Friday, October 30, 2009

Halloween Contest

Halloween Contest
(Note: I had to break this up into two posts, other content is in post below!!)

I thought I would change things up for tonight. This evening Economic Disconnect is featuring a contest.

I am going to post either a iconic picture from a horror film or creepy music from a horror film and your mission, should you choose to accept it, is to correctly identify the film from which the submission is featured. Example, suppose I post this picture:

You would know the answer is "Friday the 13th". The music selections may be a bit harder to place, but hey, life is not easy!

The Rules
Submit your answer sheet to me via the newly created email for the blog listed at the left under "contact information". It is just this blogs name at
-Most correct answers wins
-Ties broken by time of submission, though I understand some may not read this post until later tomorrow so I will have to have some leeway on this
-You can resubmit if lightning strikes and you think of an answer

The winner (there may be more than one, it depends) can pick from:
-Barry Ritholtz book "Bailout Nation"
-Christopher Steiners novel "$20 Per Gallon"
-Poul Andersons "Tau Zero"
-Robert Heinlein's "The Moon Is a Harsh Mistress"
-A free 1 year subscription to Economic Disconnect (joke!)
-I have been known to locate a silver bullion ounce from time to time
-A guest post spot for a blog (I will publish your submission in full so long as it meets blogger decency rules and is not vulgar)
Not too shabby!

I am choosing horror genre films, but they may include sci-fi horror, psychological horror, or other such cross overs so do not stick to just basic horror classics!

Ok, on to the contest!

Item #1: This one is a practical give away, but I thought I would build your confidence!:

Item #2:

Item #3:

Item #4: This song is featured in a chilling scene, name the film:

Item #5: A bit harder, this picture is not a screen capture, but a perfect rendering from a classic film:

Item #6: This WILL be the deciding factor I think (unreal obscure). The next song was featured in a horror film at a major moment and has stuck with me ever since. Only hint: think of the season this song may be playing! Good luck!:

Item #7: This is a quote from a sci-fi horror film, no cheating by google, we are on an honor system!:
"We'd better get back, because it'll be dark soon, and they mostly come at night...mostly."

Item #8: The final question!
This will be movie trivia! Again, easy to find on the Internets, but really that is cheap and easy, who are you, the banks?
What horror film was centered around a subplot of asbestos insulation removal?

Ultra Tie-Breaker:
In the book (not in the film) "The Silence of the Lambs" Dr. Lector gives the identity of the killer "Buffalo Bill" in written form, but what did he really spell out in an anagram?

Have fun!


Have a good night!

Halloween Eve Friday Night

I am still getting tons of hits on the site off searches for the "horse in the car" picture! Amazing. The Internet is a strange thing.

It has been a long week and this writer is a bit tired. I will cover a few items for the evening and then off to the Friday night Halloween festival where tonight I have a contest in mind.

Cash for Clunkers - The Gift That Keeps on Giving
The high scorer as far as GDP is concerned, Cash for Clunkers (CFC) remains a hot item. The White House is having issues with how the auto site Edmunds described the results and cost of the program and Karl Denninger looks at some other key points as well:
This is ridiculous and anyone who believes it deserves to eat The White House Dog's used food:

The administration's blog post argued that Clunkers helped to lower auto prices on the rest of the vehicle market as well, a fact the administration said Edmunds ignored.

What a total load of crap.

First, I personally walked into dealerships during the "CFC" program time, and every single one of those dealers was literally screwing everyone who walked into the door.

Normally, you can buy an American car for $100 or so over invoice price. I have, in fact, not purchased one vehicle for more since I started buying cars! My last "new" American vehicle, a 2002 Suburban, was bought during the 0% "craze" following 9/11 and even with the 0% financing I bought it for $1,000 UNDER factory invoice. I saw no dealer willing to sell at anything approaching that number this time - they were all selling at full sticker, and two had their own "supplemental rip-off stickers" on the windows that they refused to negotiate on yet were full of junk (the usual "undercoating" and "fabric protection" for $250 garbage.) People literally got robbed to the tune of $2,000, $3,000 and sometimes more than the rebate was worth on these so-called "deals."
Now that the program is over and I feel like I can share some information with you without worry of too much noise. I can back Karl's claim up with one note: A friend of mine works at a large dealership (mechanic) and he said the floor guys were jacking prices because people wanted the CFC cash no matter what and were not paying much attention to details. Another awesome job done by the government, carried out by the ultra smart general populace.

Add to this:
-You must pay sales tax (if your state has it, Massachusetts does) on the FULL PRICE, not the lower CFC price. This was quite the shocker here in MA when folks went to register the new car.
-You may or may not have to pay state income tax on the rebate. This issue is far fro clear and is state dependent. If you have questions, this site offers some advice here:
State Tax Consequences of Cash for Clunkers

Mish on Currencies and Gold
Mish Shedlock has a great write up about Eastern European Currencies and Gold that may well be interesting to check out.

On the More Positive Side
I have been called a perma-bear, a doomer, a gloomer, one that wishes the world to collapse, a paranoid nut, and a pessimist. That is quite a list. I don't care what they call me, as long as they call me!

In that spirit I wanted to try and find some good news or solid actions by the banks or government to balance out my anti-feel good agenda. I will give it my best!

Goldman Sachs May Well Be Pretty Good
It seems that Goldman Sachs was smart enough to sniff out both Bernie Madoff and the Galleon Investment rackets. GS did not place any client money with the two fraudsters, and this is a good thing:
AMAZING: Goldman Avoided Galleon, Just Like It Avoided Madoff

Now I could get snarky here, but I will leave it as a high five for GS! Those guys can really know a fraud when they see one!

Is the FED About do Something Right?
I admit to be as negative on the FED/Treasury/FDIC as is possible, but I think they deserve it. Well, even a stopped clock is right twice a day, and it appears we have the makings of a good policy move in the works! Check it out:
Is Fed Abandoning Bailout Of Commercial Real Estate
In what could have been the biggest piece of news today, yet making little headway into the media, the Fed announced that it is adopting a policy statement supporting "prudent commercial real estate loan workouts." And even though in traditional Fed fashion, the statement says a lot but is even more vague, some of the implications from a more nuanced read have very serious adverse implications for commercial real estate.....
....If the Fed is unwilling to recreate QE for CRE, in the same way that it continues to bail out residential exposure, then look for a major double dip in the economy. The only wild card is why the Fed is letting this happen, although if the political backlash against just QE 1 is any indication, then it likely would not have been able to pass additional liquidity measures regardless.
This could be big.

I do not buy the political argument against a CRE backstop/bailout, they do what they want anyways. Perhaps they are actually hitting a wall with how much money they can guarantee.

Now this is preliminary, and who knows what happens when workouts and mods either do not work, or work but require massive bank liquidity infusions to cope, but at least in the early going, the FED may be trying not to replicate their residential adventure. Hat tip out to them!

Add to this it seems CIT will not last the weekend unless private funding can be found, and that is two in a row for government non action! GMAC was smart to move quick and get the FDIC involved on their side. See, I can be reasonable!

Friday Night Halloween Entertainment
Halloween is tomorrow, but I have about 3 tons of leaves to clean up and it promises to be an all day thing. Time permitting I will do the Saturday NFL preview. I can guarantee the Patriots will not lose this weekend.

Funny Pictures
Seeing that the only way for me to get page hits is to post funny pictures, I guess I will lead off with some!

LOL Cats does Halloween!:
Every neighborhood has the home that gives out healthy or useful crap:
funny pictures of cats with captions
see more Lolcats and funny pictures
True story, one year (in my youth) a house in my area was giving out apples and they had jammed half dollars into them as a bonus. Of course they might have wanted to mention that, as a few of us had chipped teeth after biting into the apple! Wish I had checked the dates (pre 1965 silver coins!)

Those fun sized candy bars are pure evil because you think "they are small, so if I eat like 10 of them, no problem." Wrong, problem:
funny pictures of cats with captions
see more Lolcats and funny pictures

Halloween dancing failure (watch at 18 second on mark):

My face hurts after that one from laughing.

