Saturday, February 27, 2010

Ode to Electricity

I am back after a night at the local hotel that allows dogs, and they also allowed my pug to come, HA!

I am very thankful for the power company and all the work they did today; it was a real mess all over and they got the job done this time. I can say with 100% conviction that I am a wimp and too attached to modern convenience to ever be able to survive a real "end of society" event.

Sorry to miss a Friday night party but that's how the cookie crumbles at times.

In honor of my renewed love for electricity, I present this "Ode to Electricity" tribute night.

In the words of Willy Wonka:
"Invention, my dear friends, is ninety-three percent perspiration, six percent electricity, four percent evaporation, and two percent butterscotch ripple."
I would bump that up to 25% electricity!

I want to rock down to "Electric Avenue":

A wedding standby and one major reason men hate to dance at weddings (but you ladies love this crap), "Electric Slide":

The "Bang a Gong" song is from the band Power Station, how fitting:

We need "1.21 Jiga-Watts!!!":

This guy obviously has no power issues (From "Big trouble in Little China"):

Enjoy electricity, celebrate it even!

Have a good night.

Thursday, February 25, 2010

Too Cute By Half

Yes, another time shortened evening! I mentioned a while back that I would be writing less as I embarked on "lose weight/get in some kind of shape" mission through boxing training. Things started a little slow but now I am doing a full 12 three-minute rounds of assorted training modules as well as weight training and the time it takes to wrap my hands and warm up. All in all about an hour and 15 minutes or so. I am sticking to 5 times a week and this is eating up plenty of time. I wish days were about 3 hours longer!

I have tomorrow off so you know what that means. As is tonight's post will be a few quick hits and a thought on the future.

If it Does Not Work, Keep Trying
In a way I do admire Keynesian thinkers (The Keys). Faced with overwhelming evidence that their theory does not work (the ONE time it did it was WWII that stepped in and muddled history, maybe a little bit guys?) they have shown tenacity similar in style to a wounded wolverine. They just refuse to give up the ghost and move on.

This Bloomberg headline caught my eye as a punch in the face to the Keys:
Deathbed of Keynesian Economics Will Be in U.K.
The whole thing is worth a look.

Of course the Keys will never surrender and thus we have this hot on the heels of the above piece via Zero Hedge added drama headline:
Next Round Of QE In England Now A Virtual Certainty
Zero Hedge recounts a Market News story with juicy quotes such as:
"It is entirely plausible that as economic events unfold it will become clear that an even more expansionary monetary policy will be appropriate," Miles said.
"To deny such a possibility must mean that you either cannot imagine significant downside risks for economic activity and inflation - which suggests an imagination deficit disorder - or believe that monetary policy has become ineffective."
We have a winner!

I submit for evidence the following:
Japan's consumer prices fall again in January
Nobody has been better than the Japanese with regards to the money game, yet here we are:
The drop in core CPI marked Japan's 11th consecutive month of deflation
Add this to the past 20 years or so. It will work, one day!

For a related read to see the US going down the same path, check this Marshall Auerback write up that argues the US cannot ever default as long as the debt ceiling keeps being raised (???). Ok Marshall:
Bernanke Gets It Right! America Has No "Insolvency" Issue
Wow, just wow.

Brick Wall Musings
I wrote about "Pretend and Extend" hitting a brick wall and Kid Dynamite caught a Market Ticker piece that has all the goods and provides great coverage:
Reality Bites: Mark to Wishful Thinking Fails Again
KD's closing sentence:
A peripheral lesson to be learned here is that rosy projections, hopes, and anticipations do not equate to a rosy reality.

Too Cute By Half
Last Tuesday I wrote:
Bond Auction Complete = Market Rally
The recent weakness in the market indices which was jumped on by technical traders as "the break" below double headed over the shoulder boulder holder trendline was erased very fast. The culprit? US Bond Auction calendar coincides with market weakness (and dollar strength) and then as soon as the paper is sold a low volume ramp up begins in earnest once again. Almost like the whole thing is rigged, almost.
I figured that with even more debt on tap for this week we would see a weak market all week and then a Thursday afternoon ramp job once the auctions went off. I mentioned to a friend of mine maybe a TZA play until Thursday afternoon and then a switch to TNA was a viable plan here based on the idea that these movements are indeed, perhaps, maybe, a little rigged.

So I am a tin foil hat type, yes? I am a conspiracy nut that probably thinks that gold and silver prices are manipulated, yes? I am a part time blogger that should stick with his day job, yes?, well yes probably. All that said, here is the weekly S&P 500 chart via Yahoo (5-day starts last Friday; Check Monday to Thursday noon):

And the one day to show my noon time switch move (TZA to TNA):

Yeah, I'm Crazy all right!

On this note I wanted to talk about how the players involved in these ramp up/ramp down jobs may be getting too cute by half. What do I mean?

I can see a point sometime in the next year where the indices are all maybe 25-35% higher and the headlines read:
-DOW/S&P 500 nears old highs (LOL, never the Nasdaq, bubbles die LONG deaths!)
-Banker bonuses at record level due to strong stock market
-Stocks show recovery is here
and other such related items.

Too bad unemployment will be at 15%, home prices would have fallen another 15% or so, consumer confidence is at like 5 (kidding), and tax revenues have fallen even further. I think that will really be the point of recognition that this has all been make believe. It is clear now, but too many are breathing a sigh of relief as they see their 401k coming back up and the promise of jobs for everyone and a home for all still have some kind of magic grip on the masses.

On a related manipulation theme, Clusterstock's Joe Weisenthal notes:
Careful Euro Bears, Greece Will Try To Dropkick You Next Week
I agree and think Greece will try and float a debt sale next week and if they actually put it out there it will go off so much better than expected it will make people's heads spin. Of course it will matter little that it is cheaper for the US/Euro central banks to buy the entire auction than hand out a bailout to Greece but I imagine that item will not make the headlines. Then again I am CRAZY!!!!!!

Have a good night.

Wednesday, February 24, 2010

Just Read it Already

Another long evening so I am out of time.

This of course matters little because if you read today's Automatic Earth entry then you have seen the best article of the day:

Bumping Along the Bottom of the Credit Cycle

Great stuff.

Have a good night.

Monday, February 22, 2010

"Pretend and Extend", Meet Brick Wall

I have had the last two Monday's off from work so today reminded me that Monday's are not really fun at all. It was a bit warm here today but that was just a tease as 4 days of rain, ice, and snow are on tap this week.

