Thursday, December 31, 2009

Happy New Year for 2010!

I have a bit of time today as it is very cold and snowing here. Any regular readers know that I run on both solar power and high temperatures so I will not be going anywhere today.

A Note of Thanks and Plans for the Future
First off I wanted to say thanks for everyone that stops in here and makes things fun for me. I enjoy writing about the crazy financial world and I am glad that some find the content here to be informative, helpful, or just funny. I aim to please!

With 2010 rolling in you may see some changes here at Economic Disconnect. The major one is that I may not be posting as often and this is for two reasons:
1) There is not much to write about. A long time ago I used to have fun with headlines and used sarcasm to try and warn against crazy monetary policies. Now my "fake" news is real day in day out. In any time in history (or in any country not named the USA) this would have consequences, all now just shrug and move along. Case in point, this long list of "In 2009 I Learned That..." from The Reformed Broker that includes such silliness as:
-Stuart Varney (Fox Business Network): it is possible to borrow a trillion dollars, print a trillion dollars and nationalize a big chunk of the American economy, and still see the biggest nine month stock market rally in three generations!
-Cody Willard (Fox Business Network's Happy Hour): when the Republican/Democrat Regime in power redistributes trillions of dollars from the renters and savers to the bankers, most bank stocks will go up. A lot.
-Lawrence McDonald (Author, A Colossal Failure of Common Sense): $10 trillion will always buy you 4000 DOW points.
-Howard Lindzon (Elevator Inspector): the FED is running the best Ponzi scheme EVER.
These are all both funny and sad at the same time.

So that said, I may have either a lack of material or a lack of interest in writing about the same thing every single day. Of course I love finance too much to stay away, but maybe a bit less would be better.

2)I need to get back into some kind of shape. Between the holidays and a busy work schedule I have gained 7 pounds over the past 2 months and I am never, ever over 150 lbs! This needs to come off as my yearly Caribbean vacation comes in March or April. To that end I have a brand new heavy bag/speed bag/double end bag set up in the basement so I can train like in the old boxing days. This will come in handy should Bill Gross ever take me up on the steel cage match I have challenged him to several times!

So yes posting may be a little lighter, but the posts may be longer and more broad in coverage so that may make up for the numbers.

In any case I look forward to another year of back and forth as we walk along a path never tried before.

Happy New Year!

Have a good night.

Wednesday, December 30, 2009

The Winner is Maintaination!

For the week I have off I have been surprisingly busy. The wife wanted to repaint the dining room which took a couple of days prep and paint. The pet Pug had a minor injury that required a trip to the vet for pain meds. We also stopped in the the local human society to look at kitties but I am still a bit gun shy about another cat.

The last week of the NFL season is upon us which brings me much sadness. The playoffs are the big show however and this year promises some very exciting action.

I think I will be doing the usual Friday night post so get your requests is!

Please have a happy and safe New Years Eve! We always stay home on New Years because it is just too crazy to go out.

The Winner is Maintaination!
Even here at years end a quick scan of the major headlines and themes seem to focus on the inflation/deflation debate. I have used up plenty of pixels on that debate as well over the year. The inundation of information over the past 2 weeks has settled the score in my mind once and for all and I would like to debut my call tonight.

And the winner is........


Before I explain lets review the other two -ations and see where they are:

One word, so many definitions!
I will simply state that deflation is the falling of credit and asset prices. You can argue amongst yourselves the particulars. With my definition in place, deflation is a loser. It has lost. It is done.

There was some asset deflation (housing especially) but overall asset classes across the board look more like 2005 than 1995. Credit has contracted in some ways (personal credit outstanding, revolving credit) but credit has expanded enormously in many other way (I will come back to this).

There is not going to be a Depression era-like deflation event and anyone betting so is going to lose. If it was going to happen it would have. It has not. It will not.

Hyper or otherwise, inflation has more definitions than it's brother deflation. I will state inflation to be the rising in assets prices and an expansion of credit. With my definition in place inflation is a loser, especially the hyper case. While the FED/Treasury have put more money into play than ever before, not much of it is making it's way into the economy. Asset prices have stabilized, but are not rising (side step the rally in stocks which has stopped dead over the past 2 months) to any real degree. Forget about wage inflation as well. This one is toast.

There may well still be a major inflation event in the future, but the chances now are very small and betting this way is a loser.

So what is Maintaination?

It is basically what is sounds like. A formal backstop of the entire system to maintain values at some level. This is done through money creation (yes, the printing press) but this money is not real in any sense, it exist only as a paper balance for books.

I know this sounds crazy but bear with me.

Consider even after TARP (whatever variant) and all the other big aid programs the economy was treated to (and will still receive) the following:
-Another run at cash for clunkers (my estimate)
-Extended permanently housing tax credit (my estimate)
-GMAC soon to be unlimited help (Zero Hedge)
-Unlimited Fannie/Freddie Help (some think this is nothing, but you know better than that I would hope)
-Extended unemployment benefits for up to 5 years (my estimate)
-Health Care program will cost 2-3 times estimates (my estimate)
-Pensions all over will need aid (my estimate but I am hardly alone!)
-Several large states will face bankruptcy and will be bailed out (Michigan, Arizona and of course California)
-And just in case, 4 trillion dollars for the next implosion (Unreal; see Mish)

Are you getting the picture?

So how does all this work? Well that is the beauty of it and maybe the time off has given me the distance needed to get a better perspective on all the garbage we saw happen over the last year or so.

The FED/Treasury creates all this money; some of it gets used right away (AIG payouts, etc) but most of it only NEEDS TO EXIST is a notional sense. If the US says FNM/FRE/FHA mortgages are golden they will trade that way. If the markets think liquidity is aways going to be around (it will) they will trade that way. As long as not all of this money HAS TO BECOME REAL all at once than this hijacking of the US treasury will go off without issue.

Now you are going to argue that this kind of monetary printing will cause bond yields to spike and the US will face a funding issue. I would reply, have they so far? We could argue about who is buying these things, but someone is and more importantly nothing comes of it.

Say the FED is the "household" buyers of 1/3 of all bonds issued over the last year. So what? Where are yields? Where is the failed auction? Do you think the Chinese and others would have no idea this is going on?

I am of the firm opinion that what the US is doing is very dangerous and the first effort on a scale this large. Players around the world are both not in any position to do anything about it, and are complicit in the process in an effort to save their own behinds.

So Maintaination is:
The artificial support of asset classes by monetary policy that requires participants to accept printed cash as real and trade as such but never to actually ask for the mythical principle.

So there you have it. My own personal theory.

What can go wrong? Plenty. Any major shock to the system could collapse the whole thing. Someone may actually need some kind of "unlimited help" and that price tag will cause a panic to get hands on the "mythical" money that remains, the final bank run if you will.

I probably need to develop this a bit more and I am sure the comments section will be chock full of good stuff so let the debate begin!

Have a good night.

Sunday, December 27, 2009

NFL Play Off Focus

Well I trust everyone had a great holiday. Thanks to all for checking in and saying hello. I cannot believe the blog was visited by old time/long time reader Anon G who it seems is now a Sgt in the armed forces! I have all next week off but I am already getting a bit anxious about what I will do for a whole week. Any ideas?

NFL Play Off Focus
Some things became clear, other things were muddled but I will try and put it all together tonight so we can see where the 2009/2010 NFL playoffs stand.

Tampa Bay Buccaneers 20, New Orleans Saints 17 OT
People asked me this year "how come the Saints are so good this year?" and I would answer it is because they are not turning the ball over and they have been consistent instead of all over the place. Of course the last 2 games (both at home) have been pretty bad losses. Right now the defense is banged up and playing poorly and the offense seems bored. I think the Saints will still get the number one NFC seed, but their level of play the past 2 weeks does not bode well going forward. Uh oh.

Phoenix Cardinals 31, St. Louis Rams 10
NFC West champs for the second year, the Cardinals have been flying below the radar all year. While I think they still have issues on both sides of the ball, they will be a dangerous opponent for any team, and they are undefeated on the road this season.

Cincinnati Bengals 17, Kansas City Chiefs 10
This win clinches the AFC North for the Bengals. A surprising season out of Cincinnati as they sweep both the Steelers and Ravens en route to winning the division. This team is very young, so either they will feel pressure in the playoffs or they will have no idea to be nervous. Either way, this team is a solid unit.