Is this fast food take out in the future if the banking system collapses?:
epic fail pictures
see more Epic Fails
No wonder the FED was in a panic after Lehman!

I have to put the Halloween Contest on another post (blogger limits) so check out the next post in a bit.

Come back for the contest!

Thursday, October 29, 2009

Distortion of Economic Information

If you run a blog on blogspot, you may have noticed the item "Blogs of Note". This feature picks out one blog from the masses and highlights it with a link. I always check them because I am inquisitive, but here is what i have put together:
-45% of blogs selected are sites that feature never ending picture submissions of usually uninteresting landscapes, animals, or cities
-45% of those selected are about food; either consumption of food or just never ending picture pages of food items
-10% are unique or interesting in some way, at least to me
Anyone else notice this?

GDP Inflator
One of the bad things about getting to writing late day is that all the action has already happened. Today's big news was the monster GDP number and it's effect on asset prices which were free to run after the bond sales finished up. This may have surprised some, but not if you read this site this week. The entire weeks losses were about recouped in one day. If it seems almost scripted, then you must be crazy!

A quick recap of the GDP number.
Headline number and some reaction:
Stocks jump as better-than-expected GDP report rouses investors; Dow industrials jump 200
Details the 3.5% number, how it blew away the 3.2% estimate (and Goldmans call for 2.7%!) and that the economy is awesome.

Of course there are numbers, and then things that make up the number. Some excerpts from sharp minds across the net;

Clusterstock chimes in with:
Cash-For-Clunkers MASSIVELY Distorted GDP
If anyone mentions the just-released 3.5% U.S. third quarter GDP growth, just throw this chart in their face. Cash for Clunkers clearly distorted the U.S. economic figures in an unsustainable fashion.

According to the Bureau of Economic Analysis (BEA), motor vehicle output spiked a seasonally-adjusted 157.6% quarter on quarter. This is completely unprecedented. Vehicle output is clearly going off a cliff next quarter. The question will be how low can the blue line below go.

To put this into GDP terms, according to the BEA the spike you see below added 1.66% to the U.S. GDP growth figure reported. Thus without it, GDP growth would have been only 1.89% (3.5% - 1.66%) in Q3.
I will have more about the automotive aspect below.

I am always careful when phrases like "completely unprecedented" are used!

The guys at Clusterstock are not done yet (I told you they write alot!):
How The Home Buyer Tax Credit Inflated The GDP Number
Our chart of the day shows how the government's cash for clunkers program added 1.66 percentage points to the GDP, boosting it from a pathetic 1.89% gain to 3.5%. Add to that at least a portion of the huge gain in residential spending activity. This number jumped a seasonally adjusted 23.4% and was responsible for more than a half-percent to GDP.

How much of that was due to the home buyer tax credit? The National Association of Realtors says that nearly half of the jump in home sales this year was directly attributable to the tax credit. So we probably need to shave at least another 0.25% off GDP.
Addition by subtraction perhaps.

At this point GDP number is running at 1.64%. Still wonderful.

Mish reads all the hard data and offers:
Cheering Over Ugly Report
Today the market is cheering over what is actually an ugly report.

A misguided Cash-for-Clunkers added a one-time contribution of 1.66 percentage points to GDP. Auto sales have since collapsed so all the program did is move some demand forward.

Government spending increased at 7.9 percent in the third quarter which is certainly nothing to cheer about.

Personal income decreased $15.5 billion (0.5 percent), while real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent last quarter. Those are horrible numbers.

The savings rate is down, which no doubt has misguided economists cheering, but people spending more than they make is one of the things that got us into trouble.
Not inspiring, but the market is up and is looking forward and is never wrong, so why dwell on the negatives?

Alphabet Soup
Tim Iacono is back in action after a vacation and he is as good as ever. Tim, the author of The Mess That Greenspan Made, catches an awesome mix of alphabet letters which show you yet another aspect of how government influence is all things in the market place right now:
When Junk is Not Junk
Just eighteen months ago, you would have expected to see a story like the one excerpted below in The Onion, the satire news outfit that bills itself as "America's Finest News Source". But, this being 2009, this report($) along with others like it now appear in the Wall Street Journal, the nation's most widely read daily paper, recently surpassing USA Today:
GMAC Offers $2.9 Billion in Debt
Troubled consumer lender GMAC LLC came to the debt market with a $2.9 billion offering of three-year bonds backed by the government Wednesday.

GMAC is the only financial company with a junk credit rating to receive support under the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program. Moody's Investors Service has the company rated at Ca, two notches above default. The FDIC backing, however, means these bonds will be rated triple-A.
The offering came as GMAC was in discussions to take another $2.8 billion to $5.6 billion of fresh capital in the form of preferred stock from the government. The Treasury already has pumped $12.5 billion into the company, which lost $3.9 billion last quarter and will post its third-quarter results next week.

"This offering further strengthens GMAC's liquidity position, which will support the company's ability to extend credit to consumers and businesses," the lender said in a statement.

No, that wasn't some made-up quote by a writer at The Onion - that was a real quote from a real spokesman at GMAC, the finance arm of General Motors and Chrysler that converted into a bank holding company last year so that it could better access government aid. This came a few months before both GM and Chrysler began what were two of the largest, shortest bankruptcy proceedings in history.
This is bordering on the unreal. FDIC Backing? They do not even have enough money to close failed banks, why are they in on the GMAC deal? (Hint see GDP distortions above and know GMAC finances cars and homes. Nuff said.) Nice catch Tim!

2 Years is a Long Time
The US Congress is looking to extend once again the unemployment benefits package. This newest extension (and not the last) means one can collect unemployment (UE) for about 2 years. I bring this up not to debate the merits of such a program, but what it means.

There exists right now many skilled, educated, and motivated people in this country that may be using UE for two years of their career. Two years! In an ultra competitive market, two years "on the shelf" is a very long time. This can and will impact future job prospects, and impair earnings for that individual for some time.

Think about how long two years is career wise. Two years ago I was a full level below where I am now and about 15% lower in earnings. I finished a major success just last year which was the driving force behind a promotion. Two years is a long time indeed.

I think especially hard hit will be those in their later years looking for that last position before retirement. A 50-53 year old may never get full time employment with full benefits again after a 2 year stint on UE. Temporary contracts may be all there is available.

So while GDP is massaged to look great, understand that the reality on the ground is very different. 2 years is a long time.

So now to tie it all together...

Distortion of Economic Information
from Wikipedia:
A distortion is the alteration of the original shape (or other characteristic) of an object, image, sound, waveform or other form of information or representation. Distortion is usually unwanted.

If you are the kind that can view the clear information above (along with the myriad of other items covered here over the past 2 years, see it is a long time!) and still think that GDP is strong, unemployment is a useless indicator, and rates of all kinds are not heavily influenced by the US arms of finance, then please move along. Go back to your ivory tower and pretend someplace else. And say hello to Paul Krugman while you are there.

Data of all kinds have been targeted for distortion since the very beginnings of this episode. Let me take two samples to show what I mean and what these distortions may cause.

Cash for Clunkers Program
The purpose of this program was to throw aid to the floundering US automotive sector, and by extension the firms that make car loans. In an ironic twist, foreign auto makers won a majority of the sales, but the effect here in the US was still very large.

A short term goose to car buying added perhaps as much as 1.6% to the GDP number and plenty of taxes on the new car sales to local governments. The spike is sales caused a distortion, one which some adjusted to and some did not.

The Distortion: A spike in auto sales may have caused premature decisions about production and hiring to occur.

Results: GM and other US auto makers ramped up production, even hiring back laid off workers, to make more cars even though dealer lots were full of autos. This distorted the very real correction and wind down of the US auto industry and will cause another huge disconnect between reality and what the unions think they are going to get. In another irony; Japanese auto makers, no stranger to government pump jobs, never increased production but prepared for the downturn to resume.