Is This a Defense?
Senator John McCain was quoted to have said that he was misled on the details of the TARP plan:
In response to criticism from opponents seeking to defeat him in the Aug. 24 Republican primary, the four-term senator says he was misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis, the housing meltdown.
"Obviously, that didn't happen," McCain said in a meeting Thursday with The Republic's Editorial Board, recounting his decision-making during the critical initial days of the fiscal crisis. "They decided to stabilize the Wall Street institutions, bail out (insurance giant) AIG, bail out Chrysler, bail out General Motors. . . . What they figured was that if they stabilized Wall Street - I guess it was trickle-down economics - that therefore Main Street would be fine."
The TARP was indeed a bait and switch, but is this McCain' defense? If he was misled (among others I imagine) then where is the corrective action? Why have the makers of TARP not been held to account? How is it that banking bailouts are still going on? This defense is an easy way to say "It's not my fault!" but I think it falls flat. The lack of action on the part of McCain and others speaks to the point that if they felt misled they certainly seem to be ok with that judging by their actions since that time.

"Pretend and Extend", Meet Brick Wall
It has long been a central belief of mine that "Pretend and Extend" was policy choice number one for the US government. It has worked well for some past events; the 1987 market crash and the fall of Long Term Capital Management (LTCM). I think the idea was that a temporary dislocation could be waited out and things would turn back to normal. I think this plan was based largely on those two examples but both are poor models for the current credit debacle. This has serious implications going forward.

In the case of the 1987 market crash and the collapse of LTCM the underlying pressures were indeed of the short lived variety. No need to rehash all the details; the point is that buying time was a viable (process wise anyway) way to side step a larger mess gaining steam. In both cases things cleared up quickly.

The current crisis has deep roots and had refused to even make any headway back towards nirvana, never mind a complete recovery. After two long years it should be clear that the "Extend" part of the plan will have become quite a bit longer than many had thought at the onset. In this way the repeated application of this national policy is both destructive and useless.

Case in point; US States themselves have played "Extend and Pretend" (E&P) in regards to public finances for some time. Add to this the looming funding shortfalls on public worker pensions and tax revenue that has remained stubbornly low (no jobs = no taxes) and how long any state can continue the show is now hitting a brick wall. Just one example of many that can be used was over at Mish's site today:
'Doomsday is here for the state of Illinois'
It will take a massive tax increase -- and $2 billion more in cuts -- to reach solvency, group says

Mish post can be seen here.
Key take away point from the Suntimes piece:
To become solvent, the state must enact the largest tax-increase package in Illinois history, whack another $2 billion from already starved government programs and wrest major financial concessions from the state's unionized work force, a nonpartisan government watchdog contends.
Yeah, good luck with that.

Illinois, California, you name the state and there is a good chance they are in trouble. The US Government will be hard pressed not to join in and help either by direct assistance or some kind of municipal bond backstop, but neither effort gets to the root of the problem which remains too much spending and no fiscal discipline. The states can extend their run at appearing solvent, but no real progress can be made this way.

More banging heads against walls? No problem!

In what can only be described as lunacy, the government refuses to face reality and instead continues to pretend that home mortgages can be modified for "owners" that cannot afford their home. Newest HAMP story line (via Calculated Risk):
WSJ: Treasury Considering Appeal Process for HAMP
Boils down to another 30 day extension period. CR notes:
Probably the main impact of HAMP has been to keep the supply of distressed properties down by delaying the inevitable. In most cases, this would just be another delay ...

Consider the 3 main reasons a home mortgage cannot be modified:
-Incomplete or missing documentation
-Owner cannot meet income requirements
-Mortgage too far underwater to qualify
Which of these 3 items will change in 30 days? 60 days? Maybe one could locate the needed paperwork with an extension but the culprit is more so missing paperwork because the borrower cannot furnish the information due to a variety of reasons and I think prior fraud is one such reason.

Again, yet another E&P game done for show and in the hope that a miracle turn around occurs, like soon. I would add this program, and all housing support programs, are slaps in the face to borrowers that are paying their notes on time and in full sometimes at great hardship to themselves. The animosity this must be generating in neighborhoods is hard to quantify.

At what point will those running this game start to understand that a Plan B is needed? I know that Tim Giethner thinks no Plan B is needed, but I tend to not think the way he does. I think it fair to the US taxpayer to at least get a time frame or general idea as to how long and how far the government will go to delay recognition of these structural issues. Seeing that is has not been working that discussion needs to happen soon.

Have a good night.

Sunday, February 21, 2010

Sunday Bonus Tracks

With the work week looming, a few fun items.

Kevin Harvick Does Not Suck
My favorite NASCAR driver, #29 Kevin Harvick, has been about as bad as can be for about 2 years now. After dominating last week at Daytona, Harvick comes in second today in Fontana California. Not a bad start at all, I hope this continues!

Bonus Tracks
After Friday Nights tunes I have been on a music kick all weekend. A few bonus tracks:

Dragonforce and "Through the Fire and the Flames" because it is as sick as it gets on guitar:

On a major Audioslave kick now, check "Like a Stone":

A little new Metallica and "The Day that Never Comes":

Finally available for embed, Black Sabbath's very good "The Writ":

Take a Black Sabbath classic and make it better? Not possible?? It is if Randy Rhoads get a hold of "Children of the Grave" and cuts absolutely loose!:

The motion Rhoads is able to give the song and the drop dead solo at the 3:10 mark make this a top 5 song for me (watched the film High Fidelity today, LOL!).

Have a good night.

Friday, February 19, 2010

More Home Billions, CPI Problems, and it is Friday

An interesting week and a much needed weekend recharge on the way. Buckle up and let's get this show started.

FED Raises Discount Rate; The Day After
It was a quiet day after all the excitement from last night's FED rate move. Asian markets took a small hit but everything else returned to pre-raise levels. In last nights post I noted:
For my money if the DOW is not down over 200 points and the S&P 500 is not down by 15 points come 12 noon then the close is going green on the whole "things must be stronger than expected, rock on!" mentality
and from CNBC today:
Who's Afraid of the Fed? Market Actually Wants Rate Hikes
Forget the cosmetic move of raising the discount rate—the day the Federal Reserve really decides to start putting the brakes on growth could actually be a happy occasion for the stock market.

A fast mover could have opened up with TZA this morning and then swapped out into TNA early and caught the shift for a trade. I always recommend moving firmly into TNA when you get the chance, HA!

Housing Help Never Ends
As if the 1.6 trillion in mortgage debt buys were not enough (they are not!) the President visited Nevada today and pledged even more money for home owners (can we stop using this word yet?) in trouble. Another 1.5 Billion is no big deal these days, but the free money ride will never end. Nobody seems to want to understand that home prices are still TOO HIGH and none of these efforts can make that any better. Keep banging your head on the wall though. How about a 1 month free mortgage payment for any homeowner that has paid in full for 3 years or more? What about that? I would not qualify as I have only been here for 2 years so I have nothing to gain by this idea. I winder how much that would cost? I think this makes much more sense. Anyone agree?

CPI May Have an Issue; Restatement Possible?
Tim Iacono from The Mess That Greenspan Made was red hot today and he picked up on an error that may well result in action.