New England Patriots 35, Jacksonville Jaguars 7
The Patriots looked like a totally different team today. I almost did not recognize them! Physical defense dominated one of the leagues best run teams and the offense looked smooth and in control. One game wonder or the start of a run? I don't know yet, but there will be 5 other AFC playoff teams that wish this game was a one hit wonder and not a return to form. We will see.

Pittsburgh Steelers 23, Baltimore Ravens 20
The Steelers keep their playoff hopes alive with plenty of help from the Ravens. Between penalties and turnovers the Ravens threw this game away and should be denied a playoff spot on principle. The Steelers have hope and would love to defend the title.

San Diego Chargers 42, Tennessee Titans 17
It is no secret I cannot stand the Chargers, but right now I make them the favorites in the AFC. Everything is going right and they are red hot going into the playoffs. Remember; San Diego has bounced the Colts from the playoffs the last 2 years in Indianapolis, so they will be unafraid.

Probably Out of It
-The Miami Dolphins get smoked by the Texans and now will need all kinds of help to make a postseason slot
-The New York Giants collapsed in spectacular fashion against the Panthers today and will be out this year. Carolina may well start thinking about giving Jake Delhomme his papers as the backup quarterback looks pretty solid.

Still In It
-The Colts took it easy on the Jets and the Jets win 29-15. Hard to argue with pulling the Colts starters, and thus the Jets still have a chance. A win next week and they are in.
-The Broncos drop another tough game in Philadelphia and now must win next week vs the Chiefs and get help in tiebreakers.
-The Texans, Ravens, Dolphins, Jaguars, still have distant chances.

At this point it is too complicated to get into all the "if..then" possibilities, so I will wait to wrap it up next week. Games that have big implications next week:
-The Jets travel to the Bengals and this is a big game. Why? because it is likely that the two teams would meet in the first round of the playoffs so while Cincinnati would like to rest their starters, I would think you do not want to lose to a team that you have to turn around and play the next week. If the seedings break this way the Bengals will have a dilemma.
-The Saints would love to rest their banged up roster, but may need to beat the Panthers to keep the number one spot from the Vikings. After two weak efforts I would advise an all out effort next week.
-The Steelers will need to beat the Dolphins next week no matter what but those pesky Dolphins tend to win games they should not and lose most they should win.
-The Cowboys do not play until tonight (vs Redskins) but they would help themselves to win tonight and next week vs the Eagles to get in the show.

I had said this season would be very competitive and it is going to come down to the final games and several tiebreakers to set up the playoff show. Exciting times.

For a little musical interlude, I came across this rocking live version of KISS "I Was Made for Loving You" that is worth a look:

Have a good night.

Thursday, December 24, 2009

Christmas Eve Celebration

Well well, it is that time of year once again!

Merry Christmas to all the regulars;
Mark, Watchtower, Dave, Jeff, Lisa, Sedentary State, Gawains, C-T and Kevin.

And also for the many that stop in from time to time and for all those that find this place due to Lol Cat picture posts!

I could do a far reaching, deep thought financial post, but it is Christmas Eve and what fun would that be? Plus it is unlikely I have ever written anything far reaching anyway!

I will let a few writers do the heavy lifting on some items you may not want to let slip by this week, but then a festive post!

State Budget Problems
As discussed here this week, states are going to have a rough go of it. Some more than others to be sure. One big mess (besides California) is Arizona and Mish has a good one today:
Arizona Crisis of "Unparalleled Dimension"
Arizona Governor Jan Brewer is brutally honest about the state's situation and great commentary by Mish.

I would point out this section from the Governor's letter as it shows where things will be heading:
-I ordered the Arizona Department of Corrections to return to the custody of U.S. Immigration and Customs Enforcement (“ICE”) -- as soon as possible -- all non-violent criminal aliens as is allowed under existing law. These inmates are the responsibility of the federal government (as is securing our border with Mexico). Arizona should not have to bear this cost.
-I am restating my Arizonans-only directives to state agencies to ensure that public benefits are provided only to those who are legally in this country and who reside in this state.
And so it begins.

When times are flush major problems (like illegal immigration) are ignored or condoned. When TSHTF, the gloves will come off. This bears watching.

Households Buying Treasuries in Record Numbers?
Jesse covers today all that is wrong with government lies and games. This is becoming so bad you do not know whether to laugh or cry. I try and laugh but the comedy may be coming to a sudden end:
Who is Buying all Theses US Treasuries (And Can they Keep it Up in 2010?)
You need to read this over a couple of times. Very important. One snippet:
If you think that this crisis will be deflationary, then you might be a bit surprised to see what happens if and when a US sovereign debt offering fails in the market. It will not be pretty. And it will not be dollar friendly in the longer term. But who can say what will happen, when there are so many possibilities.
Great stuff.

Christmas Celebration
I am a huge fan of Christmas with only some one's birthday being larger to me as a holiday. I am a sucker for gifts for all my friends and family and so I do play the "great consumer" role at times like this! Sue me.

My favorite Christmas film is "It's a Wonderful Life" which to this day smacks me upside the sentimental head. Considered a "flop" when is was released it has since attained legend status. In a film of truly touching scenes enjoy this climatic selection:

Love it.

Has anyone really not seen "A Christmas Story"? If you have not, well, that stinks. Enjoy the "Pink Nightmare":

Too funny.

If you want to go Christmas, you want to go large. To do that you have to have Bing Crosby:

Classic from a time when you had to have real talent to be a singer.

Poor Santa never gets a break:
funny pictures of cats with captions
see more Lolcats and funny pictures

Kitty Christmas list:
funny pictures of cats with captions
see more Lolcats and funny pictures

Enjoy the holiday and I wish you a Merry Christmas. Thank you so much for being a part of this show and for all the feedback. Many who stop in show what's best in people and that gives me hope we will figure a way out of this mess.

Have a good night.

Tuesday, December 22, 2009

More on FED Suppressed Mortgage Rates

Finished up at work today. I am off until January 4th 2010!

Posting may well be weak this week. I have plans for tomorrow evening and then Christmas Eve is gift night, then it is Christmas Day and I have no idea what I will be doing as yet. I will have more material after the holiday.

GDP is a Backward Looking Indicator Anyway
I am in the same boat as Kid Dynamite tonight:
I continue to be amazed by the market's non-reaction to these revisions. Initial Q3 GDP was expected to be around +3.2%. When it was reported at 3.5% on October 29th, it set off a 70 point rally in the S&P 500 - from 1040 to 1110. Yeah! Our economic rebound is taking hold! Things are getting better! Green shoots! (imagine those last few quips were written in sarcasm font). On November 24th, the first revision to the report came out, "in line with consensus estimates" at +2.8%, and stocks didn't care. Somehow, the consensus estimates had managed to be lowered to 2.8% without anyone noticing or repricing the market to account for the downward revisions in estimates.

So the news was the shrinking GDP number for the 3rd quarter. Starting at 3.2% the number after all the data was in settled at 2.2%. I always get a laugh when the markets pull this kind of thing. Here is my best summary of the thinking:
"Well we bid up stocks with that print of 3.2% because, well, it was a good number. The first revision was down to 2.8%, and that is hardly any different so we bid up again. Today we find out that we were wrong on all counts, but hey, the 3rd quarter is long gone and that number is a backward looking indicator anyway. Plus imagine how huge the 4th quarter estimate will be! Carry on!"

More on FED Suppressed Mortgage Rates
The impact that the FED sponsored MBS purchase program is having on mortgage rates may well be the most contested issue right now. Estimates vary from no impact on rates to over a 2% suppression. Nobody seems to know for sure. Today there was plenty of coverage so I wanted to take another look.

Richard Green's blog spotlighted a paper written by John Taylor which makes a case that the FED MBS exit will have almost no effect on mortgage rates.

Calculated Risk thinks the MBS exit will have a minimal effect on rates, and once again sticks to his guns about the Spring exit and a bump in rates of 35-50bps.

I will start here because this is important.

If the FED buying MBS like it was going out of style (it has by the way) could only effect a 35bps change in mortgage rates, then it was a spectacular failure. As in MEGA SPECTACULAR. The gain in home sales from a paltry 35bps rate reduction would be minimal and for 1.5 Trillion it would have been criminal. Now I understand that the writers of the posts above have forgotten more about economics than I will ever know. I still think they are very wrong here. You have to ask yourself why the FED thought it so necessary to buy 1.5T of MBS if the markets were more or less working within 35bps of perfect. You will not need charts and no models are required. Give up?