Future Issues of Distortion: GMAC needs more money already. The auto makers will flood the markets with cars at deflated prices (Deflation, oh noooooo!). Lastly, a 1.5% pump to GDP is too much to leave on the table so yet another program like this will come. Causing more distortions.....

Mortgage Rates at Unrealistic All Time Lows
In an effort to get as many homedebtors into loans they may be able to pay for at least a few months, and to encourage new buyers to "buy now or be priced out forever" the FED has targeted mortgage rates and distorted them to the lowside. FED MBS purchases, FHA loans, and FNM/FRE are fully 100% of the mortgage market right now.

The Distortion: Through the purchase of the worst of mortgage assets, the FED had hoped to reignite lending. Instead they were inundated with sellers looking to offload MBS, and the banks never returned to the market. The FED used all the tolls available to maintain all time low rates for mortgages even though the real rate is much, much higher.

Results: Even in the face of this kind of effort, the results have been weak at best. Sales are still poor and only yet another program, the home buyer tax credit, was able to generate much interest. Underwater homedebtors are doing the smart thing and giving up, not rolling into a low rate mortgage set up for 50 years on a home they are under water on.

Future Issues of Distortion: There are many, so a list is in order.
-The FED's 1.5 (or whatever) Trillion dollar MBS purchase program has been credited by many bloggers I respect dearly (Calculated Risk among them) with lowering mortgage rates about .30 bps. So if the FED helped rate is say 4%, with out the program mortgage rates, by their thinking would be 4.3%. I reject this outright as insane. If true then two things are also true:
-the use of this money was an poor waste of taxpayer funds and increases risk for the FED exponentially
-there was no real gain; .3% will not make one iota of difference in the long run. Not one bit of difference. At all. They clearly have lost it.

With banks charging 30% annually for credit cards, I have no idea what a Citi mortgage may cost. I think it may be a hair over 4% though. What this boils down to is that the FED will be hard pressed to exit this program.

If mortgage rates moved up from the federal sweet deal of 4-6%, up to banking world rates of 7-9% (low end IMO) this will wipe out 20-30% of a homes price right off the top. Whether you think home prices are rising or not, they are not rising enough to cover that spread should rates return to anything near normal. This is a key point.

The FED has been playing "pretend and extend" but their clock is running out and they are way behind. There is no possibility by next March (supposed FED exit) home prices will be 10,20,30% higher which is the needed breathing room for normalized mortgage rates.

The future distortion that I see is folding FNM/FRE/FHA and the MBS assets of the FED into a "bad bank". New purchases will be funded by the newly created Federal Office of Mortgage Issuance with a 4% rate for all. This will be funded on the bond market with shortfalls made up with taxpayer money. Do not worry, this program will be short term with an exit strategy planned for 5 years before our Sun goes Red Giant.

Two Items for Review
Out of time, but these two article were too wonderful to pass on.

From Jesse's Cafe Americain:
About the Jobless Recovery......
If you think this explosion of Federal debt will facilitate a stronger US dollar you might be suffering from ideological myopia or some other delusion.
Get your eyes checked. Regularly.

Kevin Depews latest "5 Things":
Five Things: The Debt Crisis Is Not a Conspiracy
The whole piece is required reading, but just a taste:
If the dollar does bottom, then it will become quite clear that reflation attempts have failed, and then we face the heart of the debt deflation where the swelling of the dollar competes simultaneously with debt destruction and where debt levels increase in dollar terms faster than they can be paid down.
Make no mistake, debt-deflation will conclude with an inevitable sharp rise in inflation as monetary policies designed to battle deflation remain in place even as excessive debt is eventually destroyed, but the outlook for the dollar says that isn't today's business. Be careful which scenario you're preparing for because those who anticipate inflation before the debt-deflation has fully run its course will find themselves digging out of a deep and painful hole.
I may not agree with everything here, but well worth thinking about. A lot.

Tomorrow night is Halloween eve, and I had it in mind to hold a sort of contest in place of the usual entertainment. I know what I would like to do, but I do not want any leading study going on.

Prizes I am thinking about for the winner (or winners):
-Barry Ritholtz book "Bailout Nation"
-Christopher Steiners novel "$20 Per Gallon"
-Poul Andersons "Tau Zero"
-Robert Heinlein's "The Moon Is a Harsh Mistress"
-A free 1 year subscription to Economic Disconnect
-I have been known to locate a silver bullion ounce from time to time
-A guest post spot for a blog

Let me know if any of these things (or other items within reason!) may inspire you to take part in a contest.

Have a good night.

Wednesday, October 28, 2009

Items of Interest

When I checked my traffic details this afternoon I was amazed that I was looking at a 6 times increase in views just over the last 24 hours! Naturally I thought some tale of mine had gong huge and made its way across the Internet in what would surely bring me widespread fame and fortune. So what post garnered all the attention? What top notch writing example had resulted in such a page view tsunami?

Here it is:
Sunday Images
This post from Sunday March 15th included an LOL Cat picture that as far as I can put together (the one with the horse in the car) has been a hot searched for item on Google. What a let down. I am experiencing personal deflation great depression style. Oh well.

Items of Interest
It took me a little while to figure the traffic spike out, so I am short on time. Some items that I found interesting:

The downfall of Washington Mutual
While we have heard the standard line "this is not like the Depression, there are no bank runs!" this is of course untrue. There were many bank runs and many folded banks were "taken over" instead of closing. Washington Mutuals' fall is covered here.

The readers know that I am not a huge fan of Technical Analysis trading, but do appreciate the work that goes into it. Imagine my surprise when one of the biggest and the best of the chart sites, Slope of Hope, featured an item by a more macro thinker, with charts thrown in of course:
Solvency and Sovereignty
Key line: "This bull market to me is cash. Gold is the highest form of cash and it fit perfectly in my still ongoing 10 year bearish thesis." The author covers plenty of bases about downside risks to metals as well.

In a matching vomit inducing report for home buyer tax credit wrangling, it seems GMAC is looking to the Treasury for yet another handout:
GMAC Asks for Fresh Lifeline
Lender in Advanced Talks for Third Slug of Taxpayer Cash -- at Least $2.8 Billion More

When you are in for over 15 Billion already, what's another 3 Billion right?

I am unclear as to if the handout of about 3 Billion is in addition to a TLGP issue just made by GMAC, or if this was the deal they wanted:
Cash Sink Hole GMAC Catches Last TLGP Train Out Of The Station With $2.9 Billion Free Issue
Anybody know? Does it matter? Can anything be done to stop the government from doing these things non stop?

The GDP number is out tomorrow, and estimates ranged from 3%-3.2% annualized. That was before Goldman Sachs came out with a lower number, 2.7%, which if correct will be the second time that GS has nailed a heavily watched data point the day before the number was released:
Goldman's Extended GDP Analysis

I threw in the towel on a post last night after reading about an extension and expansion of the home buyer tax credit. Today things seem a bit more muddled, but by Friday this will get done. THIS WILL GET DONE. Calculated Risk has the latest, so check in often.

First revision, maybe not going to happen:
Another Home Buyer Tax Credit Update

The latest, looks like a go, though how they came to certain numbers I have no idea:
Home Buyer Tax Credit Revision
Sick. Just sick.

I wonder how the government will square extremely low tax collections with all the tax credits they are offering. Of course this would only matter if the US bond market had limits, which of course it does not. It may be time for THE grand experiment where the US floats enough debt to give every US citizen 1 Million dollars and see if bond purchases go down at all. If not, we are golden!

Final thought on today is that I said the markets would take a whipping and the dollar would rally in order to support the bond sales this week. So far this has played out exactly. Friday will be a huge reversal day to the upside, and next week will see this weeks losses in the rear view mirror. What about the bad data that came out? What about the bad data for 7 months now? You think it matters? It has not, and it will not, this is just natural market action as practised by our rigged gamers.

Have a good night.

Tuesday, October 27, 2009

Expanded Giveaways (Stimulus Spandex?)

Expanded Giveaways (Stimulus Spandex?)

I have a mountain of paperwork to get caught up on and I really have lost the will to write anything tonight anyway.