In the post "A Math Problem at the Labor Department" Tim finds that the 'lodging away from home' component of the CPI may have been incorrectly weighted in the final numbers:
It appears that they are mistakenly weighting the -2.1 percent decline for lodging away from home at a much higher level and, since housing is a major component of core inflation, the first negative reading in 28 years was the result.
Now this may be a quark in the numbers or some other issue but it seems the BLS is visiting the blog this evening and checking things out:
A Sudden Interest in TMTGM by the BLS
I've not heard from anybody on this subject yet but I did go through some calculations with some of the other categories in the most recent inflation data and, as far as I can tell, they've got an error in today's report and, despite what you may have read in the mainstream media and elsewhere, monthly core inflation did not decline for the first time since 1982.
Well I have total confidence in the government to run the biggest economy in the universe now! If this holds up Tim will have made a huge catch. Great work!

What is This?
Beyond weird:
Citigroup Warns Customers It May Refuse To Allow Withdrawals
Seems a notice meant for customers in Texas was sent nationwide, but why even is this out in Texas? Very strange indeed. Never get between an American and their ATM!

Friday Night Entertainment
Enough serious stuff! Are all my like-minded groupies ready to heap praise on me as well enter the BORG together? I knew you would say yes, I already knew! Allow me to bla bla about movies, music and pictures because all that sucks and is boring.

I am Sold!
I will be placing an order for the Northwest Territorial Mint product "Stagecoach Silver" which has the phrase:
"For When You Have To Get Out of Dodge"
Perfect! Both bars and rounds are available and will split off into 1/4 ounce sections so you have money after the end of all fiat currency:

or the round:

I love these! Bulk order coming up!

Car Flame War on Tap
When I saw this item I had to keep my cool and understand that everyone is different and some just have bad taste:
Car Disgust--1969 Chevrolet Camaro
Wait, Car Disgust? Say again?
Yes. The Chevrolet Camaro, one of the most iconic muscle cars of all time, is a car I loathe. In fact, it's one of my all time least favorite cars.
To be fair the writer's reasons are not so much the car itself, but issues related to the car's popularity and fans, but still, that headline just invites emotion! Have at it!
PS, Dear Santa, may I have a 1969 Camaro with the original ZL-1 all aluminum big block engine for Christmas? I will be a good boy; well as good as I can be...wait..ok scratch that. Damn, GYSC.

Film Clips
A few film selections?

Reader Watchtower notes a clip form the film "Pulp Fiction" that involves a samurai sword and thus is goes up:

Excellent choice!
I am an avid sword collector and nothing has the electricity of fine steel, yes even better than gold and silver and more useful in an end of the world scenario or a Zombie attack, which are both equally likely, IMO. A true hand folded samurai sword is a work of art and is about as deadly a weapon that has ever existed, and they are not cheap!

Of course now I am on that line of thought, so enjoy the greatest sword ever made by a man, the Hattori Hanzo sword, from "Kill Bill vol. I" with magic music as well:

When the horns come in at the 2 minute mark may be the most beautiful sound I have ever heard.

Cute Time
Saw this one today and had to save it:
funny pictures of cats with captions
see more Lolcats and funny pictures

Nerd Cartoon
Now this is hilarious even for non-science types:


Rock Blogging
Don't call it a comeback, I been here for years
Rockin' my peers and puttin' suckas in fear
Makin' the tears rain down like a MON-soon
Listen to the bass go BOOM
Explosion, overpowerin'
Over the competition, I'm towerin'
Wreckin shop, when I drop these lyrics
That'll make you call the cops
-LL Coo J

Selections from requests?

A catchy tune can be gauged by how many times it is parodied, and the song "My Sharona" by The Knacks is a good example. Lead singer Doug Fieger has passed on and thus this goes out to him:

Reader Gawains would like a little southern comfort in the form of Gretchen Wilson and "Redneck Woman" and who am I to say no to such a lovely lady?:

Very nice.

In the haunting vocals category Grace Slick is near the top. Try out Jefferson Airplane and "White Rabbit":


In another note of things passing away, let us celebrate the last best chance for rock and roll that was Audioslave. Too bad songs like "I am the Highway" are probably never coming back:

Top 5 song for me!

I can admit it, I am a huge No Doubt fan and it has nothing to do with Gwen Stefani. Well mostly! I like almost all their stuff and a get up and move tune is "Hey Baby" so try it:

Fun stuff.

Last Call! Closing the show time, try not to cry...

To send you off in a smile, let's go with Bon Jovi and "Runaway" and yes, you know you all love it:

Rock on!!!!!!!!!!!!!! I need hairspray!

Have a good night.

Thursday, February 18, 2010

Quirks of the Calendar

You know I think it is not just chance that right at the point in time that I step up my workouts and step away from my computer time things happen in bunches! It's just not fair! Oh well, I have to stick with the plan! As is I will try and do a worthy post tonight.

That said, I have the night off tomorrow from punching stuff so get your Friday night entertainment requests in! Anything goes and I have a muscle car related item to share that promises to stir up some real debate!

Level of Discourse
While this blog is centered on economic items (unless it's football season!) it also serves as a sort of running real time diary for me. I wanted to say a few words about the Austin Texas event today but after seeing truly disgusting discussions going on at some sites as I made the rounds I am going to just say the following;
-Nothing has changed for me. I think that I am taxed too much, I am against the banking bailouts, I am against the transfer of private losses to the public balance sheet, I think government is too big. Tomorrow or by Monday you will see that anyone against taxes etc is a "nut", a "crazy", or a "terrorist". That's bullshit.
-Nothing has changed for me. Anyone using violence against innocent workers in a building is a killer or an attempted killer as it seems at this time that by some thankful luck no one was killed, or I should say murdered. By Monday some may "understand the motives" or "see the pressures" this particular killer thought he was under. That's bullshit.
If I see any comments going off on tangents or trying to make political points I am going to delete them.

Smile - You are Now a Proud Owner of 1.6 Trillion in MBS Securities!
As the FIRST iteration of the Federal Reserve mortgage backed securities (MBS) comes to an end you should have a visual for the process, made by Tim Iacono over at The Mess That Greenspan Made:

Now understand that the FED is just ending this program and not trying to dump these securities back on the market (which it is obligated to do, but whatever). Sink or swim time for the mortgage market in April? I think the spring selling season will be bust and a weak start to the summer will cause the FED to step back into this arena. Does this mean that if your next door neighbor has a FED backed mortgage you can use his shed to store YOUR tools? At least that would be some return!

Quirks of the Calendar
And now the BIG news of the day!

Tomorrow is the Tiger Woods press conference.....


The FED raised the discount window rate from a whopping 0.5% to an unheard of (at least recently) killer rate of, are you sitting down?, 0.75%! While somewhat expected at some point we are dealing with Wall Street that has to be spoon fed soft foods as they have yet to learn to use utensils so this was a mini shocker.

In Tuesday's post I noted the kinds of games the FED likes to play with words and dollar ramps and it seems the calendar may have been at work here as well.