It is because the FED knew (maybe they got the info in a Goldman Sachs conference call?) that real banks would not touch these instruments for anything near a 5-6% mortgage rate. The FHA/Fannie/Freddie black holes were all to glad to buy them all at that level, but whats sticking the taxpayer again between friends?

Higher estimates exist, though they are few in number. From CNBC comes an estimate more in line with my own from Mark Goldman:
"The ending of the Fed program will definitely effect rates," says Mark Goldman, professor of real estate at San Diego State University. "So far, the Fed has not expressed interest in keeping the program going. That could raise rates by some 150-200 basis points."

200bps vs. 35 bps

Extrapolate that out to a mortgage example:
FED Suppressed rate = 5%
Mortgage on a 200k home = $1000
Mortgage on a 400k home = $2000

Mythical Non-Suppressed rate = 5.35%
Mortgage on a 200k home = $1070
Mortgage on a 400k home = $2140

Real Non-Suppressed rate = 7%
Mortgage on a 200k home = $1400
Mortgage on a 400k home = $2800

I think you can see the picture here.

My call is for rates to move up 200bps or MORE after the FED exit. Of course I do not think for one minute this program is going to end in the Spring. I would hope that when the FED extends this program the same writers so quick to give the benefit of the doubt to the FED will change their tune.

Mathew Padilla of the Mortgage Insider offers his take and this observation:
When these programs end we should expect to see mortgage rates rise. Conventional wisdom is they could increase anywhere from 25 to 75 basis points. (There are 100 basis points in one percent.)

The reality is if they rise by more than say 50 to 75 basis points I would expect the Fed to start buying again (and maybe Treasury too).

What if the FED does exit and rates move 35bps or less? I will eat my words and do a full post apology for my totally wrong call.

Have a good night.

Monday, December 21, 2009

Quiet Slow Week

Every year at Christmas I buy scratch tickets for my co-workers and hope someone will win big. After 3 years I think the most anyone had won was $20. Well last Thursday I dispensed cards and wouldn't you know it, a co-worker hit for $1000!! Now that is how you start off the holiday season right.

Gold and Silver Pep Talk
Just like everyone said it be, gold and silver are getting slammed while the dollar climbs ever higher. Of course stocks are going higher as well (as predicted here; my reason was "because") and all are happy about the new normal.

Well, I thought I would throw out some kind of metals item so precious metal fans do not get too down this holiday season!

In what could serve as a model on how to investigate a problem and make known the results, the Royal Canadian Mint has figured out where their missing gold went:
Canadian Mint Reveals How It Miscounted Its Gold And Lost Millions
We are not talking huge numbers here (about 20 Million) but at least they got to the bottom of things and came clean.

A strange little bill was passed in the State of Georgia that seems a little weird:
Georgia General Assembly House Bill 430
By: Representative Franklin of the 43rd

To amend Title 7 of the Official Code of Georgia Annotated, relating to banking and finance, so as provide a short title; to provide legislative findings; to define certain terms; to require any bank or lending institution serving as a depository for the state or any department or agency of the state to offer and to accept gold and silver coin for deposit; to amend Title 50 of the Official Code of Georgia Annotated, relating to state government, so as to provide legislative findings; to define certain terms; to require the exclusive use of gold and silver coin as tender in payment of debts by or to the state; to provide for related matters; to provide an effective date; to repeal conflicting laws; and for other purposes.
My take on this bill is that Georgia has ended the policy of only assigning face value to gold and silver coinage (including junk silver) and will require fair settlement by spot price of the metals as it relates to bullion coins. Interesting.

Are States Too Big to Fail?
Loyal reader Watchtower wanted some input on whether states/cities/counties could go bankrupt and noted this Robert Prechter article in regards to that line of thought.

My take is that the States will not be allowed to "fail". Consider the ginormous amount of assistance states have had in two forms already:
-Stimulus money meant for "shovel ready" jobs and projects was instead used as revenue for state budgets across the country. There is no telling how many jobs were "saved" due to this huge money pile.
-The Federal super-ultra-mega extended unemployment benefits program has really bailed out the states in terms of easing jobless claims benefits by state as well as keeping demand up which helps tax revenue.

Taken together these two items are major support structures. Neither seems likely to end soon.

Of course individual counties may go the bankruptcy route, and several have (Mish always covers these stories):
Vallejo County CA Used BK to Break Union Contracts
Jefferson County Alabama Looks at BK
Detroit in Bad Shape

I do not believe a state will be allowed to go bankrupt. Why panic about Citi and not about California? The Federal government will drag us all down with any state that needs help.

Also consider a new funding angle: Bribes for Health Care Votes
It seems the states will have money coming in to help!

Too Much Money
The Automatic Earth sums up what ails the United States and permeates the political landscape:
If a politician can be elected only when (s)he has enough money (i.e. millions of dollars, and for a president hundreds of millions) to run a campaign, then the resulting policies will be dictated by those who donate that money. And since one dollar equals one vote, the grandma who ate mac and cheese for a week to donate $10 to Obama has no say, while a financial institution that gave $10 million does.
Read the whole thing.

Kissing Cousins
If the events of the last 2 years have taught us anything it is that the same people that run banks into the ground are the same people (not the same type, the exact same people!) tasked with bailing them out. Inbreeding at it's finest. Why there are no laws against such things (at least you cannot marry your cousin!) is beyond me but I am rational thinker. How Neil Kashcari goes from doling out TARP funds to big honcho over at PIMCO without missing a beat is appalling.

Anyways, from the department of "No Kidding":
Study Finds That Of All Factors Determining The "Bailoutability" Of Crappy Banks, Ties To The Federal Reserve Are Most Critical
Shocking isn't it? Oh, you are not shocked? Me neither.

Have a good night.

Sunday, December 20, 2009

Sunday Night Open Thread

I have just 2 days at work this week so that will be very nice. I am off until January!! I am posting this open thread item so I can collect ideas on what the readers may like to see this holiday week. Drop any ideas or requests in the comments section.

NFL Action
-On Saturday night the Dallas Cowboys had perhaps their most complete game this year as they beat the New Orleans Saints in convincing fashion. If the Cowboys can play at that focus level they will not be a team anyone wants to play in the playoffs. The Saints are still in great shape after the loss, but the defense was pushed around last night so they will have to get mean.
-The New England Patriots beat the Buffalo Bills is a lackluster effort and then got all the help they will need when both the Miami Dolphins and the NY Jets lost their games. The Patriots can cement a playoff spot with one win in their last 2 games. They cannot improve to better than the 4th seed unless they get help.
-Still some games going on right now with the Bengals/Chargers game being the biggest contest.

Good Question
Yves Smith wonders why there has never been any investigation into all things AIG:
Why has there been NO serious investigation of ANY kind of the recipient of such extraordinary taxpayer largesse? Why has virtually NOTHING been demanded of them? Why the unseemly rush to let them off the hook and let them “pay back the TARP”? This is completely unwarranted in the case of AIG, which has had its deal with the government retraded in AIG’s favor a full four times. Why has AIG at every turn gotten a better and better deal, each time at the public’s expense, and is now allowed to lobby that it should be freed of its obligations? No private sector lender would allow a troubled borrower that could not meet its commitments to renegotiate and get IMPROVED terms. The inability to meet the terms of the original funding (one on terms private sector lenders were willing to consider, and that per Sorkin, AIG itself proposed) only strengthens the case to continue with the original plan, which is to break up AIG and sell the pieces for what they can fetch. This is the course that would yield the highest returns to the public, and that program will not produce a systemic event, which should be the ONLY offsetting consideration. There is no business rationale to have an agglomeration of diverse insurance businesses, particularly one that has been as badly managed as AIG (Sorkin’s account also reveals a shocking lack of financial and operational controls).

This is a key issue. Under the banner of "we cannot hurt confidence" nothing has been, nor will ever, be disclosed about all of these bailouts. I would think rational people could conclude that if indeed the system could not survive if the full scale of how deeply messed up things are was openly discussed then by definition the system cannot survive. That is rational. Instead you get a market rally. Good stuff.

Have a good night.

Friday, December 18, 2009

Friday Night, Holiday in Sight

It was about 20 degrees here today at the warmest point. I stayed in all day and got caught up on all those little things that you never get to take care of. A few items and then on to the Friday festivities as the holiday's are in sight and it is time to relax and reflect on the year that was.

