Great Expectations

Watched the New England Patriots just demolish the Philadelphia Eagles tonight. Sometimes I can almost forget how bad the Pats defense is, what a show.

Great Expectations
It's been strange to see so much fear about Euro zone debt woes when everyone single person on planet Earth knew, and I mean KNEW, some kind of work around was always going to happen. I guess the pressure needed to build enough to get the ECB and crew to make a little pee pee in their pants. Plenty of rumors out tonight about a silly big bailout package and it's party time freak out all over.

Business Insider has a rundown here:
Futures Are Exploding Higher After Weekend Talk Of Mega-Bailouts And Stability Pacts

Funny thing is it was some obscure Italian paper, La Stampa, that broke the news but catch this line:

The euro rose after Italian daily La Stampa said the International Monetary Fund is preparing a 600- billion euro ($794 billion) loan for Italy in case the debt crisis worsens, without saying where it got the information.

This is rich.

Adding fuel to the free money Trillion dollar roll is news the FED, wait for it, will buy another lump of mortgage paper:
Dealers See Fed Buying $545 Billion Mortgage Bonds in Third Ease

So I am supposed to say stuff like "trade what you see", "don't fight the FED", "the market is what the market is" or some other platitude but I just can't get into it. This is really stupid stuff.

I don't even want to discuss it tonight. More monkey games of throwing bananas. Over reaction and wasted efforts all around. Markets will never have fair pricing of much of anything (debt, credit, stocks, name it) with all the interventions coming all the time. It's all becoming false, a false market built on assumed caps and bailouts. I am getting bored, really.

New Outside the (Cardboard) Box Post
Long time readers may remember my friend Tom of the North and his wonderful work on his site. Tom has a new post up and it's pure genius. Required reading for Sunday night:
Supercommittee Reorients For Success
Sample to get you going on over there:

Washington, D.C. – As their budget cutting duties are winding down with the recently announced and widely anticipated stalemate, sources close to the process are reporting that the Congressional Supercommittee is in advanced negotiations with a large investment management company, possibly Black Rock, to form a new investment vehicle directly managed by the Supercommittee itself. Tentatively named the Supercommittee High Yield Terran Equity Fund (SHYTE Fund), the fund structure would allow its Supercommittee managers to invest in any global asset or asset class where a Supercommittee member/member of Congress/SHYTE Fund investment manager has the ability to directly influence the performance of the asset or asset class through legislative action, or has privileged access to information regarding a particular asset or asset class that would constitute an iron-clad trading advantage.

The whole article is excellent. Thanks Tom.

Have a good night.

Take Our Pensions, PLEASE!

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

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

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

What do I think? I have said before that I feel the dollar will resume it's slide very soon and Gold will rally hard. This spot vs. real thing is a special interest of mine. Either this gets resolved soon to either side (up or down) or there will be two gold markets at once: One large COMEX big player market and one small physical metal market. If that happens the price difference could persist for a while, but what fun would that be? Minyanville has a good post on this very topic today, so check it out:
http://www.minyanville.com/articles/gold-libor-3M-comex/index/a/19867

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

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

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

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

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

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

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

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

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

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

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

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

For nostalgia, when GM was king of the hill they made perhaps the sickest machine ever to roll off an assembly line in the USA: The 1969 all Aluminum ZL-1 Corvette!
Take a look at a magazine article about the car:
http://www.digitalcorvettes.com/forums/showthread.php?t=67956

One pic of the engine components:


Have a good night.

Pandemonium of the Clueless

Hello out there in financial reader land! Have you been having fun? Have you been on the edge of your seat with crazy disbelief at the rapid developments? I know I have been overwhelmed with information and news! Loyal reader G asked that i post if/when the proverbial sh#t hit the fan, and I say "ask and you shall receive".

Did Anyone Notice this Little Tidbit in the Mainstream Media?
Now I will say upfront that with all the drama going on, it could be possibly forgiven for the mainstream media to skip over this little item, but seriously has there been a more ominous headline anywhere this week?:

Russia suspends stock trading to stop market meltdown
by Dario Thuburn
Wed Sep 17, 2:05 PM ET
MOSCOW (AFP) - Russia suspended trading on its two main stock markets for a second day Wednesday as shares nosedived and officials pledged 44 billion dollars to fight collapsing investor confidence.