Tomorrow is Option Expiration day and thus the change will affect market moves during this busy time. Market Ticker notes:
FED Changes Terms in Front of OpEx Again
BTW, I shorted the close on the technicals in the futures (which if this reverses I can hedge and of course can't lose on now) - the market was heavy and it looked overbought, so you'd think I'd be happy.
I'm not - this sort of action, whether I personally make money or lose money, is not the point. The point is that this release was intentionally timed to hurt people, just as was the August 2007 one.
Bernanke and his pals ought to be run out of town on a rail for this sort of repeated abuse. They seem to think that the markets are their plaything, and all they're doing is destroying confidence with each and every move of this sort.
It is not what you do, it is how you do it, and this sort of thing is just yet another reason why The Fed must be audited. The timing on this is too damn suspicious - never mind that someone sold a metric ton of SPY right in front of the announcement - literally by seconds, 2 million shares were unloaded.
I will return to Karl's short play that seems like a good one in a bit.

Let me say that I am 100% sure some FED watcher out there can give some long winded reason why the FED had to do this at this time and it may even make sense. Too bad it makes no difference. The FED for 2 years has done whatever they want whenever they want so I am sure they could have done this next week or last week so do not even bother with the explanation.

Jesse's Cafe Americain notes bullion options expire next week as well:
Or was this mainly to provide another opportunity for the bullion banks to take the prices down ahead of their option expiration next week?
First a margin increase for gold, then the IMF sale that was already in the books and now this? No way it's all related. No way.

While here on gold, you have to love Clusterstock headlines (though today they have gone off the deep end for page hits with the Austin event which is making me sick to my stomach). Try this one:
Of Course This Rate Hike Is Meaningful, Just Look At The Markets
They only use gold as their scary chart, but gold is down about 1.2% right now which is hardly terrifying.

Bloomberg Futures right now show:
Dow -62
S&P 500 -8.6
Not quite circuit breaker time I think. This could change of course by the morning.

So does this mean anything? Again on Tuesday I talked about how words mean more than action and the timing issue comes in yet again.

Next weeks bond auctions are set to unload 118 Billion in paper on the markets in 2 year, 5 year, and 7 year sales. After a very poor 30 year auction result on the last go around and the word that China may be dumping US debt (I mean buying it via the UK) maybe the FED felt some minor action would soothe buyers, and a dollar busting over 81 on the index would help perception as well.

Those unpleasant calendar coincidences aside, is this a big deal? Is the era of easy money now over?

Uh, No.

First off this is the discount window rate which at this point is only used by GMAC I think (kidding, I have no idea, no one does they don't publish data!) so it's a small pond.

Second, real FED rate hikes are not happening in 2010 (I am serious, and don't call me shirley!) so stop with the hyperventilating that the FED rate may reach a crippling 3% or so (still ALL TIME LOWS if you ignore the last 7 years of easy money). Don't believe me, ask the FED who are working overtime to make sure nobody panics about the superficial rate move (via Zero Hedge) Bloomberg feed:
So there you have it.

Now earlier I noted Market Ticker's and Clusterstock's feeling that the markets are going to tank (some what) tomorrow. Maybe they will and a lot can happen overnight. For my money if the DOW is not down over 200 points and the S&P 500 is not down by 15 points come 12 noon then the close is going green on the whole "things must be stronger than expected, rock on!" mentality. Just my 2 cents.

Bonus Graph
For loyal reader Watchtower, yet another graph to mull over, lifted from Mish's site:


Have a good night.

Wednesday, February 17, 2010

Information Overload

Of course on a day when I have no time I come across plenty of good things!

IMF Gold Sale
Gold was stumbling today on word the IMF was selling gold. Check this headline from Clusterstock:
IMF Announces Gold Liquidation, Sending Bulls Hiding In The Corner
I thought that another sale was in the works but this announcement is just the OTHER half of the 400 or so ton sale announced a while ago. India bought the hole chunk last time from the IMF.

Maybe more sales are in the works, and in the end it makes perfect sense (to bankers anyway). Sell gold to raise cash to bail out broke nations. Sounds like a winning strategy. At some point there will be some nations with gold and many others with plenty of paper. Who will be better off?

This leads me to.....

Modern Markets Theory
I have never heard of MMT but I stumbled upon a post over at Kid Dynamite's site that opened the door:
Two Sides to Every Story
Check it out for the particulars and for linkage to Billyblog. Great discussion on both sites going on and it may be worth a look.

My quick take, and I am using my words and observations not those of the people that really have a grasp on this idea, a country can never print too much money and the government is a great conduit to channel aggregate demand. Obviously I would disagree 100%, but I am not very enlightened either!

UK is China in Bond Market
Last post I noted that China may have been dumping US debt. Well it seems that may not be the case as China can do their buying through various intermediaries and thus the drop by China proper is not a big deal. Or something. I wonder why this crap cannot be more transparent?
Zero Hedge's take.
EconomPic's discussion.

Essay on Topic
On the question I have been working on about debt limits, Mish of course has a great article up that directly speaks to this:
Law of Diminishing Returns of Credit Expansion
Very interesting.

Have a good night.

Tuesday, February 16, 2010

Who Falls for This Stuff Anyway?

A late night for me so just a few thoughts to throw out.

Bond Auction Complete = Market Rally
The recent weakness in the market indices which was jumped on by technical traders as "the break" below double headed over the shoulder boulder holder trendline was erased very fast. The culprit? US Bond Auction calendar coincides with market weakness (and dollar strength) and then as soon as the paper is sold a low volume ramp up begins in earnest once again. Almost like the whole thing is rigged, almost.

Who Falls for This Stuff Anyway?
One of the most puzzling things about economics that I could never square with being a rational type thinker was the ability of words to influence Billions in dollars of money. What's in a word? Action speaks louder than words, but not in economics.

Case in point, the following headline:
STRATFOR: China's Treasury Dumping Is The Equivalent Of A Nuclear Weapons Test
One of many early stories on both Japan and China getting lighter on US debt.

Not long after we were treated to this double header:
Hoenig Says Fed’s Objectives Threatened by U.S. Debt

Minneapolis Fed President Kocherlakota Warns Massive Debt Load Can Only Be Paid By Tax Collections Or Debt Monetization
I am sure this was all just a coincidence in timing.

Now why does the US and China bother to play these games? Boring really.

The US will curb spending bla bla bla but let's see how things are seen by even non Too Big to Fail institutions going forward (from Mish's article):
Facing a deficit of over $200 million this fiscal year, Jackson Chief Executive Eneida Roldan said she needs to cut 20 to 25 percent of the budget.

Local 1991 President Martha Baker said she was willing to work with Roldan and had offered a partnership to get between $50 million and $70 million in new money out of Washington.
Think government spending is going down? It about to explode higher. What's to talk about?

Have a good night.

Monday, February 15, 2010

How Do Things Look?