On the Hunt for A Home at Age 70
Caught this strange Q&A over at Mortgage Insider:
Judy in Laguna Woods asks:
Q. My husband and I need to buy a home before our two-year lease is up (in Laguna Woods) mid March 2010. He hasn’t owned a home in 10 years. I owned a home until my late husband passed away. At that time, I sold my home of 17 years in 2007. To get to the point, it has NOT been three years since I was a homeowner (August 2010 will be three years). We need both incomes to qualify. We are both 70 years old. If someone who owns a home now can “trade up,” and still get the home-buyer tax credit, doesn’t it seem like we are in a catch-22 position?! It is not like we are home flippers. Are there any exceptions to this new extension to the tax credit?
Two incomes and looking to buy at age 70? I guess it's true, you never can stop working.

Great Google Search Feature
The Mess that Greenspan Made has a great Google search map of the following terms:
-Housing Bubble
-Stock Bubble
-Gold Bubble
I cannot embed it here, so go check it out.
Seems gold has been thought to be in a bubble for a LONG time.

Piling on Citi
Last post I ran some numbers on Citi and their crazy outstanding share position. Bespoke Investment Group goes further:
4.22 Citi Shares For Each Person in the World
A comment on Zero Hedge today offered up an interesting stat -- that there are 4 shares of Citigroup for each person on the planet. Wow.

We looked at all US stocks and found that Citi has by far the most shares per person on the planet. With 28,260,770,000 shares outstanding and 6,692,030,277 people in the world in 2008, the Citi shares/person ratio is 4.22. There are only four other US stocks that have enough shares outstanding to give every person in the world at least one share -- General Electric (1.59 shares/person), Bank of America (1.48), Microsoft (1.33), and Pfizer (1.21). Bill Gates held 681,395,074 shares of MSFT in his last Form 4 filing. That's enough to give everyone in the world a tenth of a share of MSFT just from his holdings.
I do not even have 1 share of C!

Friday Night Entertainment
A little of this, a little of that, and then you have something!

Top 10 Films of the Decade
This is not my personal list, it was compiled by Gawker and here was their methodology:
So what we've done is added up all the Best lists we could find online — from the New Yorker to; anywhere where people had made a list. We gave each film a point for every inclusion on every top ten list. Some lists made it a bit difficult, doing say an unordered top 15's, but we've included as much as we can to try and get an accurate count.
Seems reasonable enough. You can check the link for the full on list and descriptions or just the top 5 list below:
#1-12 Votes
There Will Be Blood

#2-11 Votes
Eternal Sunshine of the Spotless Mind, The Lord of the Rings films

#3-10 Votes
No Country For Old Men

#4-8 Votes

#5-7 Votes
Brokeback Mountain, The Dark Knight

Again, not my list. Discuss!

Funny Pictures
What better way to get your blog tons of hits from image searches than to include a bunch of LOL Cat captions? I also add some Fail Blog entries as well.

This looks like me on Sunday when the NFL is on and the wife wants me to do something:
funny pictures of cats with captions
see more Lolcats and funny pictures
Christmas Carol Kitties new lyrics:
funny pictures of cats with captions
see more Lolcats and funny pictures

A new site, Epic Win, has this to offer for us Star Wars fanatics:

Instant classic!

Who needs luck when the cards are fixed?:
fail owned pwned pictures
see more Epic Fails
Count em!

Do you think this place survived the housing bubble bust?:
fail owned pwned pictures
see more Epic Fails

Film Clip
In a film with too many moments of great cinema, enjoy one clip form "The Godfather":

"You straightened my Brother out?" Scary.

Rock Blogging
There were actually a few requests, I was shocked!

Anon wanted Elvis and "Blue Christmas" and here you get what you ask for (unless it's the Beatles):

Loyal reader Watchtower requested the Foo Fighters and "Hero":


My favorite Def Leppard song is "Bringin' on the Heartbreak" and you absolutley must see this live performance (starts at 1:45 mark):

Complete with vintage 80's video, here is The Clash and "Rock the Casbah":

Last call!

Randy Rhoads was a real genius. One of his greatest triumphs was blending his classical guitar background with wicked metal crossover in the song "Diary of a Madman" with Ozzy. If you have never heard this song, do me a favor and listen to at least:
-the first 50 seconds
-the 2:00 minute mark through the 4:30 mark
-the last 30 seconds rock as well

True beauty.

Have a good night.

Thursday, December 17, 2009

Just Make All the Numbers Too Big

Well today is all about Citigroup once again so I guess I will pick up on that line again. I have tomorrow off and only a two day week next week. Then it is January before I roll back into work. Nice!

On a blogging note I will probably move to more festive posts because I do not like to be upset going into the holidays. Post fun ideas for content in the comments (no one has requested a Friday night song in 2 months!) and I should have time to put something together. If there is something financial you would like covered, by all means put that in as well.

Just Make All the Numbers Too Big
It seems today that the best way to mask problems or hide actions is to shroud everything with numbers that are just so huge no on can really grasp what they mean. I see this with the budget, deficits, cost expectation and so on. You want to fix the budget? How do you tackle a Trillion dollar mess? This works in reverse as well. You want to gripe about 100 million in the budget, that's too small to worry about. Amazing really.

Tonight's post is inspired by the days MUST READ article written by Macro Man. After I read his piece this morning I could not think about anything else (financial, I had real work to do as well!) the rest of the day.

Macro Man covers something that is right in front of all of us, but I can admit I never even saw the details. Here is the relevant sections, but the post has great graphs and great commentary so I would point you there before continuing on.
Hidden Truths?
As you can see below, the once-mighty C has seen its share price is down some 48% from the 2008 close, so it's badly underperformed the broad market. Or has it? [see link for graph]
Sure, if you've been long since last year, you're rather out of pocket on your investment. But for the institution as a whole, it's been something of an annus mirabilis; thanks to its capital raising/share issuance, etc., C's market cap has nearly tripled this year. The company's now worth nearly $100 billion!
Betcha didn't know that. Even more remarkable is fact that Wells Fargo's market cap is now at all time highs (at least at the close of the year.) Yes, this is the same institution that has both hands thrust deep in the stinking morass that is the California real estate market and that has employed every trick in the book to avoid fessing up.
Readers are invited to judge for themselves what, if anything, this remarkable recovery in bank market caps means for 2010. It certainly suggests that something should be changing, and it doesn't take Sherlock Holmes to deduce where Macro Man's bias lies.....
This is important.

Macro Man's numbers work led me to do some work with numbers myself. All data is supplied by Yahoo Finance (under the key statistics label for stocks).

Citigroup had 22.86 Billion shares outstanding. Does that mean anything? Is this important? Well, I don't know. I can put together some comparisons and make a guess though.

Let's start with banks so we can compare apples to apples.

A Citi sized bank is Bank of America (BAC). What kind of shares are they floating?:

BAC = 8.65 Billion shares

Maybe they are an exception? How about Wells Fargo (WFC)?

WFC = 4.69 Billion shares

Ok. What about some other players like Goldman Sachs (GS)?

GS = 514 Million shares. That's MILLION not Billion.

Ok, so maybe Citi is just so big and amazing they have tons of shares out there. What about some big names?

Microsoft (MSFT) = 8.88 Billion shares
Exxon Mobil (XOM) = 4.75 Billion shares

Every ones favorite Google (GOOG) only has 317 Million shares out there.

For the gold lovers high end estimates put all the gold ever mined at 10 Billion ounces.

Again, is this important?

The answer is it depends.

On it's face this kind of crazy stock manipulation is insane. Think of it this way:
-Today C is at $3.20 a share and has a market cap of around 75 Billion (depends how you count it I know; I am just using Yahoo closing quotes).
-To return to the point at which Sovereign Wealth funds poured cash into Citi stock (back around say $30 a share) Citi market cap will have to be 750 Billion, or an entire TARP program!!
-To return to the all time high of $55 a share Citi would sport a market cap of, are you sitting down, 1.29 Trillion!!

In comparison:
XOM market cap = 324 Billion
MSFT market cap = 262 Billion
BAC market cap = 128 Billion

Now do not bother writing me and telling me about stock buy backs, warrant expiration's, etc. I get it. They still cannot account for these kinds of numbers. Besides, remember when companies (think 2007) were borrowing money to buy back stock? Good luck on that loan nowadays.

And again, is this important? The answer is maybe.

If anyone really wants their money back (or make money), then Citi is to be passed on no matter what. If however you want to play games and try and pretend all this works out, then by all means play C stock (50% of NYSE volume today!!) and ignore these numbers.

This is a joke. Citi should be broken up and the best made of the outcome. Their future is a mathematical impossibility.

This is just one on the run analysis. I think there are plenty of others out there like this one.