After a 50 plus % drop over two days, Russia says "No Mas" and pulls the plug. No word yet on when it will reopen, but this may be the scariest thing I saw this week. This bears your attention.

Gold Rallies Back
While still quite a ways off from the old highs, Gold has made a nice move, and today it made it's biggest one day run ever. Why? Well, with all the crap paper out there and with trust evaporated, only treasuries (why trust those?) and the good old yellow metal will do for many. This reminds me of a story that was told to a young Conan the Barbarian by his father. Conan's father related to him the story abut the "riddle of steel", but I have put in GOLD instead of steel to make my point:

Once giants lived in the earth, Conan, and in the darkness of chaos, they fooled Crom, and they took from him the enigma of steel [GOLD]. Crom was angered, and the earth shook, and fire and wind struck down these giants, and they threw their bodies into the waters. But in their rage, the gods forgot the secret of steel [GOLD] and left it on the battlefield, and we who found it, are just men, not gods, not giants, just men. And the secret of steel [GOLD] has always carried with it a mystery. You must learn its riddle, Conan, you must learn its discipline, for no one, no one in this world can you trust, not men, not women, not beasts, this you can trust.

While this whole mess can turn on any assets class at any minute, I still love gold's fundamentals going forward. Just be careful out there!

A Brief Statement of Truth
Senator Harry Reid (D-Nevada) had a rare honest moment today and I will direct you towards Mish for full coverage here:
http://globaleconomicanalysis.blogspot.com/2008/09/senate-majority-leader-reid-no-one.html

Quick summary "Nobody knows what the hell to do about this mess!" You hit it out of the park Mr. Reid, Bravo!

Pandemonium of the Clueless
There is simply too much going on for me to be able to cover all the bases. I refer you to the blogroll to the left. Naked Capitalism, Calculated Risk, Minyanville, and Mish have been doing unbelievable real-time analysis of all the news and their material is the best anywhere, anyplace.

With all that has been going on my main focus has been on the whole moral hazard issues. Not in the sense of "should we be doing this, it may be a moral hazard" because the hot to trot leadership we have has already made the choice to wade in. I mean just what in the world is Ben Bernanke and Henry Paulson thinking about as they make the off the cuff moves with billions of taxpayer dollars? Sadly the folks we all sent to congress are unable due to limited mental ability to ask any questions or to get some kind of fix on the FED and Treasury's thinking process. In the spirit of goodwill, I thought I might put together a few questions that our elected representative may, just maybe, want to get answered by the "Toxic Twins" of Bernanke and Paulson before any more bailouts/conservatorships/liquidity injections etc are done. Hopefully one of them will read these and try to get a response.

1. What is a "Systemic Risk" exactly and in no uncertain terms?

2. If indeed the US financial system is "Fundamentally Sound and Secure" as you have stated on numerous occasions, how does that square with the idea that a Bear Stearns or a Fannie Mae, or an AIG bankruptcy would cause a "systemic risk" to the entire financial system? Can those two ideas be reconciled?

3. While Lehman Brothers employees are filling cardboard boxes and leaving their jobs, how can Merrill Lynch workers and Freddie Mac employees be supported? What would you say to the Lehman folks right now?

4. Is there a dollar figure at which taxpayer backed bailouts will have to stop? If yes, what is that number? If no, do you see a problem with that?

5. With the FED and the Treasury backing down on the AIG "bridge loan" or whatever you call it, is it even remotely reasonable to expect private firms (still standing banks, foreign wealth funds, etc) to put up any money towards helping failing businesses? Why indeed should they if the US government will assume all the risks? Do you see the underlying issue here?

6. Secretary Paulson; as a former head of Goldman Sachs would you have recommend to your board to extend the AIG bridge loan? If not, why is the US taxpayer not given equal consideration?

7. If the only thing keeping the banking system afloat right now is the delaying tactics aimed at keeping assets related to real estate and their associated derivatives form being valued at their realistic price, how long can that go on? Do you have a plan that takes into consideration those items being marked to current market? If you do not, why not?

8. While the SEC has targeted short sellers as of late, what is being done about CNBC anchors reporting on phone calls they are having on air in the midst of this market turmoil? Is one more disruptive than the other? If so, how?

