Real Money
"A billion here and a billion there, and pretty soon you're talking real money." -Everett Dirksen

I see that quote out a bunch as of late relating the current wild spending by the FED, Treasury, FDIC etc during this mess. It is both overused and totally inaccurate. The truth is much more sinister. With the amounts of money being used and proposed to be used the ability to even grasp what is going on has been lost. And it is here that I think the powers that be have made a terrible miscalculation that is going to have some serious unintended consequences (are there any other kind?).

Now this is just one bloggers take on the macro picture, so please sound off in the comments with your own thoughts.

What started as a "subprime" debacle quickly morphed into a gargantuan credit bust over the last year and a half. Through the wonders of fiat currency and financial tools of leverage the US (and many other countries) generated so much "money" that is detached itself from any tether to reality. Now I understand that by definition ALL fiat currencies work this way, but there is a subtle difference: You can push the boundaries of belief only so far before you fail to maintain the charade. I think we are at that point now or soon will be.

What should have happened at the beginning was the public failure of Bear Stearns and others; A recession for the US; Quiet capital infusions to keep the system moving; and an unwind of debt levels that were just too big. That would have been the ticket to keeping the smoke and mirror show in business.

Instead in an election year the powers that be decided to open the floodgates and pour government backed debt onto private debt that could not ever be paid back. The US government, through proxy of the FED and Treasury, attached their voucher to all the notional money in the system.

So what? Well, this is where i think things are going to get ugly. Everyone KNOWS the US cannot pay off their debts. There is no mathematical way possible, this is a fact. The world over has been accepting of this because many of their fortunes are tied to the US through many channels. Now we are faced with around 7 TRILLION in obligations to backstop a shadow banking system with more on the way. We may have reached the debt Chandrasekhar Limit I have written about.

Perception is all that keep the financial system going. It is the perception that the Government has saved Citi from collapse that is seen as a good thing. The perception that the FDIC could ever make you whole in widespread bank failures keeps people from pulling their money out. The perception that the debts of the US can be honored keeps pig like foreign buyers coming back to the trough.

I think we may have tilted the pinball machine of perception a bit too hard this time.

So if the US generates say 10 trillion dollars in new debt to cover all things systemic risk, how do we intend to pay that back? Our three auto makers are about finished, so not much there. I doubt securitized mortgage paper will ever be bought again from the US. We do sell some cool military stuff, but nobody can buy that much hardware. We do design some good computer software, but competition in that arena is high.

We are facing a serious recession; We are scrambling to try and make some kind of infrastructure jobs bill which will be funded by more borrowed money; Debt is maxed out at all levels of the US from the consumer, state and city governments, and many businesses. Just how in the world are we going to pay back all this money?

We are not of course. That was acceptable for a while, but now the numbers being pushed around have become so enormous there can be no more pretending. Only complete fools would continue to fund US debt. China seems especially retarded in this case with Japan a close second.

Again, this is just my take. I just think we are getting to a point where we will be laughing about debt obligations because they are so absurd. We are supposed to pretend we are serious about making good on our obligations and everything we have done to this point should make it clear we are not. You have to play the game to keep the show on, and we have gone out of bounds with all the bailouts and stimulus cash. It remains to be seen when foreign debt buyers give us the hook and take us off the stage.

Have a good night.

Friday, November 21, 2008

"Unexpected Jolt of Confidence" for Timothy Geithner

Bitter cold and ripper winds set for tomorrow. Did I ever mention that I am not fond of the cold? No? Well, I am not. Monster football game on Sunday with the New England Patriots having their season on the line against the Miami Dolphins. I cannot believe I just typed that! How things can change in one off season and 1 quarter of one game into this season.

Gold Watch
All right, I am officially worried. Today's action in the miners, most up almost 30%(I own GG and KGC), was scary. I read at least three pro gold mainstream stories. Now Mish himself has come out and said he likes gold right here! Either this is a very good thing or gold is about to collapse.

Here is Mish's piece:

And from the Australian:,28124,24687337-643,00.html

The Problem of Savings
A common theme that is in play right now concerns the "problem of savings". You see, when spend happy Americans sit on their money and try to pay down debt, the economy that has been built on them spending every dollar they have, and quite a few they do not, goes down in flames. If you are an ivy league trained economist you see only one way to solve this issue. No, the textbook says nothing about making an effort to transform a dysfunctional economic system into a productive and dynamic one! That was in the remedial class at the community college. The big boys know the real way out of a "liquidity trap". You may have even seen it fleshed out by the likes of Krugman and others. The answer is of course:
Separate People From their Savings By Any Means Necessary

Now this can take many forms. The old school idea is to lower interest rates so much that a saver cannot keep up with inflation by saving their money and so must spend it or try and invest it. The new wrinkle in this scheme is to use the government as a proxy to spend people's future income far in advance (through bailouts and other tax black money holes) that effectively will claim those future savings from the people through higher taxes and/or high future interest rates. As you can see, taking money from people can be done either with their agreement or without.

And that is why I get so crazy mad about all the bailouts. Set aside the fact that many banks/auto makers/ whatever firms were so badly run that they are now busted. What burns me up is that the FED and Treasury are in effect stealing your future savings and handing them over before you ever get the chance to get your little hands on them. This is the true injustice of what has been going on. By higher taxes and/or higher interest rates you will be getting less going forward. While everyone loves a good bailout, how would they feel if the headline instead read "GM to be saved; Average American just lost 3% of their yearly raise! WHOO HOO!". I bet that would not go over as well. Try to remember that nothing is for free.

"Unexpected Jolt of Confidence" for Timothy Geithner
First of all, I am going to refer to the next Treasury Secretary as Timmy G, because that last name of Geithner just does not roll of the keyboard at all.

I was a bit disappointed that Paul Volcker did not get the nod. There are plenty of reports that say Obama and his people tried very hard to get Volcker the Viking, but to no avail. If that is true I applaud the effort. I think he would have been great.

So Timmy G was tapped instead. I will leave the merits of this choice for another time. All I can say is that I cannot remember even ONE time Timmy G voted against Greenspan or Bernanke, so are we really getting something new? Instead I would like to take a look at some very silly behavior and news headlines that were out today.
From the Yahoo Finance main banner:
Dow ends up nearly 500 in surprise comeback after report Geithner will be new Treasury secretary
Wall Street staged a surprising comeback Friday, with the major indexes jumping more than 5 percent and the Dow Jones industrials surging nearly 500 points in a late afternoon rally, ending another volatile week that saw stocks reach six-year lows. Stocks erased about half of the losses that came in steep selling Wednesday and Thursday after investors got an unexpected jolt of confidence late Friday following an NBC News report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury secretary.

So how was it that the possible pick of Timmy G resulted in an "unexpected jolt of confidence"? The only way for that to be so is if common wisdom along Wall Street was that Obama would pick George Bush to be the Treasury head. Or Richard Simmons. Or Jessica Simpson. I mean, is Timmy G some rare genius that can count cards in blackjack and walk on water? Just where is all this confidence coming from?