I think I have identified the next bubble. The next bubble is wishful thinking. You already know how bubbles end.

Have a good night.

Wednesday, December 16, 2009

Like the Patriots, I Cannot Close the Deal!

I apologise to all the readers once again. I had an entire piece lined up and had sent home all the relevant articles but I had so much to do tonight I could not get a post up. Instead I will show the collection I had and maybe you can figure out what I was going to write about! See if you can read the mind of Economic Disconnect! I may do the piece tomorrow if I think it is my best thought for the night.

My Post Inspirations/References
Plenty of Citi (C) action today with even more questions as news came out. My items to use:
Citigroup Gets Huge New $38 Billion Bailout, Wiping Out All Of The Taxpayer's "Profits"

Yahoo Message board reaction to said news:
This is SWEEEEEEEET!! Read!

The Rumor:
Citi Price Rumored At $3.15, $20.5 Billion In New Securities, Government To Keep $5 Billion In Common Stake As Below Cost-Basis
Becomes news:
Citi's Secondary Prices Weak, Treasury Holds Back On Dumping Stake To Avoid Flooding The Market

I had a few bones to pick with Calculated Risk today as it seemed he was inconsistent:
Citigroup's "Massive" Tax Break
CR was moved to add:
"Who benefits? The value of the shares the U.S. owns should increase, but only 34% of the share price increase accrues to U.S. taxpayers The other current shareholders receive the rest. So this doesn't seem to make sense ..."

Later concerning the FOMC statement, CR was quick to get behind the FED line about sticking to their exit timelines:
FOMC Statement: No Change
CR adds:
The Fed is also making it clear they intend to stick to their deadlines.
He reiterated this point several times in the comments section.

Of course he may have missed the closing section of the FOMC release, which of course Mish did not:
Bernanke Trots Out the Boy Scout Motto
Boy Scout Motto

In case you missed the key paragraph, it has nothing to do with "anticipation", "appears", or "expect" and has everything to do with the Boy Scout Motto, "Be Prepared".

"The Federal Reserve is prepared to modify these plans if necessary to support financial stability and economic growth."

I suggest you forget about expectations and plan on Bernanke acting in accordance with the Boy Scout Motto.

I also was going to include a great Gold article as I am apt to do:
Paper Currencies - Trampoline Jumping
Great section:
"Gold is a great hedge against government insanity and instability and we are in a secular cycle of government insanity and instability right now. Gold is not a simple asset class (as the ignorant commentators shouting "barbarous relic" would have you believe), it is not a consistent inflation or deflation hedge, and it is not just an anti-Dollar play."
I like it.

Have at it and I will be back tomorrow.

Have a good night.

Tuesday, December 15, 2009

Quick Notes

I am pressed for time because I have paperwork to do as well as the Christmas card merry go round to try and make some headway on. Just a few notes on things I found interesting today.

Banking Issues Not Going Away
Edward Harrison (writing at TBP) notes that the Austrian banking crisis is big in a relative sense:
The Austrian government has nationalized the insolvent bank Hypo Group Alpe Adria (HGAA). The financial institution, which has 40 billion Euros in assets, is the country’s sixth largest bank. But, in relative terms, this is a very large bankruptcy – using GDP at purchasing power parity, an American HGAA would have assets of $2.5 trillion, larger than any of the American banks. So, this is a very big deal and it speaks to the size of Austrian banks’ international exposure, renewed risks in banking and the possibility of contagion.
Again, nothing to worry about to sell banking stocks over; another government has already picked up the backstop. Move along.

How about another 400 Billion for Freddie and Fannie? Mish fleshes out the never ending black hole.

The Automatic Earth explains some of the problems with thinking China will replace the US anytime soon.

How many jobs programs are there anyway? No wonder Steve Liesman does not know all the names! Next up, another 150 Billion for various support programs (think keeping state employees at work) and 50 Billion for the usual stuff that never gets done: Schools, highways and more housing junk.

I had a discussion with The Illusion of Prosperity about leverage in the metals markets. Jesse so happened to have this post up today about that very thing. Snippet (from Ted Butler's piece):
JPMorgan, now holds 200 million ounces net short in COMEX silver futures, fully 40% of the entire net short position on the COMEX (minus spreads). As I have previously written, JPMorgan accounted for 100% of all new short selling in COMEX silver futures for September and October, some 50 million additional ounces. As extreme as JPMorgan’s position is, there is a total true net short position of 500 million ounces (100,000 contracts) in COMEX silver futures. Try to put that 500 million ounce short position in perspective. It equals 75% of world annual mine production, much higher than seen in any other commodity.
Strange indeed.

Have a good night.

Monday, December 14, 2009

Lend Your Way Out of Debt

I remember when I was in school (elementary and high school) and the time span between Thanksgiving and Christmas used to seem like a year. As an adult it seems the very same time span lasts about 15 minutes. I am a little behind this year due to a busy work schedule, and Christmas is right around the corner!

Lend Your Way Out of Debt
During the whole inflation/deflation debate the same chart is always discussed: Bank Reserves. Banks have stashed cash either in their vaults or at the FED in record amounts. Deflation siders say this cash has not entered into the money supply and thus does not "exist" in a monetary sense and they are 100% correct on that. Now.

Inflation siders point to that cookie jar and cast their minds to a time where the banks may well feel emboldened to put that cash to work on a grand scale. This has not happened and thus far there are few signs it will in the near term.

I am always on the lookout for the switch to happen as I think smug banks fresh off getting their butts saved are none too shy about chasing returns like in the old days. All they need is a wink and a smile. Maybe this is starting.

Today's big story was the White House hosting a meeting with top bankers (the ones that could make it that is!) in an effort to guilt them into taking risk. From Yahoo Finance:
Obama implores top bankers to increase lending
WASHINGTON (AP) -- President Barack Obama implored top bankers Monday to help keep the fragile recovery from faltering by boosting lending to small businesses and getting behind an overhaul of financial regulation. "We rise and fall together," Obama declared.
We rise and fall together? I think that was line which is going to come back later! Who fell exactly? The 10 plus percent unemployed or banker bonus amounts? Just checking. Moving on:
Obama called his message a simple one: "America's banks received extraordinary assistance from American taxpayers to rebuild their industry, and now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy."

He urged bankers to "explore every responsible way" to boost lending and to "take a third and fourth look" at every loan application.
The bankers said they got the message.
What could go wrong? So what about the banks, what kind of incentive do they need here:
But they (banks) also insisted they are getting conflicting messages from Washington when they do try to make more loans. While the White house presses for more lending, regulators are cracking down on banks to lend more prudently and forcing them to keep larger cushions of capital to protect against future losses. That means there's less money available to lend.
Step one: remove any check on capital reserves. Check. What else?:
"He didn't call us any names" during Monday's session lasting just over an hour, said U.S. Bancorp CEO Richard Davis.

Davis called the meeting "very productive" and acknowledged banks haven't done as good a job as they could in resuming lending. He said he and fellow bankers understood the public outcry over compensation and said they agreed to "make sure we are doing the job of banking, which is lending."

"And we should get paid for that when we do it," added Davis, who is incoming chairman of the Financial Services Roundtable.
The set of brass ones on this guy is amazing. First off banking is many things and not just lending out money hand over fist. Second, see the move here to remove pay limits on any banks going forward. Smooth operators. Wrapping it up:
Using a sports analogy, Obama told the bankers Americans might be more sympathetic to outsize pay if those who got it were in the equivalent of a financial World Series, according to a senior administration official who lacked authorization to speak publicly and spoke on the condition of anonymity.

The bankers told Obama they are shifting from cash bonuses to longer-term payouts such as stock, but Obama said that was not good enough because the public was likely to still see it as excessive, this official said.

The bankers have said the amount of lending is limited by factors beyond their control: The sluggish economy and tighter oversight by regulators. The slow economy has businesses reluctant to expand -- and makes banks more grim about their prospects. Loan applications are down.
I have no idea what was meant by "World Series" in finance! Again the tighter oversight is pointed out by the banks.

So where does this leave things? The engineered recovery has not been good enough to allow a return to old habits thus far. The banks now have on their resume an explicit guarantee on their actions and this is big. I think is just pure dumb luck that there are no areas to plow money into right now or the banks would be doing it.

On a related note I was surprised at a comment that Barry Ritholtz made today on a post about bank lending. Here is the relevant section:
Low, Low Rates
...That is the problem with an abdication of lending standards — as we saw from 2002 – to 2007. After the collapse, the over-reaction sends the pendulum swinging too far the other way. Lending standards become too tight.