Happy Presidents day! If you had the day off then I hope you enjoyed it. The Daytona 500 was more than a bit disappointing yesterday as my favorite driver, #29 Kevin Harvick, dominated all day and was in the lead at the end of the race two times but fell victim to yet another race restart to lose. Oh well.

How Do Things Look?
I put together my tax information for the accountant today, got a 10 round work out in even after my speed bag popped, and read a bunch of items I had wanted to check out. After reviewing what I had done last year trading wise I started to look for some trades I wanted to make but I quickly figured out that things are a bit crazy right now and I need to step back and take in the big picture.

Regular readers know I hardly ever make short term plays as day to day fluctuations make my stomach hurt. How I pick investment ideas is I try and figure out some things that HAVE TO HAPPEN (for a variety of reasons) and then get in front of that expected move. Macro analysis to me is much easier than micro management and it usually leaves you plenty of time to reposition if necessary. With this in mind I wanted to throw out a few big picture items I have settled on and offer my ideas on how I will play them. This is NOT INVESTMENT ADVICE and the best way to lose money is to do anything I do! I offer this as a thought exercise and a peek into the inner workings of my mind (picture a wheel with a hamster running laps!).

Global Debt Issues
The most obvious attention grabber right now is the global debt concerns. Greece leads the discussion right now, but the already forgotten Dubai problems are rearing an ugly head:
Dubai World said to propose debt repayment options: reports
TEL AVIV (MarketWatch) -- Dubai World, the holding company within the emirate, may be offering its creditors 60 cents on the dollar as part of an effort to reschedule $22 billion of debt, media reports say.

That is a huge haircut.

Some other headlines:
Spanish government struggles with crisis message
20% unemployment in Spain and they are certain they will not have a crisis. I am not so sure.

Goldman Sachs Shorted Greek Debt After It Arranged Those Shady Swaps
Goldman back in the news as they helped Greece paper over debt and perhaps understated Greek debt issues. If the Euro zone gets mad enough perhaps they will ban GS?

Key Point: Debt issues are coming to the surface and resolution is unclear right now.
Ways to Play: A weaker Euro is a policy goal right now so expect the Euro to fall further. EUR/USD level of 1.2 is my target at this time but that is not too far away, probably not enough of a move to interest me. I could pair that trade with buying UUP as well, but again the move is not going to be a huge one and also it would likely be shorter term than I would like because....

US States are Basketcases
While everyone has their anti-Europe hats on right now, one may want to look under the hood at US State finances before poking fun at others.

Mish Shedlock has been all over this angle and he has far too many quality articles to cover here. One that is repeated many times:
New Jersey on Edge of Bankruptcy
The song remains the same for California, Michigan, Ohio, Nevada, and many other states.

Key Point: US Federal Government will have to enter the state municipal bond game as well as craft other rescue measures on a state by state basis.
Ways to Play: Well that depends and it goes into the next point......

FED Will Have to Re-Enter the Mortgage Market in 2nd Half 2010
I have spent a bit of time on the FED augmented housing market and MBS in particular. While the FED is basically done with MBS purchases, the FHA has been on steroids taking up the slack. With blank checks for losses Fannie Mae and Freddie Mac are still issuing mortgage debt by the boatload.

Calculated Risk has a good compilation of mortgage rate projections for the Spring:
Predictions of Mortgage Rates After the FED Stops Buying
Guesses run form the tiny (maybe 35bps) to the large (>200 bps) average mortgage rate jumps. I am on record for a 150-200bps rise.

No bank wants to issue this stuff and investment appetite for anything with "housing" in the name is still zero. After a weak spring selling season I expect the FED to come back into the market with MBS buy program 2.0.

Key Point: More money printing and a further corruption of the FED balance sheet. With the above point about State aid this augers for QE 2.0 as well and plenty of "liquidity" programs on the way.
How to Play: I think a pure anti-dollar play will be tempered by the currency woes of other nations limiting the upside as discussed above. Printing presses on full speed will usually be good for gold and silver so GLD and SLV make sense here. Playing metal miners can add some serious volatility to your portfolio, but add to the upside potential should this idea pan out. Check out The Golden Truth site and Gold Versus Paper for some great miner research.

Putting It All Together
I have not discussed GDP, Unemployment, Retail Sales, or a bunch of other metrics. I think that number watching at this point will take a back seat to Government Policy watching. Markets all over the world have made it clear that open ended backstops and bailouts are going to have to be explicitly stated or things are going to get attacked. The actions of the past 2 years will make it impossible for any government to step back from that policy.

I will be honest, not much looks good to me right now. The major reason for this is another longer range forecast I have been trying to wrap my head around.

I think that in this year 2010 we are going to see something truly dangerous and it will represent gambling on a whole new level. What do I mean? Consider the following:
-Too much bad debt is the central issue the world over
-Dumping that debt will lead to DEFLATION and you know how Keynesian thinkers view that evil thing

What I am going to predict in broad strokes is the application of the never fail plan of "Good Bank, Bad Bank" but for the debt markets as a whole. This will include:
-Ban on CDS trading for states deemed "under attack"
-Full backstop by US government for State debt; full backstop by Euro zone for Euro countries. Both backstops will be in place for the "Good Debt"
-"Bad Debt" will be termed something like "Long Term Restructuring Class Debt" or what have you and then set it aside off the balance sheet of respective players
-Ratings agencies will rate all "Good Debt" AA or better and will have the blessing of the countries to which it belongs
-New loans made at near zero interest for pressing needs (like California, Greece)
-All countries/states in order to participate in the global war on deflation will have to sign some kind of pledge to rein in spending and pay off debt; after signing they will act as before

There are more parts but I think you see where I am going.

You may be surprised to see that I am not thinking along the lines of an all out money printing plan. I think that would be both ineffective and would cause a panic. This kind of smoke show, while an act of desperation on level of running the printing presses, will be viewed much more benign. It will buy time and markets will go ballistic to the upside on the plan.

Long term of course this is indeed playing games with money that does not exist hoping that one day it will all add up. I think the "success" of the application of such a plan on the US banking system will be viewed as the working paradigm. Of course this is all on the surface, but it should play well for a while.

Longer term I think this will be the last gasp effort before default/devaluation. Things that will tip the balance include violent protests by the unemployed in various countries; Union and state employee walk outs/sit outs causing huge disruptions; Rogue state devaluing on their own; Failed US bond auction, etc.

This is a work in progress so I would appreciate any feedback the readers would like to offer.

Have a good night.

Friday, February 12, 2010

Rules of Engagement

I had a set of late meetings at work and thus I am short on time. I would never dream of cutting short entertainment night so a few thoughts and then on with the show!

Bazooka Bluffs Revisited
In this post from last Thursday I had a section titled "Your Bazooka Bluff has Been Called". My main point (there is one sometimes!) was:
Well that game is now up. The players behind the money want a plan for an explicit backstop for Greece and some plan for Spain as well. The CDS costs will force the hand of the Eurozone here. In this day and age of government intervention in everything and anything this was inevitable. Why risk money on a wink and a smile when you can get a government guarantee on the whole thing up front? Why indeed. Anyone remember all those fire side chats about moral hazard I tried to have all the time? Maybe now you can see why.
Of course this is not quite one in a million thinking but I thought it set up this week well.