9. Have you thought further ahead than 5-10 days over the last 6 months? Be honest.

10. Are you two on Dope?

There are 10 questions that need to be answered before Hank and Bennie make any more moves. Somebody has to answer for the debacle that is currently underway. That not one serious or revealing question has been asked or answered says alot about both our journalists and our leaders.

Final Thoughts
This is the big time. There are things at work here that are huge. Yes, I can agree that the system is at stake. But you have to ask yourself, if we can delay a real day of reckoning for all the troubled debt that is out there, will it just go away? Or will it only come back later? I can understand the yearning to kick the can down the road, but that mentality got us into this mess after the Tech bust. At some point you have to face your own monsters. Hiding and pretending they are not there only gets you so far. It should be time to face ours.

Hedge Fund Bailouts
I have it on good authority, insider information actually, that the next in line for a bailout is the hedge fund below:

more animals

Have a good night.

Public Enemy Number One

Hello all once again! Hope all is well with the regulars. While the den/library is now finished up, I have moved on to the overhaul of the living room. Not as intensive, but still time consuming. It probably is better that was as the loss of Tom Brady for the Patriots was as sad an event as I have seen in some time. Also the stuff going on out there in the financial world is enough to push a man to his bullshit meter limits.

Lehman Getting Assistance it Does Not Want
There have been many sources being "quoted" today with some kind of so called information on what is to become of Lehman brothers (LEH). I saw one report that said JP Morgan took a look and said no thanks, then I saw one that said Goldman was a last resort buyer but that fell out as well. Tonight there is yet another report that Bank of America (BAC) is the next in line. All I can say, in the immortal words of Arnold on Different Strokes is, "What you talking about Willis!?"

BAC is already saddled with the Countryfried bad paper and now personal identification theft disclosure. How in the world is BAC going to take in all the issues with LEH? I have no idea, but I imagine there will be even more taxpayer cash involved. From tonight's story:

Reuters
Lehman in sale talks as survival questioned: sources
Thursday September 11, 6:22 pm ET
By Patrick M. Fitzgibbons
NEW YORK (Reuters) - Lehman Brothers Holdings Inc was forced into talks about a possible sale after the Wall Street bank's shares plunged more than 40 percent and cast doubts on its survival.
The company and U.S. regulators were in intensive discussions about a number of options, including a complete sale, but Lehman has been resisting U.S. government intervention, a source with direct knowledge of the discussions said.

So LEH is resistant? Let em fail I say. Why is the US government AGAIN in on one of these deals? Just what in the hell is going on here? Not every single bank or brokerage can be a "systemic risk" can they? They must be a systemic risk to fat cat CEO pensions and stock plans, because that is the only group benefiting from this stuff. There is better analysis out there than I can give here quickly, so use the blogroll and comments section to discuss. I am about at wits end with this endless intervention.

Public Enemy Number One
Darth Sidious: "Every single jedi, including your friend Obi Wan Kenobi, is now an enemy of the Republic."
Darth Vader: " I understand my Master."

As if I needed another boiling point tonight, check out the boldness of this call to screw taxpayers as hard a possible without the benefit of dinner first:

AP
Democrats call for foreclosure freeze
Thursday September 11, 5:39 pm ET
By Julie Hirschfeld Davis, Associated Press Writer
Democrats call on Fannie Mae and Freddie Mac, under government control, to halt foreclosures
WASHINGTON (AP) -- Four Democratic senators urged the mortgage companies Fannie Mae and Freddie Mac on Thursday to temporarily freeze foreclosures on loans they hold.
The troubled companies, seized by the government Sunday, should help struggling borrowers swap their mortgages for more affordable loans and stay in their homes, the lawmakers wrote the new chief executives and federal regulator now running Fannie Mae and Freddie Mac.
It was the latest sign of mounting congressional pressure on James Lockhart, the director of the Federal Housing Finance Agency, to ensure that the companies use their clout in the mortgage market to help homeowners caught in the housing crisis.
The senators -- Sherrod Brown of Ohio, Bob Casey of Pennsylvania, Bob Menendez of New Jersey and Charles Schumer of New York -- wrote that the companies should "take whatever actions are necessary" so more families "do not have to suffer the economic and personal disaster of foreclosure."