To be fair anyone other than Paulson was probably going to generate some wild excitement. But really this seems a bit much. maybe it was an "oversold bounce" predicated on a "retest of a higher low" or something. Whatever. I just wanted to point out the funny nature of the headline.

Friday Night Entertainment
After yet another wild and crazy week, it is time to cut loose and have some fun.

Film Clip
One of my guilty pleasures is watching any film that has sword fights, boxing, or martial arts. Along this line I would like to pay homage to the greatest low budget martial arts film of all time "Kill and Kill Again". The lead actor play the character Steve Chase and while the films acting and just about everything else is as weak as can be, the fighting is pretty good. Take a look at the final showdown here:

Melodic Interlude
And now onto the tunes.

Combining my love of fight films and music, I love the song from "Rocky IV" called "No Easy Way Out" by Robert Tepper:

I guess we will stick with the soundtrack theme. I really like the Jon Bon Jovi song "Blaze of Glory" which was made for the film "Young Guns II":

The band called "The Blasters" amke great music and often are included in flm soundtracks. They are featured in the great film "Streets of Fire" and they also had material on the film "From Dusk Till Dawn". Listen to "Dark Night":

While not a film tune, I was listening to Simon and Garfunkel this week and I am putting up their great song "the Boxer":

Have a good night.

Thursday, November 20, 2008

Democrats Do Exactly the Right Thing

Thanks to Kevin, Watchtower and Lisa for the kind words on my promotion. How I get so much work done and write this blog at night really is just that I am passionate about my work, and I am excited to write this blog and know folks out there like it.

Citigroup Whines Like a Baby
I had seen the banner headline today that Citigroup wanted the SEC to jump back in and ban short sellers. Recall how the financials did so well (sarcasm) with the ban in place. I had it in mind to write a section about this, but Mish beat me to it. I imagine his post is a bit more well written than mine would have been, but with less snarkiness! Anyways, check it out:

Key take away point: Only 2.7% of C stock is short right now. If about 3% short selling is killing you, well, I guess it cannot. Check out Mish's coverage of C's shadow assets and you may figure out why C is getting clobbered.

The Bottom That Never Was Meets the New tradable Bottom
Last night I had a piece on the silliness of technical analysis at inflection points such as this one. Today all the markets crashed through all lows since 2003. No "bottom" call held, not even the panic bottom from a while back.

While we all like to make fun of the FED and the Treasury for pursuing bad ideas and expecting good outcomes, many market watchers/players do the same type of thing. Today there were new thoughts about a "tradable bottom" being established. Whatever, I have said my piece on this stuff.

The issue with the markets right now is that there is almost no real value in it. The perceived value of stocks relies heavily on whatever bailouts may come from the government. All the financials are zeroes unless they have massive government intervention. Many retailers, homebuilders, and home improvement companies are not far behind. Charts and trends make no difference when perception is the key parameter for the market. See GM today. Up over 30% when pro bailout congress people prematurely said a compromise was reached, then gave it all back when that was shown to be untrue. Was GM really worth 30%more at any point today? Only with a ton of cash from the taxpayer. Otherwise, nope. Sick really. People buying a stock because it is so bad off it is going to get bailed out. OK. It has been a winning strategy in the financial stocks so far.

My last thought about a "bottom" is this:

A long term bottom is reached when nobody wants to buy any stocks. None. A bottom is not reached when half the market wants to make sure they do not miss a possible move up. That's it. That's all.

Democrats Do Exactly the Right Thing
When I saw the UAW guy giving his speech today around noon on CNN (I was in the lunch room) I was disgusted at the craven fear mongering that was going on. The guy really said that Congress must act "Now, Today" on a bailout. About an hour later a headline flashed on Yahoo Finance that a compromise bill had been reached. Naturally I was mad that the congress would take their marching orders from some guy at a press conference, but not surprised really.

I was surprised at what happened next. The Democrat leadership came out and said "What a minute there CNBC! No deal has been reached." And this would have been good enough for me, but they even went further! In what can only be termed as an act of clarity and sheer brilliance, the Democrats withstood the bullying tactics that got the TARP passed and made a simple, reasonable, and badly needed request:

Present a plan to the Congress on how the taxpayer money will be used to save and reform the auto industry.

I was blown away. This is just what the doctor ordered. No ore being rushed into passing bills and handing out money with no thought, no debate, no real plan of action. Take some time and think about what is going on. Three cheers for the Congress today, they earned it.

Now the hard part. By the powers of reality the US automaker cannot present a plan where cash alone will save them. They are powerless to get out of their crushing obligation debts, and cannot go on without the kind of restructuring that only bankruptcy protection can provide them. This is a fact. This will not change in 2 weeks.

The next question for me is whether the great move by Congress today was just that, a move to get cover to pass a bailout in 2 weeks that stinks, or are they really going to look at the auto plan and judge it on it's merits?

At this point I want to stay hopeful and so will not offer a prediction. I am excited that maybe the Congress may become addicted to this thinking thing and want to keep doing it. I am hopeful that getting burned by the TARP they have learned a lesson. I HAVE HOPE! This should make all the readers very nervous.

We will see what happens, but for one night I am giving the Congress a free pass and the Democrat Leadership in particular a high five. Let's keep it up and maybe you can recapture a tiny fraction of trust. A sliver. A nanotube. But that would be a start.

Interesting Tidbit
One of the small articles on the Wikipedia Main Page this week was about a ship, the SS Central America. I was fascinated by the story. The 30,000 pounds of gold that was lost when the ship sunk helped to touch off "The Panic of 1857". Back when money was tied to gold, all that missing bullion made a dent! Maybe we could sink the Federal Reserve? Anyways, a salvage company researched the ship exhaustively and was able to locate it! An operation was performed and over 150 million dollars in gold was recovered, including an 80 pound gold brick! SWEET! I have ordered a book written about the entire search and recovery. Can't wait to get it. Here is the Wiki entry:

Have a good night.

Wednesday, November 19, 2008

Headlines That Change

A little short on time this evening as the drive home was a bit long. On a solid personal note, I was informed by the boss today that for the year end review I am getting a promotion! Good stuff. I have done a ton or work this year, so I am glad.

Market Dips Below Retest Levels; Well Some Retest Level Anyway
By now, you the readers, know of my hatred of technical analysis and especially for all the catch phrases some market players like to use to try and make sense of things that make no sense. Terms like "retest" and "head and shoulders" especially get me rankled.

So today the DOW and S&P fell below the much celebrated lows that were successfully retested last week or something. So that is bad right? That means new lows and the retest last week was bunk?

Nope. The charty types now mean that crazy intraday low from a while back where the DOW kissed near 7800. That is what they really meant. The 8100-8200 area was a "false low" masked by volatility or something.

