Land of Confusion

The good news:  I am finally feeling much better! Like MUCH better. Energy is coming back online and feeling pretty good. Nice.

Land of Confusion
I have always been more a macro kind of investor. By that I mean I try to find things that will persist for a long time, get positioned, and basically forget about that stuff unless something major happens to change my mind. In that sense, not much has changed in 10 years; easy money is now a structural part of the world (predominantly the US) and this cannot really change without severe consequence. Lack of political will and a close alliance between big money, government, and central banks makes any reform and associated "pain" impossible. Of course this kind of wait and see thing is boring!

On a more immediate term time scale, the last 2 years have been absurd and exciting more so than any time since I have been following markets. Maybe some of the more seasoned players can name another time that has featured so much "never before seen" kind of stuff.

In any case, this blog started as a critique on the disconnect between perception and reality. Today we have none other than the Federal Reserve Headmaster himself, Albus Dufusdore Ben Bernanke, making a fool of himself and the US central bank on a grand scale. As this happens market players the world over cling to every word and action as if Bernanke can accomplish anything.

First up, a screen shot of the headlines running yesterday on FINVIZ after the FED minutes were released:

A "sliver" of hope for more stimulus! Joy!

I read the release and it was a twisted hunk of confusion, though that part missed CNBC:
On the one hand, a few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run. On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the Committee taking steps to begin removing policy accommodation sooner than currently anticipated.
Got that?

Given the backdrop of a FED that has maintained that any inflation anywhere and the unemployment rate being high as transient, and seeing they believe growth will accelerate in the second half of the year it seems early to call for more stimulus. You see the problem? They say one thing then set up another.

Bernanke was in front of CONgress today and he has now changed his tune to one more apt to declare QE 3 than call for GDP growth of 4% in the second half of the year. That was fast! Josh Brown notes the following words that would be hard pressed to inspire confidence in anyone:
"The sense is that employers are becoming more willing to hire and I think we'll start seeing some stronger payroll reports and some lower unemployment rates pretty soon."
"Pretty Soon" is one of those non starters that mean "fugget about it!". "Hey hunny, when can we do that crazy-sexy thing we did on vacation with the feather duster and the lighter fluid?" "Pretty soon dear, really". Yeah sure.

Today was lauded as a QE 3 green light, but it was not quite that bold in statement. What gets me is that the FED has maintained the second half recovery line, as has many analysts, yet a few words about more easing is seen as a needed policy right now. Where is the consistency? What can you believe?

Short term I am confused. The whipsaws going on daily are just too much for any trader not glued to the screens and ready to pounce to do much about. One day Greece is saved, the next it's not and neither is Italy. Until noon, then both are fine. On a Friday we get an ISM that beats expectations so the accelerated growth is at hand so things rally, then on a Tuesday poor economic performance is cause for QE 3 so we rally again. You cannot square this thought process, it is imbalanced.

I am not the only one seeing the confusion, here are a few links:
Kid Dynamite - So, FED members Said Some Stuff

Cullen Roche - QE 3 and the FED's Policy Options

Trader Mark - LOL Market

Macro Story - Today's Market Recap

Remember that QE 2 was hinted at in August 2010, then rolled out in November. Using UGA as a gas price proxy, lets see what we can see (click for larger view):

Notice that when QE 2 was hinted at, UGA was around $33. In November it was around $36. It then took off, hitting the upper bollinger band for a LONG time and still sits at $50 or so now. So the FED wants to add on to the pressures here, now? Ok.

In any case it seems a bull market is upon us because either things ARE great or QE 3 WILL make things great. At least a bull market in equities and commodities anyway. Don't expect any change in anything that may mean anything to a normal person anytime soon. Well, maybe pretty soon.

Have a good night.

Over My Head Friday

I am not sure if it is my sinus congestion, the sudden cool down in the weather, or if financial stories got very complicated in one day but I feel a bit lost! I will offer up a few items that had me confused (what's new?) and then off to the Friday night usual fun. At least I get that part.

A Bubble in Gold Bubble Stories
Between this blog, Illusion of Prosperity, Bill Bonner of The Daily Reckoning, and a myriad of other sites the only thing I can say with 100% confidence is that there is a bubble in "Gold Bubble" stories! At this point I am firmly with Mr. Bonner when he says:

Too many ‘possibles.’ Too many things we know we don’t know. And too many things we don’t know we don’t know too. And too many things about which we have no clue. We’re tired of thinking about it.

Sounds about right!

I have a new poll question up for a vote: Where is gold on the bubble scale?

Deflation is a Riddle Wrapped in a Mystery Inside an Enigma
Thanks to Winston Churchill! Starting off the "dazed and confused" parade is the concept of deflation. Economic Disconnect wants to be honest and admit this animal is a hard one to fully appreciate. No wonder all governments aim for inflation, it just makes more sense!

We will begin with an expansive piece my Mish Shedlock. You will need a spare half an hour to really read the entire detailed post, but it is worth it.

Now you would think that after that great primer on deflation, all would be clear. I guess I am a slow learner!

As if I needed more help, one of my favorite writers anywhere is Mr. Practical (who posts on Minyanville infrequently). Today Mr. Practical weighs in on deflation and offers this juicy nugget:

In deflation, there’s too much debt. If the economy is slowing down, it makes it more difficult to pay back that debt and you would expect more to default. The more debt that forfeits, the more dollars are destroyed. The more dollars destroyed, the more they’re worth.

Now I understand this in principle. What I am having a real issue with is this idea applied to our "printing press" gunners at the FED. Thus far we have seen zero, count them zero, limits on the US ability to print as much money as we darn well please. If dollars are destroyed, just make more. To round this out, if deflation results in a stronger currency then:
-Would it not make sense to have rampant deflation for some time, allow the dollar to rise to some obscene number on the index, then use those extremely valuable dollars to buy the entire world?