I was happy to see some writing on the same topic making the rounds:
EU tries Paulson's Bazooka Ploy; Bazooka Theory vs. Historical Results

Zero Hedge
The Bazooka Jams As Propaganda, Pardon, Media Always Gets It Right... Eventually

Maybe we all like the word "bazooka" or something!

Huge Gold Article
The following article looks at gold every which way you can and is very thorough:
Gold: The Big Picture
Plenty to review, enjoy!

More? Ok, I like gold here because people in major power positions say stuff like this:
Nobody knows the cost of inflation – between 2 per cent and 4 per cent – so I think people could get used to 4 per cent and the distortions could be small,” said Mr Blanchard.

Article by Mish here.

Rules of Engagement
There was plenty of rumors today about a possible ban of credit default swap (CDS) trading. Of course this makes sense because the tide is going against the wants of the establishment. Where were the bans on going long Nasdaq 4500 in the year 2000? Of course there was no such thing. Short selling bans, uptick rules, and CDS bans are fast becoming the preferred method to deal with unwanted information.

Which brings me to the following thought experiment:

If on Tuesday morning February 16, 2010 suppose that the Government entities of the US instituted the following:
-The DOW cannot trade under 10,000
-The S&P 500 cannot trade under 1000
-The Nasdaq cannot trade under 2000
-Home sales cannot be executed at prices under their 2006 appraisal values
-etc you get the idea

Would the market reaction be:
A) panic as the establishment of a true banana republic forces everyone to flee a false market
B) the biggest one day gain in market history

I think the best answer says so much about where we are and is worth some serious discussion so have at it and please pass this around.

Friday Night Entertainment
We are close to turning the corner on Winter here, so let us welcome the chance to start ushering out the winter:
Just remember in the winter
Far beneath the bitter snow
Lies the seed
That with the sun's love, in the spring
Becomes the rose
"The Rose"

Sports That are Not Football
Aside from the New England Patriots making Julius Peppers their number one target for the offseason, sports are thin for me right now. Sunday is the Daytona 500 but my man in the #29, Kevin Harvick has been on a cold snap for over two years (though he has had a good week so far!). Let's loom back at two moments that were thrilling from NASCAR history for me.

Dale Earnhardt, a personal hero (he reminds of my dad very, very much), and the winningest driver at Daytona Speedway, FINALLY wins the Daytona 500 in his 20th try. Skip ahead to the 2:00 minute mark for the drama. After his win every pit crew from pit lane came out to congratulate him and I remember welling up for the man:

Love it!

Of course the tragic death of Dale was a serious blow to any racing fan (and very serious to me). Dale had hand picked Kevin Harvick as his replacement (he was going to retire soon) and Harvick was rushed into the car to race during the 2001 season (now #29 and white, the #3 will never be used IMO). In his third start and on the day before my birthday Harvick wins at Atlanta Speedway in one of the most exciting finishes ever in racing and I was a mess after the race. It was maybe the best birthday gift I ever received (skip to 1:45 mark, and watch until end if you have a spare moment):

Still makes me shake!

Alternate Transportation
Now I would like this as my daily commuter; mean and coll all in one:

Triceratops Helicopter!!!!!!!!!!!!!!!
more here.

Funny Pictures
The purrfect Valentines Day date?:
funny pictures of cats with captions
see more Lolcats and funny pictures

Please make sure you practice Valentines day around children better than this:
epic fail pictures
see more Epic Fails
Lock the door!

Film Clip
From Watchtower, who requested a favorite clip from one of my favorite films "Glory":

Great stuff!

Rock Blogging
Some requests, some editors choice, some music magic!

Reader Gawains requests and dug up a clip I have been wanting to post for some time! Start the weekend off with this clip from "Walk the Line" and Joaquin Phoenix playing Johnny Cash with "Cocaine Blues":

Very Nice!

Reader C-T would like to see Green Day and "American Idiot" and all I can hope is she does not mean me!:

Very Punk!

I just finished the Ozzy Osbourne autobiography "I am Ozzy" and it was at times hilarious, sad, scary, and always revealing. That said, how can I not do an Ozzy tune? Try out "You Can't Kill Rock and Roll" with Randy Rhoades doing his magic:

Greatest guitar player ever, IMO.

A lady I used to "date" in college (Ah, the days!) loved this song and so I send it out to her! This is Tonic with "If You Could Only See":

Very nice and it had serious effects on her if you know......

Last Call!! Time to close the show, but you all know the show never ends!

My Dad's birthday is today and I hate to bring personal stuff into the blog, but this was his favorite song and the last song I heard him play before he died in 1996 was his home state song "West Virginia"

It's better on a 12 string guitar, but good anyway!

Have a good night.

Thursday, February 11, 2010

Whole Lotta Shaking Going On!

Well never say we live in boring times! An explosion of stories today with plenty for everyone!

Get your requests in as well, I should be good to go for a post as tomorrow is a night off from the training regime (thank goodness!!).

A Requested Retraction
One of my favorite bloggers is Jesse of the Americain Cafe. Tonight I cannot hold my tongue and must ask for a retraction of a visual aid he uses as it is insulting to a high degree.

In this post the author uses a picture of Tim Geithner and the subtitle reads;
"Apprentice to the Sith Lords"
Now we of the order of the Sith demand the retraction of this picture or change the subtitle to read:
"Dumb Jedi Padawan"
The Sith do not tolerate weakness nor stupidity and thus Timmy G could never make it. Thanks for your understanding.

Peas in a Pod
Sometimes things just fall into place and make sense. Take these two back to back headlines over at Calculated Risk:
Citis Deed in Lieu Program
Citi has a new (really?) 6 months rent free gift for deadbeats to be foreclosed on. How about a 6 month mortgage free program for all who have paid in full for over 3 years? I know, stupid.

About 2 hours later we get:
Fed MBS Purchase Program 95% Complete
Now I am sure these having nothing to do with one another, like filling the gap between MBS purchase program 2.0 start up, no way no how.

Gold Related
In a story that will have Stagflationary Mark chomping at the bit, the CME is raising margin requirements for gold, silver and palladium:
CME Increases Gold, Silver, Palladium Margins
Higher margin requirements will usually chase out marginal players. This is the second time margin has been raised, December 17th had one as well:
COMEX Gold And Silver Margin Requirements Raised
To be honest I have to digest this a bit. First reaction is some kind of drop on the way but the force out of marginal buyers is a long term good thing.

Of course this brings the day ever closer where paper gold/silver finally decouple from physical and things get interesting.

Oh yeah, Vietnam made their DONG weaker by 3% in a devaluation move yet again:
Vietnam devalues dong again, this time by over 3 pct
Key point: Vietnam is buying gold on the black market in large amounts because currency devaluation is not fun no matter what leading economists would have you think.