I bring this up because a ton of people I know, and many I respect, love talking about the markets in these terms. While I use charts myself, I use them for long term trend watching as well as historical action. Trying to say "8153 on the DOW is the ultimate low" is like trying to guess the correct interest rate the FED should be at: A waste of their time and mine.

Auto Bailout a No Go if Democrats Have to do it Themselves
So you think everything is going to change just because Mr. Bush is gone? You think now that the Dems are in control we are looking at politics by other means? From Yahoo Finance:
Senate cancels vote on doomed auto bailout
WASHINGTON – The Senate's top Democrat has called off a planned vote this week on a $25 billion auto industry bailout. Senate Majority Leader Harry Reid said that he wanted to figure out some way to help Detroit's struggling Big Three but that efforts to do so had stalled.
The White House and congressional Republicans rejected Democrats' plan to dip into the $700 billion Wall Street rescue fund to finance loans to U.S. automakers.

So the republicans (some of them, nowhere near all of them) are balking? The lame duck White House is not in love with the idea? So what? If this is the right thing to do, then make a vote. Get everyone on record, yeah or nay. What is the problem?

Simple, as always. The TARP was dogshit that the public did not want. The auto maker bailout is even more crap that the public has said NO to. While this is nice, the Congress does not care. If the auto bailout had huge support like the TARP did it would go through. But the craven democrats do not want anything to bite them, surely not another bailout with serious opposition. So no vote. New politics, same as the old. Weak and scared politicians (either side) unable to do what is right, only what is politically possible. Remember the big debate Bush promised about the "Flat Tax" if he beat Kerry in 2004? Remember the debate? Of course you don't, it never happened because the opposition was too high. Note: I am against all bailouts, but if the Dems think it is for the best, they should go for it.

Headlines That Change
Saw a strange thing today on Yahoo Finance. After the FED had given their forecasts, you the ones that have been so spot on up to now, Yahoo had this headline up:
Fed sharply lowers forecasts, hints of rate cut

Later in the day when the selling got heavy, the lead headline became:
Fed sharply lowers economic forecasts for this year, 2009; signals another rate cut coming

And then later tonight, an amalgam of the two:
Fed sharply lowers forecasts, hints of rate cutWednesday November 19, 3:13 pm ET
By Jeannine Aversa, AP Economics Writer
Fed sharply lowers economic forecasts for this year, 2009; signals another rate cut coming

Now I am not proposing that there was anything sinister going on here. I am just pointing out that the good old game of "hint of a rate cut" was changed to "rate cut coming". Take from this what you want, I just found it interesting.

As far as rate cuts go, what is the point. The effective FED rate is 0% right now, and they only have 100bps left anyway. I guess they could keep going for the hope of getting a bump, but I do not think that will fly.

What will the FED do? One cut of 100bps? Two 50bps? Four 25bps? I have no idea and it does not matter. Well, I take that back because it matters as it is the new poll question! Please vote on what you think Bernanke should do with his last 100bps of credibility!

Have a good night.

Tuesday, November 18, 2008

Treasury Throws in the Towel

The cold has settled in up here. Full frost coverage on the cars this morning. This time of year is the worst because, well it's cold, but also it is dark when I leave for work and dark when I am coming home. Seasonal depression disorder I guess.

COMEX Spot Price VS. Physical Gold Price; Still Puzzling
I have spent some time on the whole disconnect between the COMEX spot price for gold and the price for physical gold. On a day when Ron Paul was out in force asking Ben Bernanke about a gold standard, there was this headline in the NY Post:

With fears of future inflation rising and concern about the value of paper currency and government-debt increasing with each new recovery plan announced in Washington and in foreign capitals, the desire to hold gold grows.
That part makes perfect sense. But there's another more puzzling aspect to the recent gold rush.
Even as the demand for gold coins such as the Canadian Maple Leaf or the Krugerrand of South Africa has grown, the market price of the precious metal itself is off its highs.
In early October, the price of an ounce of gold on the spot market was about $930 an ounce. With the commodities bubble bursting in recent months, gold declined into the upper $600 range. Spot gold closed yesterday at $739.90, down $2.60.
Bill Murphy, chairman of the Gold Anti-Trust Action Committee, says the price of spot gold is even more perplexing given the demand for coins and the fact that central banks in Europe have stopped selling gold into the open market.
"Gold should be moving up," Murphy says. "How could there be such a dichotomy between the historic high premium for coins all over the world and the low COMEX price?"

Another mainstream media article. I am starting to think this trade seems too easy, too obvious to happen. December cannot come fast enough for this blogger, but will anything happen? Mish has written in his comments section that he feels there will be no COMEX blow up and all this stuff is absurd. Hate to argue with that guy, but I am still on this train!

Treasury Throws in the Towel
You would not know it by the subdued mood of the day, but this Tuesday saw a seismic move in the long running drama known as our financial crisis.

Today Hank Paulson stated he would not request the other half of the TARP funds, another 350 Billion, and would leave it to the next guy to deal with it. Ben Bernake also chimed in with his take on the situation (loose paraphrase):

"The FED and Treasury have performed so great the real crisis has been averted, so please thank us."

It seems to me that our two commanders of the economic ship have thrown in the towel. Now before you get too excited that money will not be pouring out across the spectrum of the business world I have to offer a warning;

While Bernanke and Paulson did a magnificent job of wasting money and every one's time the whole deal now will be decided by the US Congress.

Oh. No.

I would suggest watching some youtube clips of most members of the Senate or House asking economic questions. They are utterly clueless when it comes to these things. How else did Paulson get that original TARP plan passed other than the Congress abdicating any role or responsibility in the matter. They gave up their power because they knew they have no idea what to do. Now they will have no choice.

To get an idea on what i am talking about, take this little snippet from an article about the auto bailout debate today:

"Banking Committee Chairman Christopher Dodd, D-Conn., told the leaders of GM, Chrysler and Ford Motor Co. that the industry was "seeking treatments for wounds that I believe to a large extent were self-inflicted."
Still, he said, "At a time like this, when our economic future is so tenuous, we must do all we can to ensure stability."

So Mr. Dodd knows full well the real issue with the big three, yet he is ready and able to vote yes on a money throw away anyway. OK.

While I am pleased the Treasury has given up the ghost on more cash plowing before years end, I am unsettled thinking about what the new Congress may do come the new year. At least the Treasury and FED guys are schooled in things economic, the Congress only knows how to burn cash for votes. Now they will be at the helm of the USS Bailout, a new class of aircraft super carrier that can rain dollar bills down on any enemy anywhere in the world! It even has it's own helicopters to aid in cash dispersion!

The central theme that is being ignored is that the wild consumption rates of the last 5-7 years (depending on how you look at it) are not coming back. If your business is dependent on that level of consumption, you are screwed buddy. The government on all levels seems determined to try and get consumption back to bubble levels. Call it "Consumption Targeting" instead of the old "inflation targeting".