In a preview that should be noted by many across the financial world (you know who you are) the home buyer tax credit looks like it will be not only renewed, but aggressively expanded come Friday.

Relevant headlines:
Democrats Agree to Extend Home-Buyer Tax Credit: Dodd

Senate Close to Deal Replacing Homebuyer Tax Credit

This is a disgusting and craven move by the US Congress after heavy pressure was exerted on them by the housing industry lobby.

The tax credit has already been shown to be full of fraud, wildly expensive, and not very effective. Never fear, it goes on and gets bigger.

I would like to point out the following programs that will be seeing expansion and/or renewal over the next 6 months:
-Quantitative Easing 2.0
-MBS Purchase Reload
-Cash for any Clunker (Cars, boats, ovens, alarm clocks)
-Stimulus 2.0

Now get out there and buy US debt this week world! We are good for it!

Have a good night.

Monday, October 26, 2009

Your Regularly Scheduled Rally Will Resume After this Brief Interruption for the the Largest Bond Sale in History

Of course I stayed up and watched the entire Cardinals/Giants football game! Great win for Arizona, but I really cannot do these late nights. It was a LONG Monday.

The Burden of Proof
Tyler Durden had a fascinating report out over the weekend that generated plenty of interest. The title is as sensational as it gets:
An Overview Of The Fed's Intervention In Equity Markets Via The Primary Dealer Credit Facility
I will not go over the whole article, you would do well to read the entire thing.

After that title I was looking forward to some carbon paper copies of stock buy orders with Ben Bernanke's signature on them. Something like:

"BUY 10,000 shares GOOG at ASK. Authorized by Boom Boom Bernanke."

In the end, the author Tyler Durden submits that the FED used the Primary Dealer network to buy equities by channeling funds to them via the multitude of lending facilities.

Of course, there are other views and Ed Harrison of Credit Writedowns was underwhelmed by the article.

From my seat it seems semantics are at play here. Did the FED directly buy equities? Of course not, not even those guys are that stupid. Did the FED accept anything and everything as collateral for loans to the banks, who then turned around and ignited a 60% rally in the markets (with huge moves up for banking stocks) with the new found cash? It is hardly debatable. Did the FED give a wink and a smile to the banks to do this very thing? I cannot be sure, but the burden of proof is on the FED, not me.

Until the FED releases what kinds of collateral they are holding and how much they lent out based on said assets, nobody can really know. Audit the FED and lets see.

If You Have Nothing to Hide, You Have Nothing to Fear
At some point in every socialistic society, the Government becomes so all knowing and all powerful that they feel it is their duty to make right all the wrongs of the country. If a few principles have to be bent for the greater good, then so be it. If you happen to have a safety deposit box in the English bank in the story you need to feel better that the target of the raid was illegal assets, not your hard earned stuff. Of course, good luck getting your stuff back!:
The Raid that Rocked the Met
Why gun and drugs operation on 6,717 safety deposit boxes could cost taxpayer a fortune. More than 500 officers smashed their way into thousands of safety-deposit boxes to retrieve guns, drugs and millions of pounds of criminal assets. At least, that's what was supposed to happen.
The entire article is a great read.

Some pictures from the story:

Police cutting open the boxes with grinders.

The loot:

Now I want to be clear here. This operation was focused and well studied to target drugs, drug money, and weapons. On the face of it, all noble actions.

Of course there are problems. The police are overwhelmed by the non criminal box owners wanting their items back. Of course it seems a few stacks of bills may have been "lost" during this process. Add to this, by definition items in the boxes are not declared anywhere, so you could have fraud by the box holders (I had 3 million dollars in there! Where is it?!), or theft by the authorities (We only found 10 pounds sterling in there, not 3 Million, honest!).

If you are not a criminal you have nothing to fear except it may take a while to get your stuff back, and maybe not all of it comes back. But you did help fight the war on drugs, so you have that going for you. Which is nice.

At least if your safety deposit box is making you worry, you need never fear your bank deposits here in the USA. We have the FDIC, which guarantees your dollars will be there in the morning. Sheila Bair wanted you to know:

Of course the FED can make it so that you dollars are not worth anything, but they will indeed be there, so relax.

Your Regularly Scheduled Rally Will Resume After this Brief Interruption for the the Largest Bond Sale in History
This weeks 100 Billion Dollar plus funding bonanza will need a little help to make sure all goes well. In an effort to gets some traction, the dollar moved massively (snark) higher today (an entire point up! A monster 1/75th of a jump!) and this caused the equity market to have a fit. A move from 75 on the dollar index all the way up to 77 may just bet the ticket to scaring the foolish into piling into US debt. It cracks me up that the same game gets played and the supposedly nuanced bond market types swallow the bait every time.

Of course the bond sales this week will go perfectly, perhaps with the best participation rates ever seen. After that, the regularly scheduled market rally will resume either Friday or next Monday at the latest. Position accordingly.

Of course there is always one annoying guy at the party that tries to screw things up for everyone, and the #1 stock for the momentum "Its a new Era" type traders coughed up a hair ball tonight.

Baidu (BIDU) came in a bit under estimates across the board, which is no easy feat this earnings season. Of course this represents a great buying opportunity after a 12% move down after hours. Remember the beauty of dollar cost averaging!

If you are a nervous holder of BIDU here, allow the sage voices on the Yahoo Message boards to put your mind at ease:
just spoke to large investor - very excited about quarter.
2. slowing rev not a surprise - and not indicative of slowing momentum
3. EPS impact should not be that significant, as margins on Nest significantly higher
4. Expects company to highlight that rev momentum should quickly reaccelerate in Q1
5. Thinks announcement was a bit naive, but expects the take home message will be - and should be - Q3 rev and earning growth reflects a business expereincing extremely strong fundamentals right now, and that should quickly resume following the transition.
6. Does not expect 2010 forecasts to be reduced - in fact - expects them to INCREASE - reflecting the 9 mo trend of 2009

Buying on 20% ah selloff.

I had wondered what had happened to Casey Serin but it is clear Mr Serin moved on from his real estate empire into BIDU stock and sees this pull back as a "sweet deal".

Have a good night.

Sunday, October 25, 2009

All The Way Back Sunday

What a wild late game between the Saints and the Dolphins!

NFL Week 7 Recap
Another day of NFL football that features wildness all over the place.

-In the days two "that makes sense" games the Colts blow away the Rams and the Raiders return to their inept ways as the Jets win a blow out.

-The Bengals win big against the Bears and still share first place.

-The Steelers hand the Vikings their first loss, but the Vikes dominated this game at the line and killed themselves with mistakes.

-How good are the Texans?

-The Bills won again.

-The Browns are terrible.

-So are the Chiefs.

-The Cowboys beat a quality opponent and finally play a complete game. Miles Austin is a dangerous weapon and the defense of Dallas played a full 4 quarters. See Gawains, the Boys are better than you thought, just like I said!

-The Patriots win easy again, and their defense is getting outright scary. The offense looked pretty good, although there were a few mistakes. Enjoy the bye week boys, the next 4 games decide the entire season (vs Miami, at Indianapolis, vs Jets, at New Orleans) so rest up.

-In a wild game, the Saints have come all the way back from down 24-3 (and being totally embarrassed) against the Dolphins. The Saints had one of their signature "No Show" games (they usually have about 3 a season) in the first half, but turned it all around after halftime. I have never seen a Saints team this focused and their refusal to lose this game was amazing. Note to the rest of the league, be very afraid. Final score 46-34! I have to catch my breath.

The last game of the day is coming up, lets see if the Cardinals can generate some excitement against the Giants.

Have a good night.

Saturday, October 24, 2009

Saturday Night Extra Point

I have some down time and though I would rite a small NFL/Random post.