If only we monkeys could learn anything from history . . .
Now understand that Barry is as sharp as they come so when I disagree it is both not normal and means I am wrong!

That said, I would be interested to know what kind of lending standards Ritholtz sees as too tight? Maybe business loans, but certainly not mortgage loans. Of course banks do not write home loans anymore, they allow the FHA/FNM/FRE the honor of doing that! The current loan standards for FHA are anything but tight.

If banks are looking for options for loans and are having problems maybe they are on to something. Headlines form today:
Mexico’s Credit Rating Downgraded One Level by S&P
Looks like Mexico is out.

Abu Dhabi Bails Out Dubai!
Dubai will be a sick joke punch line for years to come.

Greece Enters Twilight Zone As It Announces 90% Banker Bonus Tax Plans, Expectations For Sub 3% Deficit By 2013
How is that for business friendly? Looks like Greece is a no go.

China is taking care of their own lending by ramping stimulus to the moon, so they are out. The FED MBS program ends in Spring 2010 (yeah right!) and nobody is going to go to a bank for a mortgage when they can get the FHA low rate loan from fantasy land.

It is my contention that the reason all the money created over the past 2 years has not led to inflation (hyper or only kinda) is that there are no good options for loans and not many that are even just poor risks. We can all be thankful about that.

I have a poll up tonight about where the next best loan pool will be, so please vote.

Have a good night.

Sunday, December 13, 2009

Sunday Observations

Just a quick thought about the upcoming playoffs in the NFL.

Where is the Defense?
The old adage "defense wins championships" has been going the way of the dodo bird for a while now. Offense is the way of the league now. As a fan of great defense I am disappointed just how offense-centric the league has become.

But what about the Pittsburgh Steelers win last year you ask? If you think they won that game with defense, you watched a different game than I did. Lights out 2 minute offense won the Superbowl last year, not a shut down defense.

So why has defense gone away? Here are my top reasons:
-The rules and officiating today penalize defenders. There were two pass interference calls today against the Panthers in their game against the Patriots that were at best bad calls, and at worst just outrageous. Defenders cannot touch receivers after 5 yards, and really jamming at the line is a borderline holding call as well. The rules favor offense, it is clear.
-The talent level on offense is much greater than on defense. In years past I would say talent was well balanced between the two sides, now the offensive players are clearly levels above defenders. This becomes self-reinforcing as more and more talented players will go for offensive positions early on in their football careers (high school, college) further depleting defensive ranks.
-There seems to be a lack of interest in defense. By this I mean teams seem to be content to lay back and play "prevent" styles of defense rather than mix it up.

Add it up and defense is a fading art in the NFL. This makes games higher scoring, and to some more exciting, but without balance it resembles arena football.

Where are the Deion Sanders, Ray Lewis (in his prime), Reggie White, Bruce Smith, Tedy Bruschi level players? We need some defense!

Have a good night.

Saturday, December 12, 2009

Stretch Run for the NFL

A little extra time tonight so I wanted to take a look at the NFL games that have major playoff implications this weekend.

Miami Dolphins (6-6) at Jacksonville Jaguars (7-5)
The resilient Dolphins downed the Patriots last week and can really cement their claim to the wild card spot (or better) with a win against the Jaguars. The Jags have been inconsistent, but a home game that would make them the favorite for a wild card spot should be motivation. Tough game to call, but I would lean towards the pesky Dolphins.

Denver Broncos (8-4) at Indianapolis Colts (12-0)
The Broncos have quietly righted their ship and remain only 1 game behind the Chargers for the AFC West title. The Colts have won every game, and plenty of them they should have lost. This will be a real test of the Broncos defense. It is not a make or break game for Denver, they are in a good playoff scenario now, but a big game against an opponent you will likely see in the playoffs is a big one. Upset special as the Broncos pull off the win.

Cincinnati Bengals (9-3) at Minnesota Vikings (10-2)
While not a huge contest as far as playoff positioning goes, this game is a big one for the young Bengals. A tough road game at an elite NFC team will tell how good the Bengals are. I think the Viking s win here, but it would not be shocking for the Bengals to win.

Carolina Panthers (5-7) at New England Patriots (7-5)
The reeling Patriots come home for a game against a puzzling Panther team. Carolina has been all over the place this season and it is hard to know what kind of game they will bring. The Patriots have been about the same all year; streaky offense and porous defense. The game stands as a crossroads for the Pats after a week where several New England players were publicly discussing their malcontent. Wow can things fall apart fast. I think the Patriots win here, due more to Carolina than their own efforts.

San Diego Chargers (9-3) at Dallas Cowboys (8-4)
I said earlier in the year that San Diego was finished. Of course they have not lost since that time! The Cowboys are the best team I have ever seen that fail to play up to their ability. The collapse against the Giants last week was especially bad. The Cowboys need this win in a big way, but I do not think they will get it.

Philadelphia Eagles (8-4) at New York Giants (7-5)
The Eagles have a chance to grasp the division lead. The Giants need every win to get into the playoffs. A Sunday night game with plenty on the line! This is NFL fun at its best. Hard to pick this one, but I will take the Eagles in a close game.

Arizona Cardinals (8-4) at San Francisco 49ers (5-7) Monday Night
Another team I was harsh on, the Arizona Cardinals, have slowly played back into their form of late last year. A huge dismantling of the Vikings was about as impressive as it could be. The Cardinals can close the curtain on the 49ers Monday night and I think they will.

-Defending champion Pittsburgh is unlikely to return to the playoffs this year. When Troy Polamalu is not on the field this team is completely different. Poor defense as of late and a stalled offense plague the Steelers.
-The Baltimore Ravens have fallen apart. After a great start the defense is showing it's age and they are not running the ball enough. Another shocker.
-Will New Orleans and/or the Colts go undefeated? I think neither will. I picked the Broncos this weekend to win against the Colts, but they could win that game. The Saints now have breathing room over the Vikings for home field advantage, so that should allow them to slow down a bit. If either team really wants to go unbeaten, they can, but I think 1 or 2 losses is the best way to go. I can remember a 2007 season where the whole "undefeated" thing became a real nightmare!
-This year is going to be very competitive at playoff time.

Have a good night.

Friday, December 11, 2009

Frigid Friday

Hello once again! I left a post this morning regarding the closing of almost all of my trading positions, so if interested check it out. It is bitter cold here today and I only ventured out one time for some necessities. I will recount my experience in a section below.

Shopping Trip to Sams Club
The Illusion of Prosperity author Stagflationary Mark would have been jealous, but the wife and I made a trip to Sams Club to procure some paper towels, toilet paper, and coffee creamer bulk style. I made a point to check out the setting and what people were buying so I can make one of those annoying "anecdotal" observations. So here it is:
-Plenty of people in the store for the middle of the day
-Nobody was buying electronics at all; maybe everyone goes to Best Buy but I did not see one electronic item in a carriage at the checkout
-People like to buy bulk tortilla chips, go figure
-Bulk meat buying is popular from what I saw
-Busiest store section? The computer/Wii/Xbox game aisle was jammed

Probably not much to take away from that one trip, but that is what I saw.

Great Reads
Had the pleasure of extra time to read a couple of longer pieces today that would be worth a look by all.

Eric Janzen of Itulip offers the first part of a market commentary for free (the other you have to pay for) and it had so much in it about gold, the dollar, and banking that anyone trying to get a grip on things would do well to ponder over it:
Asylum Markets of the post FIRE Economy – Part I: Locked Up
Wow. Just wow.

The second show stopper comes from The Automatic Earth author Ilargi, and no I am not a paid advertiser for TAE, just a big fan!:
There is No Recovery
Ilargi: Jim Rogers is right. There is no recovery in the American economy. Things have only gotten worse, and a lot too. Still, Rogers can’t help seeing the world through his own subjective eyes either, distorted by his age and his professional views. He makes money as an investor, and can’t imagine a world in which investors like him are not part of the landscape.

And that’s the big blind spot for most analysts, publications and websites that occupy themselves with finance and the economy. They're written by people who make a living because the economy is organized a certain way, and they see a situation in which that will mostly continue to be so, with some more or less minor tweaking. Rogers understands a lot of what’s coming, but he stops short of pondering himself as a victim. This may be completely natural and logical, but it does potentially cloud his vision. For him, the question is where to invest, not whether to invest at all.
There is much, much more so check it out.