Max Debt Research
Just like in High School here comes my homework excuse.......

I really think that the questions Watchtower posted the other day are important and central to understanding what is happening to us right now. I think it deserves a full effort and I do have Monday off so I can work on it. The thought of Watchtower laying awake at night thinking about these things concerns me as well as puzzles me as I lay awake thinking about.....well lets say it not usually economics! HA!

Anyways, here is what I have put together to give you a flavor for where I am going.

The first issue I had was a central presentation I wanted to use is both only in PDF format and seems copyrighted so I am unsure of fair use. You can find it on a YAHOO search (I don't like Google) with the search term:
Total Credit Market Debt as a % of GDP
and it will be the 3rd one down by Crestmont Research.

I will take a chance and put up some items but if I get flack I will have to take it down.

First off, it was written in 2004 so try and extrapolate these terrible arguments out to now. The start:
1-This analysis relates to the often-cited statistic that "Total Credit Market Debt" in the U.S. has reached 300% of Gross Domestic Product (GDP), a historically high level
2-The data is accurate; the details are revealing. The often cited implication is that credit market leverage has soared and that the system is vulnerable to implosion or inflation as a
result of a leverage bubble. Those comments and conclusions don’t fully consider the underlying details.
So you can see the author thinks the chart is baloney. His case? (try not to laugh):
4-The so-called surge has resulted for a number of reasons, many of which pose relatively low risks to the system.
a) Substantial mortgage debt has been added to the ratio, especially after 1981
b) A significant number of workers were added to the economy in the 1970's
c) A growing economy with retained net worth can sustain higher debt levels
d) The substantial decline in the cost of debt encouraged and supported higher debt levels
e) Several developments (i.e. FNMA, FHLMC, GNMA, asset-backed securities, etc.) facilitated efficient leverage.
5-Home mortgage loans increased from 16% of GDP in 1952 to 66% of GDP in 2003, almost one-third of the increase in "Total Credit Market Debt."
Rising mortgage debt is a good thing because it is risk less as we know from history! Uh oh! The author may be surprised to find out that in 10 years we have added NO JOBS as well.

His conclusion:
CONCLUSION: The often cited chart reflecting a surge in Total Credit Market Debt as a % of GDP is distorted by a number of factors. One of the most significant reasons is that many
families have substituted mortgage payments for rents and, without changing their costs, increased the debt ratio. Ironically, the shift built significant equity value. Further, when the
long-term series is viewed on a standard logarithmic scale to show percentage gains over time, the chart becomes much less dramatic (see lower left chart). On a real basis, adjusting
for inflation, the rate of growth has been relatively constant over the past 50 years (see lower right chart).
See the chart in the post as it in much more tame than the scary one from last post.

Of course the chart the author uses is based on many metrics that are either bogus or heavily skewed by assumptions we know not to be true. Anyways, I am still working on that item.

Some other things on my radar as it relates to the discussion:
Greece Deal Opens Door for More Bailouts: Economist
While not US centric, the same principle applies. Key quote:
"If I was the Portuguese finance minister needing this one day, I would think I have a strong case," Nielsen said.
Now that EU leaders agreed to effectively backstop Greece's debt, they would struggle to say no to other euro-zone economies in the same difficult situation, he said.
Keep this in mind as the line forms behind California for handouts. I will set aside Jesse's false Sith Reference and submit his chart showing GDP contributions for the US states:

(click for larger view, you should know by now!) Plenty of housing bubble busted states in the top ten. Get in line folks and this adds to US debt.

Staying on topic, backstops add to the debt burden and now China may not be a buyer of anything not explicitly guaranteed by you and me, ie, the taxpayer:
China's Retreat From Risky Bonds Could Be The Straw That Breaks California's Back
Just as the Fannie and Freddie (and FHA) Federal guarantee fails to make it to the US bottom line, municipal bond guarantees are not likely to be found there either. But they will be there.

Maybe they are being counted already? The longer term US bond sales seem to be having some trouble:
30 Year Auction a Solid "F"
Worthy of making the site?

My friend who writes The Housing Time Bomb chimes in with a post which is always helpful on auction days for me:
Is The Bond Auction Screaming Inflation?
I would quibble with the wording as I think the 30 year poor showing is a fear of devaluation/default (which fits our discussion) but then again inflation and devaluation are about the same in mechanics really.

Well that turned into a long post! I hope some found it helpful.

Things are moving fast and I would love to be on top of things a bit better but I have to do other things as well and that cuts down on my writing time. I think this summary of what I am watching is a good lead to what I am working on. Sound off in the comments and get Friday requests in as well.

Have a good night.

Wednesday, February 10, 2010

The Past as Prologue

The "big" snowstorm slated for this afternoon for the northeast was a no show here in Massachusetts for the most part. Only about an inch or two as of right now on the ground. Everyone was so scared about the storm that my work closed today at 12 noon. I will take the half day! Short on time again this evening so I wanted to take a comment from the comments section last post and set up a new post that will probably get done tomorrow. I have stepped up my boxing training and I am having a bit of trouble keeping my arms up over the keyboard tonight!

The Past as Prologue
Reader Watchtower submits:
As you can see this is the 'Total Credit Market Debt as a % of GDP' chart.
In Oct of 08 you wrote:
"At what point will the system break down and go supernova?"
Here is the chart for review:

From the comments:
"Which was from your post titled:
"Does The United States Have a Debt Chandrasekhar Limit?"

OK, now that we have that established, my question is:
Does the debt to GDP chart have a correlation to your 'Chandrasekhar Limit' question you posed back then?

The second question is:
You see where the spike did the cliff dive around 1934 in the first big run up in the chart?
What caused it back then, and is it 'different' this time around?
I guess what I'm saying is that chart is one scary a## chart if it actually means anything anymore.
Of course the Greece thing has me thinking about our nation and this kind of stuff again.
Any thoughts?

I do welcome questions and Watchtower picks out one of my favorite posts of all time!

I do have some thoughts along these lines and I think it relates very much to what we are seeing today. As I am short on time and lacking control of my arms I will repost the article in question and I hope to have a write up tomorrow night. Enjoy!

Does the United States Have a Debt Chandrasekhar Limit?
The entire financial mess that has engulfed the world is really quite easy to fix. I have seen many economists, bloggers, and others make the same argument over the past week that seems to be universal in its appeal. From Paul Krugman, to Nouriel Roubini and even the clearest heads at Minyanville all seem to have arrived at the same solution. Here it is in one sentence:

Have the US Treasury spend whatever it has to to fix the entire world.

Now some have various wrinkles to this plan, but they all boil down to the same thing. There is a growing consensus as bailout after bailout falls flat and a TARP Plan cannot even begin to cover the problem that wild spending is both desireable and harmless. Krugman himself penned an article today for the Times that says "Do not worry about budget deficits!" Give that man another Nobel Prize! Brilliant!