NFL Week 7 Preview
This week the NFL slows down it monster game weekend marathon and there are only a few big games. Still, this year is going to be so close at the end, I think 11-5 may be needed to grab a wild card spot. Every game, every week is huge. What I am thinking:

-The Patriots will beat the Bucs in England. The Bucs at this point are just too weak to beat even the Patriots of the early season. The question here will be was last weeks games against the Titans (no secondary players that were not rookie fill ins) an aberration, or are the Patriots finally in sync on offense?

-The day's biggest game is the Vikings travelling to play the Steelers. So far the Vikings have been winning close games on the arm of Brett Favre, but running Adrian Peterson has to come back at some point for the Vikes to win against the big teams. The Steelers get Troy Palomalu back on Sunday, though he will not be 100%. The lift the return of the #1 safety in the league should be enough for the Steelers to give the Vikings their first loss of the year.

-The Saints are hot. Beating the Giants was huge for the team. On Sunday they travel to Miami and play the Dolphins who have been chomping at the bit to play after their bye week. This is the upset special of the week and think Miami runs the ball all over the place and a Drew Brees late game comeback is foiled. Not a huge deal for the Saints, this game is non-conference and getting the undefeated tag off your name can help.

-Can the Raiders put together 2 inspired performances in a row and beat the Jets? Nope.

-The Colts play the Rams? Is that fair?

-The Cowboys have a chance to rescue their season if they can beat the Falcons. This is a defining game for the Cowboys against a quality opponent. The Falcons have been hot, but I think Dallas pulls this game out.

-The Cardinals visit the Giants and I think the G-men are going to be very ready to go all out against a pure passing team. If the Cardinals can block the Giants defensive line, they can attack the weak secondary. They will not block the line and the Giants blow them out big.

-There are a few other games, but nothing too interesting. Are you ready for some football?

Random Items
A few pictures.

Burns Cliff, a desert rocky outcropping on Mars:

Portsmouth Square San Francisco circa 1851:


Las Medulas, the Roman gold mine:

Roman aqueduct in Germany, amazing technology:

Holes in the ground at Yucca Flat Nuclear Test site Nevada:

Have a good night.

Friday, October 23, 2009

Friday Night Zone Blitz

Another Friday night is upon us. It was very cold here today and cold rain expected for the entire day tomorrow. Last nights post was perhaps my all time favorite, so if you checked it out I hope you liked it as well. The post before that made the blog Some Assembly Required today and I love it when work that I have done finds its way across the Internet.

In case I do not do an NFL section this weekend, I wanted to pass along the NFL pick of the year: Miami Dolphins beat the New Orleans Saints on Sunday. You read it here first!

Just What Kind of AAA Assets are on the FED Balance Sheet Anyway?
By now most are well aware of the games that allow various debt instruments to be rated AAA by the various agencies. The main part of the game is of course to just rate the stuff AAA and not worry too much about it.

The FED feels that in order to maintain it's Independence they must keep the bulk of their operations behind the curtain. Of course the FED is all about appearances anyway. Change one word in a statement and affect the entire bond market, say you are separate from the politicians will while you execute the very will of the politicians, round and round.

Sometimes a few details fall through the cracks and what has been seen so far has not been encouraging if you pay taxes.

It may interest the readers to know that the FED, and then by extension the taxpayers, now own a deserted shopping mall in Oklahoma City. This gift was packages into the Bear Stearns sale/bribe package. Mish has some details:
FED Owns Deserted Oklahoma City Mall

As the FED is now tapped out of their treasury purchase money, they will only have whats left of their MBS purchase power which was started at 1.5 trillion or so. What kinds of top rated paper that is just miss priced does the FED hold? Guest writer EB at Zero Hedge has the details:
Fed Splurges on Freddie Gold
The story has plenty of details, but an introduction:
If you would like to know just how many California newlywed first time homebuyers with no mortgage insurance, with no verifiable assets or income were originated loans by unknown parties throughout the boom years of 2007 and 2008, or just how many Malibu yuppies are extracting the last bit of cash from their home ATM on this brief respite from the mean reversion in home prices due to end in the early teens, read link.
Hint: It is none too pretty!

The Audit the FED bill has not had much coverage here because there is NO WAY it will ever happen. Even if, huge if, the bill should pass, the FED will just decline to participate. Who is going to make them? If you answered anything other than nobody, are you sure? Final answer? Want to phone a friend?

Covered by a panic the FED (and every other branch of government) are operating well beyond the scope and charters that define them. What are rules anyway? This speaks to what I wrote about last night. If the voters voted out anyone that opposed the Audit the FED bill, the next set of elected officials would gladly endorse it. When the FED declines to play, more pressure could be applied by elected officials doing the will of the people, if not they are gonzo as well. Of course none of this will happen.

Credit Card Scorched Earth Policy
from Wikipedia, the greatest site the world has ever known:
Scorched Earth
A scorched earth policy is a military strategy or operational method which involves destroying anything that might be useful to the enemy while advancing through or withdrawing from an area.

It did not take long for almost every major credit card issuer to replicate the Citi monster credit card rate rise. On the surface this seems like a sure losing tactic, as the huge interest rates will both increased defaults and decrease credit usage. Denninger of Market Ticker has some provocative (aren't they always?) on this dilemma. While on the surface it may seem the Banks are going all out to get as much as they can from anyone that will pay before they lose too much money, I think something more nefarious is at work.

Think about the clear effects of what this policy will do, as written above:
-increased defaults
-decreased credit usage

Now which of the above two points is the FED/Treasury/FDIC really concerned about?


I see this as an act of financial terrorism by the banks, something I have written on before.

I think this could be a concerted effort by the banks to force some kind of "deal" with the FED/Treasury. In order to "restore the flow of credit" the the banks will accept a much publicized limit on credit card interest rates, say to a paltry 20% and in exchange, you guessed it, a backstop for escalating credit card losses! Both sides win. The banks pawn off another entire segment of loan losses on the taxpayer and our heroes in the government can say "Look what we did for the little guy! We lowered his CC rate!".

I sincerely hope I am wrong about his.

Friday Night Entertainment
It is now my fun time on Friday night. I hope you stick around to check it out.

Funny Pictures
Just for laughs.

One of these things is not like the other....
funny pictures of cats with captions
see more Lolcats and funny pictures

I am no archaeologist, but I am sure the fossil record rejects these items as occurring in the time of the Dinosaurs:
fail owned pwned pictures
see more Epic Fails

This one is mean, but I could not help it:
fail owned pwned pictures
see more Epic Fails

Film Clip
A film strangely nobody seems to have seen but me (uh oh!) is Berry Gordy's The Last Dragon. Besides having the actress Vanity in the film (which is good already) the flick sports great martial arts action and surreal comedy. Enjoy this scene which is indicative of the entire film:

"Bruce Leroy?!"

Friday Night Rock Blogging
I had hoped to fill out maybe 16 songs, made up of pairs of two to go head to head in video fights with the winner decided by popular vote. Not many suggestions have come in, so what I thought would be 8 music genres going up against each other. Last week the winner of the Punk Rock contest was Billy Idol's "Dancing with Myself". Tonight I will have a heavyweight battle up for vote. I still need nominees for music categories like 80's rock, Country, Folk, Metal and others at your input. Two nominees in the category will meet first, then all the categories will go head to head after that. Do not be shy, participate!

Some warm up songs before the main event.

I used to love the video for Huey Lewis and the News song "I Want a New Drug":

As is true for all the really great bands, picking one Scorpions song out can be tough. Pick up the pace with "Big City Nights":

If there is a bad song on the Kill Bill Vol I soundtrack, I have never fouind it! here is a song in a foreign language and it still rocks! Enjoy "Meiko Kaji - The Flower of Carnage":


In the second installment of Friday Night Video Fights we have a real clash of titans.

In the Red Corner, the mega band Metallica with their hard metal anthem "Master of Puppets":

Tough song!

After an exhaustive search for a worthy opponent, here in the Blue corner is the speed metal classic legend Motorhead and their signature masterpiece "Ace of Spades":


Remember to vote on which song is the heads up winner. This will be a close one I think.

Have a good night.