Just a Jumble of Contradictory Babble
There were a few "what was that?" moments for me today as I read the daily rounds. I think the current morass is such a mess that people do not even know how to formulate a coherent thought anymore, and maybe they no longer want to try.

How about these two headlines from Yahoo Finance today:
Democrats plan nearly $2 trillion debt limit hike
WASHINGTON (AP) -- Democrats plan to allow the government's debt to swell by nearly $2 trillion as part of a bill next week to pay for wars in Afghanistan and Iraq. The amount pretty much equals the total of a year-end spending spree by lawmakers and is big enough to ensure that Congress doesn't have to vote again on going further into debt until after the 2010 elections.

The move has anxious moderate Democrats maneuvering to win new deficit-cutting tools as the price for their votes, igniting battles between the House and the Senate and with powerful interest groups on both the right and the left.

The record increase in the so-called debt limit -- the legal cap on the amount of money the government can borrow -- is likely to be in the neighborhood of $1.8 trillion to $1.9 trillion, House Majority Leader Steny Hoyer, D-Md., said Friday.

That eye-popping figure is making Democrats woozy but is what is needed to make sure they don't have to vote again before next year's midterm elections. The government's total debt has nearly doubled in the past seven years and is expected to exceed the current ceiling of $12.1 trillion before Jan. 1.
I have to hand it to Congress, they are well aware that 90% of American voters will either be unaware about this or forget about it come election time so get it out of the way. Unreal. Some want deficit reduction provisions applied AFTER they approve another raise on the debt ceiling? WTF?

Note the swelling of the debt ceiling by another 2 Trillion in no doubt "short term" deficits. Of course right on the heels of this news comes:
Moody's sees no threat to U.S. top rating for now
HONG KONG (Reuters) - The top sovereign credit ratings of Britain and the United States are not under threat of a downgrade right now, but a worst case scenario foresees a cut by 2013, analysts from Moody's Investors Service said on Friday.

The comments, which reiterated an analysis from the ratings agency released on Tuesday, helped to lift the pound to session highs.

"Only the UK and the U.S. are classified as 'resilient,' rather than 'resistant.' Their resiliency will be tested in the next couple of years, but for now they have a high degree of financeability and debt affordability," the analysts said in a presentation.

"The rise in debt and higher interest costs could test the ratings under some scenarios, but not right away."
Well I feel better now.

Of course I can always rely on Paul Krugman to put together the kind of government spending plan idea that dwarfs anything ever seen on Earth. Today's missive by Krugman may well be over the top by even his standards. Excerpt from his piece below with my comments mixed in for comic relief:
Bernanke’s Unfinished Mission
Ben Bernanke, the Federal Reserve chairman, recently had some downbeat things to say about our economic prospects. The economy, he warned, “confronts some formidable headwinds.” All we can expect, he said, is “modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like.”

Actually, he may have been too optimistic: There’s a good chance that unemployment will rise, not fall, over the next year. But even if it does inch down, one has to ask: Why isn’t the Fed trying to bring it down faster?
That dual mandate thing of inflation protection and full employment is tough! More:
Some background: I don’t think many people grasp just how much job creation we need to climb out of the hole we’re in. You can’t just look at the eight million jobs that America has lost since the recession began, because the nation needs to keep adding jobs — more than 100,000 a month — to keep up with a growing population. And that means that we need really big job gains, month after month, if we want to see America return to anything that feels like full employment.

How big? My back of the envelope calculation says that we need to add around 18 million jobs over the next five years, or 300,000 jobs a month. This puts last week’s employment report, which showed job losses of “only” 11,000 in November, in perspective. It was basically a terrible report, which was reported as good news only because we’ve been down so long that it looks like up to the financial press.
Wow! Krugman blasts the CNBC line of "everything is getting better!" Paul, I didn't know you had it in you! Back to the article:
So if we’re going to have any real good news, someone has to take responsibility for creating a lot of additional jobs. And at this point, that someone almost has to be the Federal Reserve.
Oh no, we are taking a bad turn here, cringe and move ahead later in the piece:
The most specific, persuasive case I’ve seen for more Fed action comes from Joseph Gagnon, a former Fed staffer now at the Peterson Institute for International Economics. Basing his analysis on the prior work of none other than Mr. Bernanke himself, in his previous incarnation as an economic researcher, Mr. Gagnon urges the Fed to expand credit by buying a further $2 trillion in assets. Such a program could do a lot to promote faster growth, while having hardly any downside.
Well, you knew it was coming! Another 2 trillion in FED money for buying more "troubled assets"? Like the first few attempts were so successful? Never let facts get in the way Paul, I like that. 2 trillion, just an amazing number. Final summation and key blind spot for Krugman:
But there’s also, I believe, a question of priorities. The Fed sprang into action when faced with the prospect of wrecked banks; it doesn’t seem equally concerned about the prospect of wrecked lives.

And that is what we’re talking about here. The kind of sustained high unemployment envisaged in the Fed’s own forecasts is a recipe for immense human suffering — millions of families losing their savings and their homes, millions of young Americans never getting their working lives properly started because there are no jobs available when they graduate. If we don’t get unemployment down soon, we’ll be paying the price for a generation.
Quite the passionate plea.

Jobs are very important. I think that in a country like the US anyone that wants a job should be able to get one. While that will never be true, right now is the harshest employment picture I have ever seen in my adult life.

That said, see Krugman's myopia? We cannot allow jobless numbers to remain high because it will cost the future generation in terms of earning ability. Now just print up 2, 3, 5 Trillion dollars to make short term, non sustainable jobs and that cost will not impact the next generation one bit! Amazing logic indeed.

I actually agree with Krugman here (I know, nuts!). We are not going to pay for any of this, not really, and I do not think anyone really thinks we will. When you owe say 9 Trillion, is that really different from 19 Trillion? Is there really a difference? Really? How so?

I have often discussed the possibility of a US debt Chandrasekhar Limit, which I detailed all the way back in October 2008:
Now as I am one of the sorry uneducated masses, my question for Roubini, Krugman, et al is simple:
Does the United States Have a Debt Chandrasekhar Limit?

The Chandrasekhar Limit is defined as:
"For main-sequence stars with a mass below approximately 8 solar masses, the mass of this core will remain below the Chandrasekhar limit, and they will eventually lose mass (as planetary nebulae) until only the core, which becomes a white dwarf, remains. Stars with higher mass will develop a degenerate core whose mass will grow until it exceeds the limit. At this point the star will explode in a core-collapse supernova, leaving behind either a neutron star or a black hole.".

What I am asking is whether there is a limit on the amount of debt the US can generate before a total implosion occurs (the end result of a supernova). Is there a limit? It seems Iceland could not print or generate enough debt to save itself. Zimbabwe has the market cornered in the 10 Billion dollar note market as they print away. How come the US can make all the money they want?

I realize I am being a bit sarcastic here, but the question is a serious one. At present the US has around 3 Trillion dollars committed to this "rescue" effort. Is 6 trillion too much? 9 Trillion? 30 Trillion? At what point will the system break down and go supernova? Like the FED thinks they know what interest rates have to be in exact percentage points, do economists know how far we can push the debt envelope?
As yet, no one can offer a definite dollar amount where the US will implode. Maybe we will have to find out by getting there.

Friday Night Entertainment
On account of having the day off, it does not feel like a Friday, but onward with the weekly show.

Funny Pictures
In my never ending quest for page views so I can be paid an enormous amount of money to write or just cherry pick funny pictures, I offer the following chuckles:

In what I would title "Ode to Clint Eastwood", this cat nails the sneer:
funny pictures of cats with captions
see more Lolcats and funny pictures

Sure this is not a Las Vegas City sign? (note bottom right placard):
fail owned pwned pictures
see more Epic Fails

For some hilarious, but mostly NSFW laughs try out This Is Photo Bomb. Very amusing.

Film Clips
I am influencing you through magic to watch these films.

Before he was "Goose"; Before he was "Dr. Green" Anthony Edwards starred in an old school film called "Gotcha", which if you have seen this film, you are as coll as all get out:

Linda Fiorentino as well, nice! Check the 3:25 mark, hilarious!

I still get chills form Aragorn's speech at the walls of Mordor:

Let's fight!!

Rock Blogging
Some music to send you on your weekend adventures.

The tale of Israel Kamakawiwo'ole is a sad one, but please enjoy his moving rendition of "Somewhere Over the Rainbow":

Just heard this on the radio in the car today, and I could still picture the video in my head! Try out Foreigner and "I Want to Know What Love Is":

Nice vocals!