It seems the US economy can only survive during bubble booms. Any slack period, any time everyone is not spending all their money and then some poses a "systemic risk" and financial implosion. One has to consider WHEN, not IF, a system like this will break. I would like it very much if we could get to this core debate soon. Nothing can be solved unless the thinking turns to this line of thought.

Have a good night.

Friday, November 14, 2008

All Your TARPS Belong To Us!

Had a long day yesterday. Got into work around 6:45am, worked the day, then had to entertain visiting scientists from Germany over dinner until 8pm. Rushed home to watch the New England Patriots get blown away in the first half, come all the way back to force overtime, and lose on the first possession in OT. Went to bed around 1am and got up this morning at 5am. Rough stuff. But it is Friday!

Blatant Appeal for Page Views
As you know, I write this site for my own personal fulfillment and the hope that I can offer you, the readers, something of value and entertainment. I have NO ADS and no tip jar. I get "paid" by your comments and the fact that I appreciate your readership. I would like to ask you for one thing now.

There is an economic directory that is tracking blogs devoted to finance. The site can be seen here:

Economic Disconnect resides currently at the 105th spot. I want to crack the top 100 so I can say "My blog is in the top 100 economic blogs". It is a point of pride. So what can YOU do?

Well, obviously visit my site! What would help is if you can recruit around 5 people to visit a couple times a week to push my numbers up. I can break the top 100! Woo Hoo! Thanks for any help.

Gold Getting Plenty of Buzz
Full disclosure: I am a fan of the yellow metal. That said, Gold has been getting quite a buzz as of late, and I am not sure if that is good or bad! The December COMEX delivery issue is even making the rounds in somewhat more mainstream news sources. I read a piece tonight that is very sensational in that the writer sees the G20 meeting this weekend as a plot to revalue the world currencies, get this, based on some kind of gold peg:

Now I think this is both nuts and out in left field, but it does make good reading! Gold to $5,000 an ounce? $10,000 an ounce? Wild stuff.

Stock Market So Fake It's A Waste of Time
The banana republic show that is the US stock market was on full display this week. Wild intraday swings, reversals, last hour sell offs, and ripper days to the upside all happened this week. So what is the story?

I have a simple explanation. Nobody has a clue about what to do so market participants have given themselves over to purely technical mumbo jumbo. Terms like "retest of lows", "head and shoulders", "oversold", and the like are all chart related with no fundamental grounding. When the markets hit a point X, they buy and at point Y they sell. Everyone is in the same trades, and thus the crazy moves up and down.

I also have ZERO doubt that the FED/Treasury (the Feasury) has been out this week buying stocks on the open market at key times. In the future we will see just how much they were buying. In the meantime, there is no reason to get into this market except for a trade. There is no value in stocks. The coming recession will kill estimates, and this has not been reflected at this time by prices. I may mention market action, but the markets moves themselves are no decoupled from anything that could shine a light on things, so it is kind of a waste of time. My 2 cents!

All Your TARPS Belong To Us!
I keep going back and forth in my head as to whether Hank Paulson knowingly prodded players in non banking companies to try and become some kind of bank, or if the companies themselves took the initiative to get in under the TARP. I am not sure as yet, but I think it would be a good question to ask the Treasury Chrome Dome (remember Destro from G.I. Joe anyone?)

A compilation of headlines from Yahoo Finance this evening:
Hartford Financial soars on plan to join TARPFriday November 14, 5:18 pm ET
By Jonathan Stempel
Note: A stock rallies because it is in so much trouble it needs government financing and will jump through loops to get it! Sounds like a winner to me.

It is not just companies getting into the act, check this whopper out:

TARP CityPosted by David Gaffen
Meena Thiruvengadam reports:
Three of America’s largest cities have asked the U.S. Treasury for billions of dollars to shore up pension systems, cover short-term borrowing needs and boost infrastructure spending.
In a letter to Treasury Secretary Henry Paulson Friday, the mayors of Philadelphia, Phoenix and Atlanta asked for the creation of a $50 billion fund to spur infrastructure investments as well as for loans to cover unfunded pension liabilities and to address cash flow crunches amidst tight credit markets.
“Cities will disproportionately bear the brunt of the dislocations caused by the credit crisis and a contracting economy unless the federal government steps in to assist us,” the mayors wrote.

And now we arrive right where anyone with half a brain figured we would. The gloves are off. It's nasty time. If the Feasury is going to pump cash all out, there will be fistfights for the loot. Banks cry "systemic risk; give us cash!"; US automakers cry "systemic unemployment; give us cash!"; Sinking insurance companies cry "What does systemic mean?; give us cash!"; and now bankrupt cities all over the country cry "systemic risk to government employee cash cows; give us cash!". It is now a free for all with nobody wanting to be left out of the goodie bag.

Of course we are on the clock waiting for the great state of California to come out and basically take whatever is left of the TARP funds for itself. The day is fast approaching where California will play "Way to big to fail" card and secure a ton of cash. Mark my words.

So where does this leave us? TARP was a failure, and it is also too small to deal with all these requests. Early 2009 will see a plan drawn up that will simply be astonishing in its recklessness and size. Paul Krugman, the money crammer himself, is calling for a 600 Billion dollar stimulus plan. Why stop there Paul? I mean why not go to the mattresses to save the economy?

It is my thinking that a shiny new plan will be unveiled, and the range I am looking for will be at the 2-3 Trillion dollar mark. I did not type that wrong. 2-3 TRILLION dollars will be created to fund all the worlds needs by the US Feasury by March 2009 at the latest.

How can this be done? I have no idea, but then I thought you could not just give out 700 Billion though the TARP without serious repercussions. As there have been none, I think the bold factor just got amped up a few levels. A force will act until it is acted upon, so the physics lesson tells us, and thus I think the US will blow out as much cash as possible until they are stopped by an external event. Foreign debt holders saying "No More" or some other calamity is the only way to stop this runaway train named the city of bailouts. (reference song; "I'm the train they call the city of New Orleans. I'll be gone 500 miles before the day is done.")

Is this not wildly inflationary? Glad you asked! I must say that the whole deflation thing has a strong basis (see Mish Shedlock) for that call. I am gradually moving towards the hyperinflation/dollar mega devaluation thesis at this point. There is nothing else that can happen in my mind. For a great take on about where I stand, you have to read this iTulip piece by Eric Janszen:

Take home point:
"The deflationistas apparently think what comes after post-bubble deflation is more deflation, as occurred in the early 1930s in the US but nowhere else ever since. It has not occurred to the deflationists why no similar period of deflation has ever occurred since the 1930s, or when they do confront the question they explain that the debt is really, really, really big debt this time, bigger than the Fed. Or that differences between the kind of money that the Fed prints versus the kind of money that the endogenous credit markets create when money is loaned into being by businesses and consumers means the Fed cannot impact the latter.
As we explain that in The truth about deflation, the reason no deflation spiral has occurred in any nation since the one instance in the US in the 1930s is because since then no nation has chosen to remain on the gold standard through a debt deflation. Needless to say, the US is not on a gold standard today."