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? I invite any and all to leave their answer in the comments section, or to vote in the new poll question along these lines.

If the US can just make all the money they need, why not make every US citizen a Billionaire? How about making the illegal immigrants millionaires? Why not? It is semantics to say the US can take on another 3-6 Trillion in deficit that will never be paid back but not 30 Trillion as that would be too much. It is not an intellectually honest argument. We will wait for an answer. It may be a while.

Have a good night.

Tuesday, February 9, 2010

Spot the Problem

Very short on time tonight but it was very easy to do my boxing workout after another stellar post by my favorite economist Paul Krugman! I cannot leave this one alone!

Spot the Problem
My major argument against most economists is that they cannot answer basic questions they can only offer mechanics of action. Case in point, Mr. Krugmans post today:
Euro perspective
Krugman explains that the trouble makers of Greece, Ireland, Spain and Portugal are small fish:
Overall, the group of stressed economies account for about 20 percent of the eurozone’s GDP. So even a sharp fiscal retrenchment wouldn’t be all that big a shock; still, it certainly wouldn’t help.

No big deal.

What Mr. Krugman fails to address is the plight of these countries sounds all too familiar:
-too much spending
-low tax revenue
-crushing social cost spending
-long term structural issues with capital management

To am economist a Euro led bailout solves the problem because Greece will not default TODAY. They offer no help as to changing the situation on the ground that may actually help these countries turn things around.

Pretend and Extend just went global and I guess if you kick the can across time zones enough times maybe the can will never stop rolling. Better hope so because the Krugman's of the world will not have anything constructive to say at that point.

Have a good night.

Monday, February 8, 2010

The Total Miss Pricing of Risk

I had to take the day off as I was up too late celebrating the big win. I think I did more work today around the house than I would have done in an entire weekend.

New Orleans Saints 31, Indianapolis Colts 17
What can I say? After a shaky first half the Saints came out and played their game. The onside kick was a huge game changer. By the end of the third quarter the Colts defense was visibly breathing heavy and in the fourth they were spent. The Porter interception for a touchdown was shocking in how fast the game came to an end.

Congratulations New Orleans Saints, I have waited for this for a long time.

The Total Miss Pricing of Risk
I had mentioned last week that I was expecting some kind of announcement by the Euro Zone players concerning the Greece situation. As of right now, nothing has been brought out. What was interesting was a "secret" meeting of Central Bankers in Sydney Australia over the weekend:
Central bankers to meet in Australia to discuss looming new crisis
To be a fly on the wall!

February 11, 2010 may have some significance in the geo-political realm:
Iran anniversary 'punch' will stun West: Khamenei
"The Iranian nation, with its unity and God's grace, will punch the arrogance (Western powers) on the 22nd of Bahman (February 11) in a way that will leave them stunned," Khamenei, who is also Iran's commander-in-chief, told a gathering of air force personnel.

That does not sound good.

The mortgage mess keeps gaining steam:
Fitch: New Year, No Improvement as U.S. Prime Jumbo RMBS Delinquencies Approach 10%
Housing bottom indeed.

Unemployment is stated at 9.7% but this graph is far more informative (via The Big Picture and original work by Bianco Research):

No job growth for a DECADE. This is troubling.

So what am I trying to say?

I came to the following idea as I watched the reaction to the possible Greece bailout over the weekend:

Instead of being scared or fearing the need for another large scale bailout of an entire bankrupt country the reaction was one of joy over another financial rescue.

This is important because I think that financial risk is severely miss priced right now. Market (stocks, bonds, currencies, etc) operators are basing their decisions on a perceived backstop of all things at all times.

Here again is Moral Hazard:
Moral hazard occurs when a party insulated from risk may behave differently than it would behave if it were fully exposed to the risk

And yes "Too Big to Fail" has it's very own Wiki entry!

What a miss pricing of risk allows is distortions. Just like a bubble causes capital to be invested in non productive ways, the bailout bonanza has made all assets be treated as of the same risk regardless of underlying fundamentals. There is no price discovery in this way and thus right now may be a time where true "value" of many instruments are unknown.

Money is being created. The open ended commitments on the table are staggering. Whether it is Fannie Mae loans, Greece, Spain, or AIG the magnitude of intervention is astounding. While various observers feel that inflation is nonexistent, what do you call the artificial propping up of the housing market? Is that not inflation? What about Euro money created to save Greece (should it come), does that not constitute inflating?

The situation is not "more stable" after two full years of intervention. Instead assets across the spectrum are miss priced and risk is the most miss priced of all. Anything of significance right now is seen as fully insured by governments and taxpayers (truly "Turtles all the Way Down!"). With such a one way bet going on we can expect a serious market dislocation should that prove not to be the case.

For Consideration
I was thinking about the European drama and I was reminded of Dollar Swaps and how they may play into the mess.

Economic Reality Blog had a good write up on this:
Another Dollar Shortage?
Short excerpt:
As is evident, the dollar swaps did everything they were supposed to do. But now that they’re gone, there is a possibility that the dollar shortage will return. The dollar has been gathering momentum for quite some time. Those that look at charts had to have seen the massive divergence between the price action and most of the indicators (MACD is a good example) that first appeared in the spring. Now that the dollar is back in an uptrend with negative news from the Eurozone supporting it, we are looking at what could possibly be the second phase of the dollar shortage. It’s on the brink already and it only needs one little push.
If you want to "frontrun" the Euro zone bailout look for a headline renewing dollar swaps as a necessary precursor.

Co-Author Stoneleigh of The Automatic Earth has a thoughtful essay up tonight that is worth a look:
Corruption, Culpability and Short-Termism
Great stuff.

Have a good night.

Sunday, February 7, 2010

New Orleans Saints NFL Champions

Thanks to Peyton Manning for the pick 6 but......


31-17 and a win going away. Is Manning still the greatest QB ever???? I dunno!

Thanks C-T for the kind words!

My mom even called as she knows I have loved the Saints forever!!!!!!!

This is huge and I welcome all nice comments!

Championship Sunday

In the end it comes down to one game. I cannot believe the NFL season is over! Just a short 6 months before preseason kicks off!

New Orleans Saints vs Indianapolis Colts
There is plenty of analysis out there on this game. I have been amazed at how much credit has been given to the Colts and consensus calls for them to win, perhaps even easily. There is plenty of revisionist history going on right now, consider;
-Are the Colts indeed a "team of the decade" contender and a proven playoff performer? All the talk this week was how experienced the Colts are.
-Is this the same Colts team that has been bounced from the playoffs almost every year and only has one Superbowl appearance (courtesy of the New England Patriots running out of gas in the 2006 AFC title game) and struggled to beat the Bears in that one?
Take your pick.

I am not hiding my bias, I love the Saints!

As 5 point underdogs I think the Saints will win outright.

Prediction: Saints 38, Colts 31

Have a good night.