Tuesday, December 8, 2009

Something is Broken

Sorry all, but another late day will keep a real post from appearing. I do have a few ideas to roll out though.

Something is Broken
I have been trying to wrap my mind around what I have been feeling over the past week regarding where things stand in the financial world. Surely the picture is very muddled right now, but I have a sense that an inflection point is close at hand.

In short I think the games being played right now are finally going so far as to put in mortal danger the whole notion of "confidence in the system".

What do I mean by this? Consider:

The Many Angles of Dubai
Thus far the blowup of Dubai has been relegated to a non event. Many think that the U.A.E will simply backstop any losses and nothing will come of it. Maybe that is correct. But my mind turned back to November 28th, 2007 and another case of the UAE getting involved:
US stocks rebound on UAE's Citigroup investment
US stock markets rebounded strongly overnight after banking giant Citigroup said it would gain a $US7.5 billion ($8.6 billion) injection from a United Arab Emirates investment fund.

The Dow Jones Industrial Average ended up a hefty 215.57 points or 1.69 per cent at a preliminary close of 12,959.01. The key index had slumped by 237 points a day earlier.

The technology-laden Nasdaq composite won back a notable 39.81 points or 1.57 per cent to 2580.80 and the Standard & Poor's 500 broad-market index jumped 21.07 points or 1.50 per cent to a preliminary finish of 1428.29.

"Financial stocks are leading today's comeback attempt after news that Citigroup will receive a $US7.5 billion cash infusion from Abu Dhabi," said Al Goldman, a chief market strategist at AG Edwards.
Needless to say the investment in C has not worked well so far.

Now of course there are various ways these things get spread, warrants, special stocks, etc and all that. The main point is that all of the "backstop" cash has been in play for a LONG time already. Is there really no end?

My other point concerns last Friday's jobs number, and you are going to have to don a tin foil hat for a minute while I speculate with no supporting evidence, just thinking out loud:
The jobs number runs counter to Trimtabs estimates of job losses and also flies in the face of tax collection data. There may be some kind of reason for this.

I would submit the following thought experiment; What if it came out that the jobs number was purposely manipulated? By this I mean really fudged, totally made up. We are all well aware how items like the jobs number and inflation estimates are cooked, but that is structural cooking and it is accepted as such. I mean down right fabrication.

I know, I am crazy. No such thing could ever happen and all that. The same officials that could never do such a thing have as of right now already done the following:
Via Jesse;
They Were Making it as They Went Along- And Still Are
"Mr Kashkari admitted that he plucked “a number out of the air” when deciding with Mr Paulson how much funding to request from Congress for the Tarp."

A telling memoir of the financial crisis by neo-mountain man Neel Kashkari, soon to be maven of what he hath wrought at bond insiders firm Pimco. Where did the $700 Billion Paulson Plan come from? Neel simply made it up.

They not only did not know then, as should have been painfully obvious to anyone who looked at the ten page request for $700 billion or else, but they also do not know now. When you do not have the facts to support your case, employ fear, uncertainty and doubt (aka FUD factor).
So the biggest bailout in history was just a wild guess based upon some number less than a Trillion, which would have been politically unacceptable? This is just unreal.

What about the FED making new rules up at will with no checks on their actions?
Hat tip Edwardo and from Naked Capitalism:
No Need for New TARP: FED Land Grab in Miller Amendment
At a time where the FED is under scrutiny and there is some real noise about rolling back their powers, the FED steps right up and does whatever they hell they want in plain sight. I do not think they believe there is any chance their powers will be rolled back.

Plenty of talk about even more money for jobs (it worked so well the last few times) programs and other stimulus, but the vast majority of any money will be gobbled up by bankrupt states in an effort to keep government workers (fastest job growth sector in the US) on the payrolls (Via Mish):
Coming Collapse of Municipal Bonds; States, Cities Dig Deeper Holes
Amazing stat of the day from the article:
New Jersey Perspective
New Jersey has $36.5 billion of gross tax-supported debt.
California has $75.2 billion of gross tax-supported debt.
New Jersey has a population of 8,682,661.
California has a population of 36,756,666.
Let's do the math.
New Jersey has 23.6% of the population of California and 48.5% of the tax supported debt.
Clearly sustainable.

With an economic recovery on tap for 2010 (didn't you hear, maybe 4% plus growth!) bond buyers sure want to be compensated for future inflation and robust GDP growth:
$29 Billion 1 Month Bill Prices at... 0.000%
Another hopelessly oversubscribed bond sale with no return.

That is only for 1 month you say? Ok, looking further out on the curve:
$40 Billion 3 Year Auction Closes At 1.223% High Yield, 50.40% Allotted At High
Wow, 1.2% over 3 years in the midst of a V shaped rebound. Sounds like a great play!

All of the snippets I covered tonight are related in some way. Something is broken here and I think something has to give.

Have a good night.


watchtower said...

Tin foil is the new black.

EconomicDisconnect said...

We could try that huge hat Dr. Emmit Brown wears in "Back to the Future" as well!

Stagflationary Mark said...

watchtower & GYSC,

"Tin foil is the new black."
"Something is Broken"

Aluminum premium rises amid tight supplies in Europe


The deals have created an artificial aluminum consumer. Aluminum is becoming like gold it's sitting in vaults, you can't use it but its got perceived value. Industry has got to compete with financing boys for material.

8% of the earth's crust is aluminum. Something sure looks broken.

Baby needs new tin foil hat!

Anonymous said...

CR is back reiterating his thought on the effect Fed Purchases are having on mortgage rates


Perhaps CR is a reader of your posts???

EconomicDisconnect said...

I will have to check it out. I would highly doubt CR has ever seen a post here.

watchtower said...

Wasn't me with the CR thought GYSC, although I think CR could do worse than to visit here.

Reading Anon's 12:50 post reminded me of the time I riled KD up enough so that he posted a comment on your site a couple of years ago : )

"Good times, gooood times!"

EconomicDisconnect said...

sorry for the mix up! Do you remember when KD posted here? I cannot remember.

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