I am a huge Mish fan, but this piece is so well written and well thought out that i think it makes the best argument. Leave your comments about what you think.

Friday Night Entertainment
It is that time!

Comic Relief
When I saw his video, I could not stop laughing. This thing is a work of art that should be leading the nightly news across America, instant classic:

Book Passage
"They are mine," he said softly, "They belong to me. The Red Bull gathered them for me, one at a time, and I bade him drive each into the sea. What better place could there be to keep unicorns, and what other cage could hold them? For the Bull keeps guard over them, awake or asleep, and he daunted their hearts long ago. Now they live in the Sea, and every tide still carries them within an easy step of the land, but they dare not take that step, they dare not come out of the water. They are afraid of the Red Bull."
-From "The Last Unicorn" by Peter S. Beagle

Music For the Masses
An excellent film was "Quicksilver" starring Kevin Bacon. A great song from the soundtrack was "Quicksilver Lightning" sung by Roger Daltry (who was in several Highlander episodes so he rules!):

I have no idea in the universe why I have had this song stuck in my head all day, but take a listen to Culture Club and "Karma Chameleon":

Another song I had stuck in my head today was "Jet City Woman" by Queensryche. have at it:

Have a good night.

Wednesday, November 12, 2008

Hank Paulson is Now a Rogue Agent; Stop or Detain at any Cost

The air up here has turned cold. Yes, that kind of cold. The winter is just brushing us, letting us now it is inevitable and coming. Thanks for the update mother nature.

Put Away the Kool Aid Financial Blogosphere
I wanted to take a minute and offer my own humble advice to the financial blogosphere:

Put Away the Kool Aid and Get Back to Work

Up front you have to understand that I am in no way a George Bush Administration lover. History will judge, and I am sure it will be pretty unkind. But blaming economic issues on one guy is pretty wild, and now has reached fever pitch.

There are many blogs in the "Must Read" list to the right that have gone off the deep end blaming Bush for the actions of Henry Paulson and Ben Bernanke. While there is a TON of blame and criticism for those two clowns, how much of their actions are a direct order from Bush? I mean is he not supposed to be so dumb he can barely walk, now he controls the mind of Bernanke and Paulson? Please. Get off this juvenile line of thinking.

Leading contenders for Obama for the Treasury include Jon Corzine, another Goldman Sachs head, just like Paulson. Think things would change then? OK. Another is the current NY FED head. Again, are we going to see new thinking there? If I remember correctly it was congressional DEMOCRATS that screamed bloody murder to get the TARP bill passed. Think when Bush is gone they will oppose such measures? The FED thinks they answer to nobody and will not disclose lending information. Do you think Bernanke is just waiting for Bush to leave so he can open up the books?

Get back to work guys. We need good solid ripping of our leaders, not fantasies that Bush is single handedly responsible for every move at the FED and Treasury. I know you can do better.

Hank Paulson is Now a Rogue Agent; Stop or Detain at any Cost
Today Treasury Secretary Hank Paulson went out and gave an update regarding the TARP program. You can get a transcript elsewhere, but I will summarize as such:

"You know that business about buying "troubled" (you know, the T in TARP) assets at inflated prices that I was so sure was the way back to Nirvana? Turns out, not so much! It seems the prices needed for worthless paper was so high I would have needed a TARP about 5X bigger! My bad. Well now I have this plan to use the TARP funds (what's left of em, wink wink, hint hint) to directly inject money into banks, non banks, well anything you can think of and really ask them to loan it out. While I have single handedly kept the Universe from imploding thus far, my new step will assure happiness for all. Well, at least some. HAHAHAHAHA"

And thus Hank Paulson has lost whatever credibility he might have had. This man has no idea what to do, and now it should be clear to any and all. Instead of stopping the misuse of immense amounts of money, Paulson is rearing to throw even more money away. The man is clueless and it shows.

Right now Paulson is operating without control and without strings. Paulson is running by the seat of his pants moving mountains of taxpayer money towards whatever goal comes to him on a whim. Frankly, Hank Paulson has become a rogue agent. His actions cannot be predicted, his thinking is unknown, and he answers to no one. As with all rogue agents, Hank Paulson must be stopped. Immediately.

The US congress is scheduled to meet yet again in November (the 19th I think) and here is what must happen:
-No more funding can be approved for the TARP
-Hank Paulson must resign
-Ben Bernanke must resign
-No more bailouts of any kind can be approved until the new President and new Congress are sworn in

That's right, no more action until late January. Obama can speed up his process of appointing new positions, and those guys (or girls) can be ready to go in late January. Everything must stop. The daily running around like headless chicken dance has to end right now.

In the meantime, the congress will simply have to do actual work this holiday season. If this is indeed a crisis as big as the Great Depression, I feel it is required that the LEADERS OF OUR NATION spend the coming months time doing the following:
-Get full disclosure on ALL LOANS made by the FED and Treasury
-Make this disclosure public and available
-Have an open and televised debate with a panel of REAL WORLD economists to get alternate views than just Keynesian number cramming baloney (sorry Krugman)
-Settle on two or three programs to stabilize (in theory) the financial system or to minimize the damage
-Have the new congress vote on their choice with Presidential input

This plan is how clear thinking people go about things. This is how rash decisions and spur of the moment actions are avoided. No more one week fake discussion about how to save the universe. It may take two weeks to come up with a plan. Maybe three.

Right now is the last chance for any kind of end to the lunacy of the last 3 months. Congress must stop Hank Paulson and detain Ben Bernanke. Money must stop being hemorrhaged into failed plans and failed companies (hello AIG). Some kind of reason must be restored. The USA right now looks like a nation led by clowns thanks to the hi jinks of Paulson today. Only decisive action right now can stop a panic from setting in. I really cannot believe how confused and lost the US treasury secretary seemed today. He needs a break. Let's give it to him.

Other News
American Express becoming a bank? GE sort of doing the same? The US government getting set up to be the public and private loaner of only resort? Too much to follow. What I will say is that in a post from a while ago, I stated the US consumer and US companies are now set up in such a way that they cannot operate in an environment where money is not basically free. Only at historical low interest rates can 90% of the US economic structure function. Anything higher and they go bust. This is now readily apparent.

The move by the Treasury towards lending money to all at less than market rates is a reflection of this fact. Many companies could get financing right now, but they choose to not do so because the higher rates they would have to pay would cut into any profits, and they do not have to pay those rates thanks to the FED/Treasury actions. I think you can figure out how this is going to go.

Have a good night and detain Hank Paulson on sight!