Talent = Your music should sound the same or better live versus a studio album. Audioslave had talent, as this live "Like a Stone" performance proves:

Time to close the show!

Enjoy the classic (and so often used I cannot even count) Richard Wagner composition "Ride of the Valkyries":

Excellent indeed.

Have a good night.

Market Operations

I have the day off and it is frigid up here which will likely keep me indoors for the day. I have plenty of house keeping items to attend so I will have plenty to do.

Market Operations
First point of business this morning was to check over my market positions and make a plan.

As I have been writing about recently, something feels very wrong to me right now and everything I am looking at makes no sense. In that light I closed out the following positions (all winners) this morning:
I still hold a very small position in OMEX, but that company has been a huge disappointment. Still, as a lotto long I love any company that looks for sunken treasure!

I am now 98% in cash for my trading account. I still hold a position in gold and silver that remains a core holding and is not likely to ever be sold, and I do not count that in my trading account.

So why now? As I said, something feels wrong. I am also looking at some new ideas to trade, but I will need some more data points before I lay them out on the blog.

More Later.

Thursday, December 10, 2009

Maybe Loaning Money at Less Than 4% for 30 Years is Not a Good Idea

I was foiled again today on time! Now understand that I only need about an hour to write a good post, maybe an hour and a half for a really good one, as long as I am in the flow of things. I had errands to do when I got home and packages to open (Christmas presents bought online) so I am a bit out of rhythm. I will try my best tonight to cover some ground. I have tomorrow off as well as next Friday as well so I hope to have a better post up tomorrow.

Reader Input
In response to my included piece about the resurgence of home flippers, reader Talia posted a comment that made some great points, but missed what I was trying to say. From the comments:
Talia said;
"The very first question Ben Bernanke, Tim Geithner, or any official that matters should be made to answer in no uncertain terms is why the same kind of reckless lending and speculative behavior is happening again while they watch."

Well what do you expect to have happen. People sit on the sidelines forever- so risk averse to where the refuse to move in til prices hit $0???

From the story itself:

"Now, a different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions. Unlike the boom-time flippers, the latest generation needs cold cash, lots of local-market knowledge and strong nerves."

Ding ding ding. Just like the bottom of each and every downturn from the beginning of time, this is what you are supposed to see - bottom feeders coming in with CASH hoping to step into the breach and make a buck. If they judge correctly, they profit handsomely. If they go in to soon, they crash and burn losing THEIR OWN MONEY!!!

I have no idea if this is the bottom or not, but you should not in any way be discouraged or disgusted by this behavior. Even if this is not the bottom, lower prices will force them in with an even greater vengeance.

Bottom line - thank god for bottom feeders. Without them, no bottom would ever be found.
Some good points here:
-Cash buyers are scooping properties = no bailout for them (maybe)
-Buyers see value here and are setting up a bottom (maybe)
I agree with Talia's ideas in general, but where is the problem?

The problem is that a "flipper" by definition is someone looking to move a property fast. To whom will the flipper sell? Another all cash buyer? Maybe, and if so wonderful.

But what if the home is flipped to a brand new first time buyer armed with a 0% down FHA backed loan using the home buyer tax credit as their downpayment? What happens when that new buyer at a higher price is undercut by all the foreclosure sales? I think you can see where I am going here. The initial flipper with cash is ok, but his "mark" becomes my problem. Thanks a bunch.

Certain to Generate Debate
Accrued Interest starts a great debate about debt tonight. He explores consumer debt, corporate debt, Wall Street debt, and public debt and offers ideas if that debt is "good" or "bad". A well thought out essay that is well worth both a read and some serious thought. Oh, and he also titles all his posts with Star Wars quotes which makes the blog the coolest ever! Read:
Debt: How am I to Know the Good Side from the Bad?
Quote is from "The Empire Strikes Back"; Luke in training with Yoda. HA.

Did I Just Say That?
Hot on the heels of the idea I covered that maybe the oil rich nations will not be so hot to buy into US banks after prior massive losses (see the 2007 Citi piece in article) I see the following out today:
Citi faces snub from Kuwaitis
The Kuwait Investment Authority has held internal discussions about scaling back its banking relationship with Citigroup in a move that could include transferring funds currently deposited with the US bank, people familiar with the matter say.

A withdrawal of KIA funds from Citi would mark another setback for the bank as it seeks to recover from the financial crisis and pay back government bail-out funds.
Maybe nothing but posturing, but it may be another step in the rejection of US financial engineering that I have covered many times. Worth watching.

Maybe Loaning Money at Less Than 4% for 30 Years is Not a Good Idea
I am going to be very up front; bonds are not a strong suit for me (is anything but molecular biology or Star Wars trivia strong for me??) so writing about them for me is a stretch. Still, I know the loyal readers will correct me if I am off, so no worries.

Zero Hedge, known for their scoops as well as over the top headlines (which I love), had this:
$13 Billion 30 Year Auction Closes At 4.52%, Big Tail In Ugliest 30 Year Auction This Year
Now Economic Disconnect is usually a fan of "Big Tails" (Think J-Lo and Lil Kim) but in this arena that is not a good thing.

When you consider the overflowing love for the 1 and 3 year bond sales, and a good reception for the 10 year sale, the 30 year sale seems out of whack. Now what do I mean?

Most gauge "inflation expectations" by bonds, and it seems that at the short end of the curve, buyers expect no inflation at all. Maybe a tiny bit at the 10 year range, but they are saying there could be quite a bit at 30 years out. Now the 30 year yield is not suggesting massive inflation, but higher than there has been.

The Housing Time Bomb had this to say:
Despite golds recent plunge, today's auction tells you that the bond market remains extremely worried about inflation.

Today's 30 year bond auction was a complete disaster..

..The 30 year bond auction confirmed that the bond market sees nothing but further printing and dollar devaluation. The world's FCB's are basically telling you that they don't want to hold any long term investments in the US as long as our government continues to print. This eventually is going to force interest rates to move significantly higher in order to attract demand...

..It's pretty simple folks:

The bond market is scared to death of inflation. I mean who wants to hold a 30 year bond at 4.5% when inflation could rise 10% a year as we power up the printing presses?

You must also assume that the bond market presumably expects the US to continue to spend themselves into oblivion. IMO, it's becomes increasingly obvious that we cannot eliminate all of our debt without printing out of it.

Today's auction was very ominous: If we cannot sell our debt the jig is up. In my eyes, this was warning shot across the bow from the bond market.
Very interesting.

I posted this response in the comments section detailing my own confusion:
I think the 30 year sale was bad, but the short term sales (10yr or less) were excellent. While I cannot fathom why a buyer thinks a 10 year horizon of printing is a good buy, but a 30 year window is not so hot, but then I am not a higher thinker.

How do inflation expectations fall in here? I am not too sure. the 1-3 years sales say no inflation, the 10 year says maybe a little, and the 30 today said maybe plenty! I thought bond guys were smart? That is a weird progression.

For Christmas I want a secret decoder ring (think the orphan annie ring in "A Christmas Story") which will make some sense of all this.
That is my real take on all this.

None of the bond market action makes rational sense to me. I am a linear thinker, a real scientist, so the nuances of "sending messages" or "showing fears" are lost on me.

If debt buyers think the US is going to print it's way to oblivion, then walk away. Not in 1 year, not in 3 years, today. Why wait?

Still, with a stealth debt ceiling raise by Congress, TARP now converted to a permanent (I guarantee it) source of fast cash, expanded benefits of all sorts, "cash for caulkers", extension of home buyer tax credits, upcoming expansion of MBS buys (sorry CR you lose again!), Jobs programs, ....add money spent here, should make any investor in US debt a bit nervous.

The ringing group think is that the rest of the world is so much worse off that the US is all set. Say Greece defaults, their economy is a 357 Billion pie. Now not all of that goes poof, but I want some scale. Say California goes poof, their GSP (for states) is 1.8 TRILLION. You seeing what I am saying? Scale matters folks!

Some more?
We know Spain is in trouble, and their 1.6 Trillion GDP is huge, but so is the also troubled New York, with a 1.1 Trillion pie!

When I hear the Europeans are doomed I try to pull up scales to think about things in a relative way.

Being US-centric is natural to an American, but the rest of the world has made gains as well!

I understand the reasoning behind a "stronger dollar" going forward in a "flight to quality". What I do not understand is how some symbol (the dollar) can be a quality asset no matter what, no matter how. That is a license to do whatever you want and we have been using it for a long time. Someone may just figure this all out.

Have a good night.