Thursday, October 22, 2009

News, Examples, and Philosophy

It is Thursday night and the weekend looks like all rain. I am still taking nominations for Friday Night Video Fights. I have two matchups in mind for tomorrow, but it is never too late as I am looking for other combatants. After a few weeks we can move onto round two of the tournament.

Tonight I think there have been several additional developments on stories I have ran over the week and I will spend time on them. I will close with a more philosophical musing inspired by one of my favorite authors.

How Do You Write Anything After This?
In what is perhaps he ultimate summation of all things finance, I submit this take from Jesse's Cafe Americain:
The US financial crisis is always and everywhere caused by the triumph of short term greed in support of Ponzi schemes and frauds, perpetrated by a handful of Wall Street bankers and their accomplices in the political process and the media, facilitated by the wholesale weakening of the American mind and character and European and Asian greed and gullibility.
Everything else is commentary.
How do you write anything after that? I agree 100%.

Still, I will write tonight, that's why they pay me the big bucks after all. Oh, I do not get paid? Well, whatever.

Rumors Are All the Rage
A late day spike across the board lifted stocks out of a multi day semi slide. What was the catalyst? Nothing is for sure, but rumor was a frontrunning of the extension of the homebuyer tax credit. Home builders across the board (KBH, TOL, etc) jumped late day and other stocks followed for reasons known only to the privileged few. Why homebuilder stocks would rally when the vast bulk of sales generated by this credit is at the LOW end of housing (not McMansions) is lost on this writer, but then again I miss all kinds of things.

About that Tax Credit
I am shocked, shocked to find out fraud and cheating is running rampant in the housing tax credit program. Who would do such a thing? What kind of people are these anyway? (link from The Golden Truth):
Home buyer tax credit fraud called 'disturbing'
WASHINGTON (Reuters) — Thousands of individuals claiming the first-time home buyer's $8,000 tax credit may have been trying to scam the system, including purported 4-year-olds and illegal immigrants, according to a watchdog report released Thursday.
Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased. George said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

He told a House Ways and Means oversight subcommittee that they also found 580 taxpayers under the age of 18 who claimed $4 million in first-time home buyer credit. One was 4 years old.

"Some of our findings, while preliminary, are somewhat disturbing," George said. Among the most striking instances of fraud include 4-year-olds, non-U.S. citizens and IRS employees inappropriately claiming the benefit, he said.
The only thing I want to add to this train wreck is that there is a provision that one must stay in the house for 3 years otherwise they tax credit has to be paid back. Here is a simple equation that even Keynesian's can follow:
Heck of a job, Stimulus!

Credit Cards: The Street Offers Better Rates
With Citi making the move to 30% rates on credit cards, you knew the whole crew was going to get in on this as well (via Clusterstock):
Now Chase Is Jacking Up Credit Card Fees (JPM)

Now Economic Disconnect grew up in a big city, and maybe, possibly heard through 3rd party sources (of course all hearsay mind you) about loan sharks. In 1992 a street rate was 25% on a 3 month loan. While far above the rates by the credit card companies (and with a much stiffer penalty for non performance!) the rates are rapidly converging.

Not to worry. As all the proponents of more government oversight tell us, Big Brother has your back and your best interests at heart. Want proof? Here is the headline (via Clusterstock again; those guys write a lot!):
Bernanke Says There's No Rush On Regulating Credit Cards
Despite the fact that some banks are charging as much as 79% yearly interest rates, Federal Reserve Chairman Ben Bernanke insists that Congress must use caution when the it comes to future credit card regulation:

Boston Herald: Federal Reserve Chairman Ben S. Bernanke warned Congress this week about efforts to move up the effective date of tough new rules for credit card companies, saying such action could hurt consumers as much or more than help them.
"Creditors must make extensive changes to their systems and business models in order to comply" with the new rules, Mr. Bernanke said.
Opponents of moving the date to Dec. 1 fear that credit card companies would push the costs of complying the laws earlier than expected on to consumers.
Mr. Bernanke said that the Federal Reserve can’t predict how speeding up the effective date would affect the availability of credit and rates on credit cards.
Look, for all you optimists out there that continually tell me I am crazy that because I think the FED is no smarter than your average 6th grader, allow me to replay that this line:

-"Mr. Bernanke said that the Federal Reserve can’t predict how speeding up the effective date would affect the availability of credit and rates on credit cards."

Now I am not an expert, but I think "predict" means to know beforehand, while all Bernanke has to do is pick up a newspaper. Or read this blog. Glad we are all protected. Oh, the Humanity!

Baloney is Just a Really Big Hot Dog
My two baloney submissions for today are:
-Via Naked Capitalism
The Problem is not "Too Big to Fail" but "Too Difficult to Resolve"
In fairness this submission is not entirely the author's, Yves Smith, final take but the presentation implies she agrees.

I will not recount the details, you can read them. Now kindly explain to me how we can land little robot rovers within 3 meters of target on the planet Mars (the equivalent of making a "nothing but net" basketball shot from Bangor Maine to San Diego California) and nobody in the world, not even the fools that made the problem, can figure out how to resolve the issue. No Way Period.

Besides, Goldman Sachs was so happy to tell the world that they are fully hedged no matter what happens, even if a New Stone Age should one occur. If every entity in the financial world is hedged so perfectly so that no problem can harm them, than lets call the bluff. I think you can see something does not quite fit here.

In the spirit of all the "Exit Strategies" that supposedly the FED and the government have to extricate themselves form all things financial, let us see how that is going:

-First up, another adherent to the organic growth without jobs club, the least popular club in high school:
The growing case for a jobless recovery

So what if the 2-3% GDP growth is entirely from government spending?:
Christina Romer on Impact of Stimulus on GDP
Who needs jobs when the government can make up the difference. What was that? You said the government revenues, which should pay for this stuff, is obtained from taxes on the working, who have no jobs? You are naive! Stand in the corner!

Not to worry, whether it is CASH FOR ....toasters, refrigerators, washing machines, boilers, DVD players, dental floss, car batteries, cell phones, underwear, your wife, or cookware the government will spend what is necessary and avoid any large votes so nobody gets upset. It is death by a million small spending plans (and no, no cash for your wife, I made that up):
Like it or not, here comes more stimulus
Stimulus, the Never Ending Story.

Philosophy, is the Talk on A Cereal Box
Thanks for the lyrics Edie!

One of my favorite writers, Ilargi, of The Automatic Earth has an expansive introduction tonight that I think should be required reading for anyone of voting age, and a forced read for any elected politician in the nation. Here is the link.

While I hate to excerpt such a fine piece, I have too. First up:
Back to where Paul (Ron Paul) misses the truth about the end of the economic system. Sure, not baling out the broke banks would have been a start. It would, however, not have solved the problem, not even close. The libertarian class, of which Paul poses as a great defender, and to which Mike Shedlock is a proud subscriber, claims that the issue is not capitalism or the free market. (After all, these are their deities.) For them the trouble all starts -and ends- with government and its rules and regulations.
As a Libertarian I really wanted to see if I have been missing something. More:
In other words, the free market system has failed America miserably. Well, at least in this instance, and that by itself should raise very grave doubts about that system.
And it's not all that hard either to see why that is. If you let market participants free to pursue what is in their best interests, without forcing them to give priority to society's best interests, they will eventually figure out that the best single investment they can possible make is to buy the government. That allows them to make the laws. Which is detrimental to the rest of society, and leads to the sort of mess we're in right now, which even libertarians concede is not desirable.
I concede this point. The buying of government is the single most powerful argument against Libertarianism.

The next segment is key:
So you would have to prevent that from happening. For which you need laws and regulations to keep those market participants out of the government. Since free market guys and dolls don't want regulations, they have no solution to offer. Exit left, center stage....

...Capitalism might or might not work only if and when you could keep corporations out of the government. If you can't, disaster is assured for everyone but the corporations.
Truly insightful writing. I wonder where we would be with writers like Ilargi around for the last 20 years.

I agree here, but with a caveat.