Monday, November 10, 2008

We Are Getting Scammed

I used my own version of the TARP this weekend. On Saturday I raked leaves for over 5 hours onto a TARP and dragged the pile into the woods. I repeated this process many times. Where is my leaf removal bailout anyway?

Mars Phoenix Lander Goes Quiet
After what can only be described as a wildly successful mission, the Mars Phoenix Lander has gone silent. The coming Martian winter has cut down the Sun light level to a point at which the lander can no longer function. There were too many observations to list, but this was an exciting thing.

Sadly, in a coming era of cutbacks and bailouts I do not imagine space programs to live much longer. What a shame. We can keep GM open against all reasonable business sense, we can pass stimulus checks out until we are blue in the face but we cannot fund space exploration or develop cutting edge technology. Whatever. You can see a bunch of Phoenix content here:

AIG Making Fools of the Treasury and FED (Not Like That's Hard)
I have to say that the news already out on Monday has my vomit meter pegged at redline. This week should be a good one!

So AIG, the troubled giant insurer, asked for and received a new bailout deal. I will not bore you with the details, the new money amounts and the benefits to AIG are plain criminal. What I would point your attention to is instead the open and blatant way that AIG management is pushing the Treasury/FED around. For a broken down on the verge of bankruptcy firm, these guys sure are comfortable in their position.

From the site Clusterstock:
AIG: We're Already Planning To Screw The Taxpayers More
Joe Weisenthal | Nov 10, 08 5:33 PM
"This morning AIG (AIG) confirmed it had secured a sweetened bailout deal from the government, scrapping the original, high-interest bridge loan. But AIG isn't done! It's already scheming to come up with a more shareholder-friendly plan. We were incredulous when we heard that on this morning's conference call, but a check of the transcript confirms that that's a goal.
The setup is that John Levin of Levin Capital asked if there were any way to restructure the new deal, so as to give AIG more upside if the securities they're transferring to the government improve markedly in value. The response:

Edward M. Liddy - Chairman and Chief Executive Officer
Yes, John right now, the deal is... what the deal is, not fixed in concrete forever (emphasis added). As you can see the movement we made from the first transaction to the second one, is a rather quantum improvement. We'll continue to do everything we can to put AIG in the best possible position. What these two arrangements do is they stop the cash out flows for the most part.
John Levin - Levin Capital
I agree with you and congratulate you on that. (!)

There you have it. For all to hear, CEO Edward Liddy and investor John Levin are already high fiving each other on how they might stick it to taxpayers even more, wresting more cash for shareholders. As long as equity holders are left hanging around, it's inevitable that they'll keep trying. More reason they should have been wiped out long ago."

If you have the time, a read of the conference call reveals even more brutal schemes by AIG management to make sure the government has zero upside potential if they get turned around, but still carry all of the risks if AIG goes down. Sick stuff.

We Are Getting Scammed
Folks, we the taxpayers are getting scammed. The end of the financial universe that was feared has made government reactive and panicky. Our congress had no idea what they are doing and are relying on a FED/Treasury that has no idea what they are doing. We are told one thing, only for that to change sometimes within the same day. We are told some dollar amount is needed for this company or that company, and then that dollar amount is doubled or tripled up in the space of one month. We were told transparency and taxpayer protection were going to be featured structures of the bailouts, yet one has to sue just to get basic information on where all this money is going. We were told only "systemic risk" candidates were to be considered but then we find out that "systemic risk" can mean just about anything.

Some headlines to get the general feel of the day:
Bloomberg: Fed Defies Transparency Aim in Refusal to Disclose
Bloomberg: Fannie Says $100 Billion Pledge From Treasury May Not Be Enough
washington post: A Quiet Windfall For U.S. Banks; With Attention on Bailout Debate, Treasury Made Change to Tax Policy
Bloomberg: GM Plunges as Deutsche Says It May Become Worthless (Bailout Still Will Happen)

Fannie Mae will now need MORE cash. Remember when the government was going to make a profit on this thing? HAHAHA. AIG needs more cash and gets better concessions from the government to boot. HAHAHA. FED will not disclose any action it does because, wait for it..., to tell the markets who is getting what might cause, wait for it..., a "systemic risk"!!! Awesome job boys, that is a classic. The FED and Treasury having learned their lesson about going through the US Congress rewrite a tax law to give banks doing mergers almost unlimited tax relief. I mean, why debate and vote when you can just do?

The FED and the Treasury are out of control. They must be stopped, immediately. The newly elected president Obama needs to come out today and tell these jokers to cut it out. Better still he should make it clear that the game is up come January when he is sworn in.

There has been a mad rush by politicians to be seen as "doing something" for the economy. What they have done is enabled a mass looting of the treasury by Bernanke and Paulson and they have given up any ability to influence the situation. Now is the time to do one thing: NOTHING. No more money for AIG. No more money for GM and the like. No more stimulus checks. NO MORE. Just stop. Start the new year with a broad based economic panel that can think through the next 5 minutes.

Obama has a chance here to win over the libertarians like myself. If Obama can change the behavior of the Treasury and FED, if he can have guys like Paul Volcker in on the action, if he can revoke the silly TARP powers then I will fight for the guy. His message was one of "hope". Well, here's hoping he can do what is needed at this juncture.

We have been told a bunch of things by the FED/Treasury and so far none of them have been true. We are being ripped off and nobody seems motivated to do anything about it. The only silver lining I can see is that it seems clear the FED/Treasury will bankrupt the US, and the ensuing revolution will surely be most unkind to the architechs of the collapse. Makes me sick to think it, but it seems to me as of late a secession movement may be in order. Leave New York and Washington DC to themselves and start all over again. Everyone can choose sides. Is there really any other way to cleanse the corruption and poor leadership? Probably not.

Have a good night.

Friday, November 7, 2008

Getting Stimulus Under a TARP

It seems like all the leaves decided that yesterday was THE DAY to all fall down. I have an all day appointment with the rake and leaf blower tomorrow. I am so excited and I cannot wait to get started!

Must Read Note
The wonderful site Housing Panic was one of the first real voices that tried to warn us all about the coming home bubble bust. The author named Keith did a great job and was an inspiration for me to start my own site. Housing Panic has decided to move on from the "all housing all the time" theme and who could blame him? Keith has a new site titled aptly "Soot and Ashes" which carries a ton of economic info as well as social commentary and political type stuff. While I cannot advise on the site for social/political stuff the economic content is still top notch and the new site is available on the blogroll. If anyone has a really great site that they visit every day, leave the name in the comments as I want to add 2-3 more sites to the roll.

GM's Fate Now in the Hands of the Congress; You Always Wanted to Own an Auto Maker, Yes?
Today GM came out with what can only be termed a bomb of an earnings statement. They basically lost 2 times more than the company market cap. And no, do not ask me how that is possible, I have no idea! The leaders of GM at least were fair and honest about their future prospects, which I can paraphrase here:

"If we do not get a government bailout by the end of January, we are done. Can you let that happen? Do you feel lucky? Punks!?"