I would also add Barney Frank to this list as he is a hopeless fool on the whole thing. Now before anyone gets all "see what the democrats are doing" on me know this: this plan will (A)get put forward, and (B) get passed overwhelmingly by both democrats and republicans. So please save the partisan stuff, both sides are whores in an election year.

So now that FNM/FRE are backed by you and me, why the heck not just stop all foreclosures for 90 days? Why not 120? Why not forever? Taxes, carrying costs,etc will be covered by the taxpayer so why not give a bunch of voters a rent free 6-12 months? Sounds just wonder-fing-full to me.

There is nothing to do here. No letters to write, no calls to make, no protests to form. The only thing to do is to go to the polls this November and vote AGAINST every single incumbent in the house and senate and local government unless you are sure they will oppose any more intervention and any more costs being passed to the taxpayer. That's it, that's all. The screwballs on this list are now enemies of the good and right and I will contribute cash money to their opponents whenever they are up for election.

There is something very wrong going on right now and there is significant long term damage being done to the US citizen. Too focused on Sarah Palin's eyeglass style, too enamored with the new 90210 show, too distracted by the high cost of living, the average person is blindly being robbed with nobody to speak for them. We are supposed to have a representative government, but they only represent the banks and the foreign debt holders. Sad times indeed. If you have children I feel bad for you and for them going forward.

Have a good night.

Hello Out There!

It certainly has been a while! Sorry for the LONG delay, but I finally dove into the den/library room construction and as with most things it was a bit more involved than I would have wanted. The room is looking totally awesome right now, and I should be wrapping up the finish work over the next week. Good Stuff.

Are you enjoying the wild markets and things economic? I must admit being away has been tough with all that is going on that I would like to discuss, but I cannot match the fine writing and up to the minute coverage the blogs in the blogroll supply. Us them. Often. I have a few macro points to make to get some ideas out there. Thanks to all that keep checking in, hardcore fans are the best and Kevin, G, and Watchtower are some of the best readers a writer can ask for.

Who's Brilliant Idea Was This?
A while back a truly amazing mind came up with the following theorem:

"Right now the major banks/brokerages are in fact insolvent, and their stocks are zeroes. The possibility of a FED/Treasury led bailout puts some kind of value on these firms and the market action is torn between a price of zero and some other small sum."

I know, it was me of course! After a long month it has become apparent that many firms are now basically zeroes (LEH, MER, FNM, FRE) but the possibility of missing a wild 50% move up on a bailout set price is too much for many to pass up. Sad stuff which leads me to.......

Fundamentally Strong Stocks Do Not Gyrate 30% on an Almost Daily Basis
Newly formed or newly "discovered" markets in merging counties tend to have crazy volatility due to there being so little information about there particulars. Market gyrations of 30% are common as momentum players and speculators rush in and out. This is expected. The US financial system should not be one of these markets. When a stock as widely held (and I empathizes WIDELY HELD) as Fannie Mae can move 30% down one day, 25% up another, and move 80% in 6 months something is seriously wrong. The US financial stocks right now resemble a banana republic market. I do not care about the money making possibilities here (there are many) but instead want to focus on the fact that there is no tether to any reality right now for these entities. Penny stocks behave this way, not cornerstones of a financial system. This is ugly indeed.

Lowe's and Home Depot Throw in the Towel
To me the stunning drop in business at HD and Lowe's shows that finally the consumer is giving up. Drops of 25% on a yearly basis is big time stuff here. Turnaround clowns are still pinning the tail on the early 2009 donkey recovery, but secular changes do not change direction so fast. Again, an important data point.

Fall is Upon Us
As predicted here and elsewhere this has been a LONG summer. The data is deteriorating for the US economy. The housing story is getting worse. The banks are out of cash and out of time. There are things in motion that cannot be stopped (Alt-A meltdown, Bond refinancing at terrible terms, overseas funds saying "No Mas" to debt offerings). The FED and the Treasury have been exposed ass clueless and powerless. While the overall market has been ok so far, it is still vacation really. The fall is going to be wild, and volatility is going to be bad. I will have more to say in a future post, but my basic premise is that by the end of October we are going to know if we are just screwed (which stinks but can be overcome) or totally f#cked (game over). Care to place a bet?

Good Video
This is a great ultra slow motion video of a lightning strike, check it out:


Have a good night.