There is a poker saying, which sadly has had so much repeating it has become another cliche:

"If you can't spot the fish (poor player) at the table, you are the fish"

So in the game of life in the USA, who is to blame for the crisis?:
-The Capitalist Ideals?
-The Government?

As always the answer is right in front of us all, but ignoring it is much easier.

The fish at the table is YOU.

(By YOU I do not mean the many readers here or at TAE, or many other fine sites, I mean the general public).

Ilargi captures the very essence of the problem:
"Capitalism might or might not work only if and when you could keep corporations out of the government."

And whose responsibility is it to do that? Corporate America? The Government? Are you on drugs?

The responsibility is yours, the voter. Amazed by the government money that pays your salary, astounded by the public works money that builds a park on your block, mesmerized by the never ending unemployment benefits that make not working less upsetting (you think that is out of concern, man you are naive!) you allow the same crop of politicians to sit at the houses on Congress for years never ending.

We, the voters are to blame. We accept the corporate worlds influence on our government as if it is natural. This is because, given the same circumstance, most regular folks would do the same. This is disgusting.

Every other year there is this thing called an election. Whether you are Democrat, Republican, Libertarian, Green, Martian, or from Canada you at some point will have to place your bias aside and start removing those that stand in the way of progress. Take Ben Bernanke's testimony about credit cards today. He should be gone. Nobody can reasonably argue otherwise. Any party, any man or woman, that stands behind Bernanke after today deserves whatever he/she gets down the road.

The corruption, the fraud, the utter failure that is the US Capitalist system will end when voters stop allowing for people to be "human" and demand that they be "public servants". I have laid it out. Want to lay odds on it happening? I do not.

Have a good night.

Wednesday, October 21, 2009

Confident, Confident Dry and Secure, Raise your Hand, Raise Your Hand if Your Sure

Plenty of stories running out there. I will try and take a look at a few.

Credit Card Companies Gone Wild
I really have no real explanation for the lengths credit card companies are going to try and go to alienate their customers. The immediate blow up of credit card rates (depending on lour start point, maybe 50-100% higher!) is a puzzling move (via Clusterstock):
Why Citibank Is Going Crazy Cutting Customer Credit Cards (C)
...That's not too helpful, and it doesn't address the thousands of people who have had their interest rates jacked up to 29.99%.

So we pinged Bill Hardekopf, CEO of on the matter, and here are some key points he mentioned:
Citi had 92 million customers signed up for credit cards as of February 2008.
Default rates have increased in the past weeks. Additionally, delinquency rates (people paying 35 days late or more) have jumped up to 5.5%. Assuming that Citi somehow retained all 92 million of its credit card customers, that's over five million people. That's no chump change.
"Citi is looking for ways to shed risk and credit cards are a great way to do it." says Hardekopf. He mentions that if you mess up in the slightest, Citi will penalize you through a rate hike. This happened to his daughter who he claims has perfect credit and has been a Citi customer for over five years. She had one late payment in the past four years and apparently, that justified a rate increase to 29.99% - just like the rest of our readers.
Citi is one of the big banks with acees to capital at all time low rates. The jacking up of credit card rates is an obscene move that will only mean more charge offs in the future. For any and all that hold ANY credit card right now, you know what to do. This is ridiculous. I will be closing out my cards over the next week and will look into prepaid cards for Internet purchases.

Two side notes:
-Notice the difference in behavior here. Citi is on the hook (for now) for credit card losses, so they are moving to close as many lines as possible. Fannie/Freddie and the FHA are on the hook (by extension the US government) for loan losses in mortgage loans, and they are mashing the gas pedal as hard as possible!!

-Karl Denninger of Market Ticker wrote about a similar experience with Capital One and in the article he mentioned the bank PenFed as a possible alternative bank for use. I bet all the hits that Market Ticker sent that way probably shocked those guys!

The Curious Case of Bove Button
What can one make of Dick Bove's actions today? An alert reader at Zero Hedge had this great pickup from a CNBC show Bove was on THIS MORNING at 8:05am. Cannot embed, so follow this link:
At the 1:15 mark Bove predicts that WFC earnings will push the stock up higher today due to their beating estimates.

If that was that, who cares. Dick Bove is all over the place on banks anyway and wrong for the most part.

The really hilarious part is that at MID DAY TODAY Dick Bove outright downgraded WFC to a SELL!!

So from 8am to about noon Mr. Bove had a change of heart on WFC. I would wonder if this skirts the line on illegal, but I am sure it is all fine. Plus, who is going to check on it anyway? Easily the most fun event of the past month, which generated this leader from Zero Hedge:
Market Tanks After Dick Bove Downgrades WFC
If this is the kind of garbage data that moves the market, then fuck this sh#t.
Oh man that is funny.

Confident, Confident Dry and Secure, Raise your Hand, Raise Your Hand if Your Sure
After watching the late day action in the markets and trying to look over the multitude of rumors and possible catalysts for a late day change of direction I can arrive at only one answer. A little help from the 1980's:

Now I have been accused (by an anon reader in the comments section of the Housing Time Bomb) of not really seeing the real world. I would submit that much of the stock market rally since March has been built on a illusionary confidence that was engineered by the government, hand in hand with the banks, to quiet things down so people would move along. Maybe I am crazy, or maybe I am on to something. Surely the facts can elucidate the truth.

In no particular order, I will post some headlines of important information with some commentary which speak to the real world as it exists, not as it is spun on CNBC and the government.

Monday's Reverse Repo Test A Disaster?
Rumors abound that the FED's test cases of Reverse Repo actions were pretty poor. The Primary Dealers are not able to help, and thus the FED is looking to tap the money market funds (guarantee expired last month, what a coincidence!) for their much anticipated "withdrawal of liquidity" from the markets. In September I covered the FED's targeting of the money markets as an area for concern. I think large holders of cash in MM will not want crappy assets from the FED backing their buck, but I am crazy after all.

Wells Fargo: The First Leak in the Dam?
The author of the Housing Time Bomb, of whom my brain is an identical twin so I am told, finds some meat from Dick Bove that I guess led him to downgrade the stock:
Bove said the “most disturbing” thing about Wells Fargo’s results is that loan losses seem to be accelerating. Assets no longer collecting interest climbed 28 percent to $23.5 billion from the second quarter, Wells Fargo said, while the reserve to cover future loan losses grew by $1 billion from the second quarter to $24.5 billion.
How can loan losses be accelerating at this stage of the "V" shaped recovery? How indeed one may ask.

Stocks turn lower as note on banks spooks traders
Why would stocks, in the midst of a bull market, turn lower on one man's (who has been very wrong before) call on one bank stock? If WFC is a well known entity and their books are solid, this would be ignored.

Galleon Group to shut down hedge funds
Insider trading rises to the surface and torches a large firm. I am sure they are the only ones doing this sort of thing. And forget about all the phone lines being tapped, nothing to see here.

SEC Votes Unanimously In Favor Of Dark Pool Regulation
I have no idea how these work, but I know the trading system likes them.

Pay Czar Will Sock Top TARP Takers With Huge Pay Cuts
The best way to get a market sell off is to threaten Wall Street with any kind of action. This headline alone may have been the culprit today.

There are many more.

My point is that the "confidence" as it exists is paper thin and depends wholly on an ongoing marriage of easy money and a free hand for banks. If this charade can somehow result in an organic real recovery, then all will be well. If it cannot, things will look very strange when unemployment is at 12%, foreclosures are rising even after the modification programs, car sales collapse again, and the DOW is at 15,000.

Raise your hand is you are sure of the following:
-Home sales will continue to increase if the first time home buyer tax credit is not renewed (or extended even higher to $25k and every home owner qualifies.)
-Car sales in November will match those in August
-The Banks can repay TARP and exit all government loans and just use the regular sources of funding and have no problems
-Residential paper can be marked to real value and no capital will need to be raised
-Commercial Real Estate vacancy rates do not matter at all
-Unemployment does not matter
-Shadow inventory is a myth

I could go on.