That about sums it up. Management has damaged the firm so badly that they are not even pretending they can go on without being backed by the government. Sad times indeed.

Instead of A needed debate about IF GM should be saved, it seems most are already planning out HOW they will be saved. It is my strongest wish that the new president Obama will have good advisers and instead of running around like chickens without heads throwing money at everything, they take a minute or two to think.

We can get cars, GM is not unique in that field. The workers they employ are screwed. No way around that. The screwing can commence immediately, or be delayed 1,2 maybe 5 years. Pensions (as discussed last night), medical costs, and inflated wages are too much for the auto maker to overcome, and thus will not. Add in all the financing problems they have (GMAC made mortgages? Oh man) and GM cannot survive.

So do you want to own a car manufacturer? No? Too bad. Soon we will get the old "What is good for GM is good for America" line. Too bad BANKRUPTCY is the best case for both GM and the US. GM will get it's bailout, and it will be a long and never ending one. Look at GM's (or Ford's) operation and no one time cash injection will work. We are about to be subjected to an open ended money operation (Iraq anyone?) with no "exit" strategy. I really cannot say anything else about this as I will puke.

Getting Stimulus Under a TARP
I do appreciate the resolve of our government. After sending out stimulus checks a while back that had no effect on anything, they have decided that "This time it's different" and are ready to go at it again. Following the advice of Krugman et al (it has been so useful thus far) the new plan is the old plan: send out checks of $300-$600 so you look like you have a clue about what to do. I cannot wrap my head around this logic: Tax cuts = BAD; Stimulus Checks where you get your own money back = GOOD. Maybe they will send out a brochure with the explanation.

We have a TARP to buy bad assets, buy homes, pay Wall Street Bonuses, and give cash to insolvent banks. We have Fannie and Freddie buying every mortgage under the sun. We have the FED expanding it's balance sheet by 150% to make cash loans to banks. We are going to have a stimulus check sent out. We are going to give GM and Ford lifelong money infusions. We are guaranteeing everything under the sun.

And what is the driving force for all this?
-Unemployment has gone from 5.5% to 6.5% in a year
-Consumer spending has gone down by 3.1% annualized
-The stock markets are off around 25-35% from the highs
-Bank closures, while elevated, are nowhere near the last banking collapse number
-GDP may have contracted 0.3-1%

I mean faced with those kind of Depression Era stats, it is easy to see why all the panic is flying around!

Maybe I am missing something, I fully admit I am not an expert, but the current state of things does not seem so dire, so desperate that the powers that be need pull out all the stops and bail out the universe. Seriously, if all this is done now, what happens if unemployment goes to 10% What if GDP goes negative 2%-3%? Is there anything they could do?

Maybe that is why there is this mad rush. The economy is so fragile that even a slight hiccup can be terminal. You may want to ask yourself if our economy is that easily broken, how long until that happens?

Friday Night Entertainment
It is Friday, and here at Economic Disconnect we believe in getting excited over raking leaves, I mean over the weekend!

Book Passage
"I don't like you very much, Tom, as you have probably realized, but up to now you haven't had to give much of a rip how I felt. But I'm out of your filing cabinet now, Tom. Have you got it? I'm not just a record you can lock up at three in the afternoon. Have you got it?" My voice was rising into a scream. "HAVE YOU GOT THAT, TOM? HAVE YOU INTERNALIZED THAT PARTICULAR FACT OF LIFE?"
"Yes, Charlie," he said with a deadly voice. ""I have it."

"No you don't, Tom. But you will. Before the day's over, we are going to understand all about the difference between people and pieces of paper in a file, and the difference between doing your job and getting jobbed. What do you think of that, Tommy, my man?"

-From the short story "Rage" by Stephen King, as Richard Bachman.

Film Clip
Found a YouTube clip of another great "Highlander" series fight. This one is between Duncan McCloud and his hated enemy Xavier St. Cloud, played by musician Roland Gift:

Music, Sweet Music
I love classic rock, but some of the older stuff can be, how shall I say it, in need of a little speeding up. Take the Buddy Holly song "Crying". For the film "La Bamba" a new mix was made and it is just right:

Hey, 1 Billion Elvis fans cannot be wrong! Take a listen to the cover of "My Way":

How about a bit of Golden Earring and "Radar Love":

Have a good night.

Thursday, November 6, 2008

Take Our Pensions, PLEASE!

How was that two day skid? The biggest percentage wise since 1987, which was not such a good time I hear. Wild stuff and things keep getting more unhinged!

COMEX Market Delivery Date November 28th
I have written a bit about the big chasm between spot price gold on the COMEX (around $700 and ounce) and the real physical gold price (around $1000 an ounce) for some time. This disconnect would invite aggressive types to try and buy at spot, take delivery, then sell the hard metal for a 30% profit. So just what is going on?

At this point things are taking shape and an answer should come sooner than later. The December delivery contracts (the first of which cover a big spread in price) start settlement on November 28th, the Friday after Thanksgiving. So it may pay to check this out if you can come out of your Turkey coma for a bit that Friday.

What do I think? I have said before that I feel the dollar will resume it's slide very soon and Gold will rally hard. This spot vs. real thing is a special interest of mine. Either this gets resolved soon to either side (up or down) or there will be two gold markets at once: One large COMEX big player market and one small physical metal market. If that happens the price difference could persist for a while, but what fun would that be? Minyanville has a good post on this very topic today, so check it out:

In related other blog notes, Both Market ticker and Jesse's Cafe have great material today if you want some reading material.

Take Our Pensions, PLEASE!
It was widely reported today that a confidential meeting was held by some members of Congress with the big US auto maker leaders. Another "secret" meeting that everyone knows about of course. What was said will surely come out in time, but I would like to offer some conjecture on what might have been asked of the Congress at this meeting.

The US car guys are hurting. After years of making inferior products, they now have a hard time competing even though many of the new Ford and GM (lower end)models are about on par with the Japanese cars. Both Ford and GM have also become more so money lending institutions than just car makers. How did that happen? One word: Pensions. In order to meet the crushing cost of employee pensions, the car makers expanded into the finance world to try and goose profits to fund them. This worked pretty well for a bit, but now obviously there is a problem. (In all fairness, the pension funding issue has never adequately been allotted for) The US makers simply cannot go on much longer saddled with this kind of debt obligation.

Recently a bill was passed to loan the car makers around 25 Billion dollars on face to "Retool and meet new efficiency standards" but that was just another name for a handout. Another 25 Billion is on deck. 50 Billion does not even begin to get the job done, and that is what was discussed today.

The US firms will ask the Congress to use taxpayer funds and a government guarantee to take the pension funding obligation off their books so that by accounting magic they can remain competitive in the bond markets. The taxpayer will be on the hook yet again for even more money giveaways. As a threat, the car makers can hold the spectre of anywhere from 500k to 1.5 million job losses as a bargaining chip. Imagine that unemployment number getting printed! Hikes!