How about it? I wish we could do a real science experiment here. For one morning just have news wires full of "FED to end MBS purchases, FED to raise rates, FED to exit bank lending facilities, Mark to market to be re-instated" and lets see whats what. What is your take on where the stock markets would be then, higher or lower?

Have a good night.

Monday, October 19, 2009

The Monetary System Stress Test

It was much easier to go to work today after both the Patriots and the Saints won on Sunday. I guess it makes me a hypocrite that I crack on "American Idol" watchers that have not clue as to whats going on around them, but I am removed from the world on a big NFL Sunday. At least the other days of the week I pay attention!

The Monetary System Stress Test
Monday October 19, 2009 may be looked back on in the future as the beginning of a serious examination of all things money. Across the entire spectrum of media there were tales and write ups that spoke to the very nature of the problem of our financial system:

It only exists in a notional sense, it is dependent upon confidence, it cannot withstand even minor shocks, and long ago it was freed of any tethers to reality and thus has no meaning behind it.

The following are the pertinent pieces of the puzzle, with some commentary.

How The Federal Reserve Bailed Out The World
Zero Hedge has extensive coverage of today must read paper by the Bank of International Settlements (BIS) which recount s and details the Federal Reserves action taken last year to bail out practically the entire world banking system. The stunning announcement of swap lines with countries all over the world was glossed over at the time due to overall panic levels, but the BIS opens up the books and really shows how bad things were.

I would encourage you to read the entire write up. My own take away is that banks the world over are insane, and worse, they are making plays that simply cannot be backed by their own butts. Any strain on the system that demands full up front payments between banks cannot be made good because the assets most banks have are in turn just financial instruments themselves, not underlying hard assets. It is like a bank has say 1 apple, but 100 apple contracts tied to it. As long as they need never have to part with the apple, the game goes on. If they have to make good, well you get the idea.

I highlighted this story the other night in the comments section and I have to say it turns my stomach and makes me want to throw in the towel on trying to make any difference in this entire process:
20 Year Old Buys Home With $183,000 FHA Loan And Just 3.5% Down
Without question, Tejada's loan is toxic--to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada's loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.

The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.

Tejada appears to be using imaginary numbers about the value of her house. She says that when she bought it, the house was just a “box” with no kitchen or bathroom. Now it is "gorgeous". She claims the renovation has increased the value of her home from $155,000 to $255,000.

"I bought my house for $155,000. And now, after all the fixing, after all the remodeling, my house is worth $255,000. So just within a month period, I made a $100,000," she tells Market Place's Scott Jagow.

This should be criminal. The lady in the article would be better served to try and get some kind of education rather than work 3 dead end jobs trying to be a house flipper of old. That said, what the hell do I care what anyone does with their life? This lady is just another sure to be loser in the Darwinian challenge of economic life. So wheres the rub?

Oh yeah. This is an FHA loan which means you and I will foot the bill when this all goes bad. Nothing, not one thing has changed win regards to the unnatural desire for the government o trap more people into buying homes. FHA loans for everyone, tax credits for all, and just let the taxpayer get the bill. Of course if things keep up, I would not worry about actually paying for any of this anyway.

So what does a wildly inflated stock market really mean? Nobody knows, but here is one example how even faced with stark numbers and reality it is party on in stocks:
Fannie and Freddie Shares Dive on Zero-Value Prediction
...Even presuming that the old Fannie and Freddie portfolios would earn net operating profits over the next 10 years as the mortgage crisis abates, the companies still would have negative equity at the end of that period because of what they owe taxpayers, Keefe says.

"In this scenario, both the common and preferred equity of the [companies] should be worthless," the firm says. "Our bad bank analysis suggests that the companies will still owe the government almost $100 billion by the end of year ten. As a result, we are ... cutting our price targets to $0."

Speculators ran wild with Fannie and Freddie shares in August, driving both up more than 200%. Fannie peaked at $2.04 on Aug. 28; Freddie peaked at $2.40 the same day. But the stocks have been drifting lower since then as interest has waned.

Did YOU GET THAT TRADERS? 10 years out and FNM and FRE are a ZERO!

These two stocks were part of the rag tag bunch that started the early low volume high gap up rally last April. There is no reason that the two companies have not been delisted and closed, so of course there must be a very good reason they have not indeed. I put it to the readers to surmise as to why.

One of the few rational thinkers still walking around free is David Einhorn of Greenlight who made a speech at the Buttonwood Gathering that makes so much sense it almost makes you want to cry reading it. Many aspects of what I have tried to make clear here are recounted by Mr. Einhorn, and as usual, he terms it more clearly than I am able (various excerpts):
Einhorn on Gold, Sovereign Default and More
On Bernanke and Geithner:
Presently, Ben Bernanke and Tim Geithner have become the quintessential short-term decision makers. They explicitly “do whatever it takes” to “solve one problem at a time” and deal with the unintended consequences later. It is too soon for history to evaluate their work, because there hasn’t been time for the unintended consequences of the “do whatever it takes” decision-making to materialize.

Please not this is not sniping, it is a fact. More:
On arguments that the lesson of 1937-8 is not to withdraw stimulus too soon:
An alternative lesson from the double dip the economy took in 1938 is that the GDP created by massive fiscal stimulus is artificial. So whenever it is eventually removed, there will be significant economic fall out. Our choice may be either to maintain large annual deficits until our creditors refuse to finance them or tolerate another leg down in our economy by accepting some measure of fiscal discipline.

This is a clear point. Those of the Keynesian bent argue that by propping up demand whether or not that demand is real makes no difference. On a graph maybe that is true. In the real world is does make a difference. More:
Channeling Stephen “There-is-no-exit” Roach:
As we sit here today, the Federal Reserve is propping up the bond market, buying long-dated assets with printed money. It cannot turn around and sell what it has just bought.

There is a basic rule of liquidity. It isn’t the same for everyone. If you own 10,000 shares of Greenlight Re, you have a liquid investment. However, if I own 5 million shares it is not liquid to me, because of both the size of the position and the signal my selling would send to the market. For this reason, the Fed cannot sell its Treasuries or Agencies without destroying the market. This means that it will be challenged to shrink the monetary base if inflation actually turns up….

….The Fed could reach the point where it perceives doing whatever it takes requires it to become the buyer of Treasuries of first and last resort.

Again, clear arguments. Final section:
On his gold thesis:
I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked….

….When I watch Chairman Bernanke, Secretary Geithner and Mr. Summers on TV, read speeches written by the Fed Governors, observe the “stimulus” black hole, and think about our short-termism and lack of fiscal discipline and political will, my instinct is to want to short the dollar. But then I look at the other major currencies. The Euro, the Yen, and the British Pound might be worse. So, I conclude that picking one these currencies is like choosing my favorite dental procedure. And I decide holding gold is better than holding cash, especially now, where both earn no yield.

And this a key point.

It has long been a central premise here that gold is an answer to reckless fiscal policy. Reckless policy most often results in inflation, hence the "gold is a inflation hedge" mantra. I see it as something more.

Poor decisions on monetary policy, currency questions, bond manipulations, and an over extension of government well past its ability to pay for said intervention can lead to inflation. It could also lead to deflation. It could also lead to default. None of these things are good!

It is said that world currencies are far worse off than the US dollar, and that may be true. But this does not mean anything in and of itself.

While on the surface things look better, nothing below the surface is looking up. Insider trading probes show once again the moral emptiness of Wall Street. Many indicators look like everything is fine (TED spread, LIBOR) but these metrics were purposely targeted to look better and mask underlying weakness.

The monetary system is still undergoing a stress test of it's very own. So far the FED and the Treasury have supplied the needed cheat sheets for the test to be barely passed. Should the flow of funny money stop for any reason it is my opinion that the monetary system will fail the test in short order.

I again think of the lead off article tonight. The money just is not out there, it does not exist. The only way forward is to keep anyone and everyone from demanding real payment and not just rolling over debt and commitments. That was the true core of the financial crisis; Banks and depositors the world over wanted to be paid in full with hard currency or hard assets and it they not exist. Better not to ask.

Have a good night.