And so, just like with the good old "if homes gets foreclosed on you will suffer" mantra the play will be to sell this pension bailout as a "if unemployment goes higher you will suffer" kind of deal. At the heart of all arm twisting is the idea that even more pain can be forthcoming.

I do not want to debate about how GM, Ford, and Chrysler got to this point. There are many reasons. The debate right now is whether as a people we are going to take any suffering up front, or just tack in on the back end of a unending debt obligation for all time. Can the US take on the pensions? Sure, why not. We seem able to issue any amount of debt we want, so why stop?

The deeper question lies in simple right and wrong. Should I have to pay for a neighbors mortgage? No, that is WRONG. Should I have to pay for a GM employee's pension because the company is going belly up? No, that too is WRONG. Should the guy at GM be looking at no retirement income because the company was poorly managed? No, that is WRONG.

That is a bunch of WRONGS without any RIGHT. What should we do?

The government cannot make anything right without doing something wrong. There is no free lunch, no easy fix. The banks, the auto makers have to fail. Mortgage holders in over their head have to give up. That is the start.

The follow up is to not allow such sick management to happen again. Never allow bank access to so much cheap capital with no oversight that they go nuts like they did. Demand more as employees and shareholders in regards to transparent accounting and solid fundamental management.

All this can only happen after what exists is gone. Sometimes you have to destroy something to make it stronger. Is there really any other way to do this? Comments section is waiting.

For nostalgia, when GM was king of the hill they made perhaps the sickest machine ever to roll off an assembly line in the USA: The 1969 all Aluminum ZL-1 Corvette!
Take a look at a magazine article about the car:

One pic of the engine components:

Have a good night.

Wednesday, November 5, 2008

Fundamental Nature of the Situation has not Changed

Plenty of folks stayed up a bit too late last night watching election returns as my place of business had a big absentee day. I read half a book and went to bed at 10pm. Luckily NFL on Thursday night starts tomorrow!

Election Wrap Up
Here in the great state of Massachusetts we reelected everyone (yes Barney Frank only got 79% of the vote as opposed to his normal 85% so I guess there was some backlash to his championing the TARP bill!) and the referendum questions went as so:
Question 1: Repeal the state income tax [70% voted against the repeal]
Question 2: Under an ounce of pot is a fine and no other legal hassle [65% said toke it up!]
Question 3: Eliminated dog racing in the state [65% said no more doggie races]

Myself I voted for the tax repeal (of course), I voted to decriminalize the pot (free country, at least it used to be) and I voted against the dog racing (poor greyhounds got to me).

Last nights videos caught the ire of a reader who left this comment:
" Anonymous said...
I consistently read your blog everyday. I have always found you to be quite insightful in economic matters, especially for a non-economist, showing a fundamental intellect to understand complex relationships. I am some what surprised by your choice of two videos, having a racial bias, with the myriad of political issues in the news, today. The videos show nothing more than sound bytes with no sound bases of good journalism."

I thank you Anon for the kind words, but I am puzzled by the "racial bias" charge. Those two videos show one lady too dumb for words and two idiots acting like fools. Give me a YouTube link with one of those moron "god will make McCain win" or a bunch of drunks with a confederate flag outside a voting site and I will happily include them. I used those videos to highlight dumb behavior, which is my normal operation. I saw just people, but you chose to see something else. I would hate to lose your readership, but alas, we can all vote with our mouse!

Fundamental Nature of the Situation has not Changed
Looking around the web you get an overriding read that now with the terrible George Bush gone, the credit crisis is a past tense event and things are going to become rainbows and music. Even some of the better sites out there seem to have sipped at least some kool aid on this matter. There is a ton of "Hope won" and "A new era of honesty" has come upon us.

I am sorry to tell people that George Bush, just as former president Clinton before him, had an absolutely minimal effect on things economic.

Lets run the laundry list:
-Bush Tax Cuts Were Bad: Well yes they added to a deficit, but had ZERO effect on interest rates which is the prime concern with deficits. You think deficit spending is now going to go down? I'll take that bet!
-War in Iraq a Failure: On this I can agree. I supported the operation to remove any weapons, and yes I did think there were some, but when it was clear there were none we should have said "sorry, see ya" and left. The added years of cost were a waste of funds, but the loss of US forces lives borders on criminal.
-Deregulation Led to the Credit Mess: Only dumb people think this, I am sorry as some writers I respect trot this tired line out too often. There were regulations up the wazoo for all things credit related, just ZERO enforcement. If you think more regulations that are not enforced are going to make any difference, I'll take that bet!
-Bush Pushed "Home Ownership": So what? Half of the country did not vote for the guy and thought he was a stupid monkey. So did you run out to buy a house because a stupid monkey told you to do it? No one to blame but yourself there I would say.

I could go on, but none of the above charges make any sense. We know why we are here, too much spending, borrowing, and consuming with no way to pay it back. Add to this an out of control FED and Treasury that were handed sweeping powers by the ENTIRE CONGRESS and we are just as deep into it as we were last month. George Bush was a terrible president that lacked direction and really was an ineffective leader for his entire second term. History will judge him poorly I imagine, but trying to wrap the credit mess around him just will not work. It was the bankers, the FEDS, the greedy flippers, and the lack of desire to enforce rules and ratings that got us here.

I like the story that things are going to be great from here on out, I just do not see how. I will say that if President Obama get Paul Volker to take the treasury position, goes after the bonus money that was paid out using the bailout funds, stops trying to put floors under home prices, and lays it out that the funny business is over I will become a rabid loyal supporter even if I do not agree with his other objectives. This is my number one issue and I can be won over. I guess I will hope as well.

More of the Same Coming Right Up
So things are going to be so different? No more baloney and giveaways? From the Housing Wire:
Feds May Be Considering Subsidy on Troubled Mortgages
November 4, 2008
Key Excerpt:
The proposal outlines the mechanics of a mortgage bailout that would cost as much as $441 billion, relying primarily on a three-year borrower subsidy that would be repaid in five years, with interest. “Upon receipt of a notice of default on an owner-occupied primary residence, a homeowner could apply to participate in a program under which the government would fully subsidize three years’ mortgage payments in exchange for a note, to be paid in a lump sum five years from receipt of the first payment subsidy, equal to the payment subsidies plus interest accrued at the federal funds rate,” reads the proposal, in part.
“In five years’ time, participants would, in all likelihood, be able to sell their homes or refinance their mortgages at amounts that would allow them to repay the loan.”
Full read is worth a look:

This is a basic lotto ticket that gambles on home prices coming back enough to save any involved. Great idea! As opposed to the old way of thinking like a gambler this plan...oh wait.

There is nothing new coming down the pipe to change the fundamentals facing the markets. As they say on Minyanville, only Time and Price will allow the debt destruction that is needed.

Have a good night.