How come nobody has thought of this before? I will take full credit for the original idea here!

All kidding aside, what are the limits to what I just outlined? At some point this all gets silly (if say $10 could buy Japan) so there must be something else I am missing. Where are the traps? Where does it hit a wall? I would really like some creative ideas in the comments on this one all.

Economists Love Bubbles
Maybe I am naive, and maybe I am just so nice on the inside that I would imagine an economist would strive to find sustainable growth, a stable currency, job creation, and maintenance of a standard of living to be ideal goals. I get a bit confused when they openly are looking for some kind of bubble to achieve their goals instead of long term solutions to problems.

Today's whopper comes from a recurring contributor to this award, Economist's View. My second favorite Keynesian (gaining ground on Krugman all the time though) Mark Thoma highlights a piece by Tim Duy and just goes right out and says what we all knew anyway; these guys are praying for another bubble. Short excerpt so I do not throw up:

So, given the unemployment outlook is sad, wage growth continues to deteriorate, core inflation is falling, and we seem to lack an institutional arrangement to force higher prices, should they even emerge, into higher wages, what is the Fed thinking? Should they really be worried about winding down programs? Are they really confident enough that an inventory correction that will undoubtedly spike GDP numbers will also translate into sustainable growth? Even knowing full while that after the last recession, the US economy languished despite the inventory correction, only to be revived on the back of the housing bubble? In effect, the Fed looks to be putting much weight on the cyclical story playing out, while ignoring the structural story of the necessity of asset bubbles to fuel growth.

Advice for the economists: start using your vast superior intelligence to SOLVE problems instead of inventing ways to MASK them and I will apologise for everything I ever said about your profession. I am serious. And don't call me Shirley.

Lost in the Ether
The two following tales are so over my head I am just going to provide the links and allow you the honor of wrapping yourself around the twisted path that MBS are looking at right now:
Mortgage Bonds: It's a Trap via Accrued Interest

PPIP Get's its Debut via Rortybomb

Good Luck!

Friday Night Entertainment
After that parade of confusion, lets move on to the easy stuff!

Gift for that Special Lady
What do you get that special lady in your life to say "Thanks for tolerating me?" Diamonds are to expensive. Coach bags MUST be matched to the lady perfectly and by this I mean she has to buy it or tell you exactly which one to get, and that's no surprise! Here is a suggestion, a teddy bear jacket:

I think this could be huge this Christmas. Story and ordering information via Geekologie.

Special Delivery
Economic Disconnect is in the market for a new kitty as you know, but I was shocked that Amazon has so much confidence in their 1 day shipping policy that they would chance this kind of package:

see more Lolcats and funny pictures
I am just KIDDING!

Film Clips
I am not sure anyone really checks this section out, but I get a kick out of it and it leaves my favorite clips someplace I can easily find them, so it goes on.

A film that not many people have seen is "The Prophecy". I love the film (NOTE: I am not religious, just love the film). Here are some clips of Christopher Walken playing Archangel Gabriel:


I love the film "The Outsiders". Take a look at the opening credits and see the that this cast became the heart of Hollywood for the next era:


Rock Blogging
Ending the night with the music!

My message to the markets, provided by Hall and Oates, is "Out of Touch":


I finally found out the name and artist of a song from the film Heat that I really liked. Enjoy New Order (featuring Moby) and "New Dawn Fades":

Nice!

I have had this one before, but the piano music ran into my head this week, so enjoy "Tubular Bells" made well known in the film "The Exorcist":


Last one, I am a bit out of steam!

Closing the show with another song from a movie! At least I am consistent!

I loved the film "At Close Range" with Sean Penn and the already mentioned Christopher Walken (was he in everything??). Madonna wrote this song for the film, so try out "Live to Tell" along with plenty of cool clips from the must see film:


Have a good night.

Things That Make You Go Hmmm..

Steady rain with thunder and lightning this evening. It is always a bit strange to ear thunder so close to the wintertime, I just associate it with the summer. Still, beats loyal reader Kevin's area forecast for a BLIZZARD! Stay warm Kevin.

Mortgage Implode O Meter Legal Wrangling
This news item broke last night:

New Hampshire Judge Orders ML-Implode To Divulge Identities of Anonymous Posters
LAS VEGAS - A New Hampshire Superior Court Judge has ordered Implode-Explode Heavy Industries, Inc., the owner of the popular mortgage industry crash site Mortgage Lender Implode-O-Meter (ml-implode.com) to give up the identities of persons who provided information to the site about The Mortgage Specialists, Inc. of Plaistow New Hampshire.
Rockingham County Judge Kenneth R. McHugh also ordered that the allegedly "secret" and "defamatory" content about The Mortgage Specialists would have to stay down permanently.
The information consists of an anonymous posting on the ML-Implode forum about The Mortgage Specialists and the publishing of the company's 2007 "Loan Chart" sent in by an informant and placed online by the Implode-O-Meter staff.

I am no lawyer, and thus there may be some kind of weird standing that makes this kind of thing enforecable, but it stinks. Blogs are the real news sources. Witness the cascade of newspaper failings. This item bears watching. Economic Disconnect extends every support for the Implode o Meter.

Things That Make You Go Hmmm..
I am not an economist. I do not manage anyone else's money, just my own meager stash. I am not Harvard Business School trained or Yale economy educated. Thus I am easily confused. I find that there are many things respected economist types say that make no sense to me, but that is because I am of limited nuance for such things. I saw plenty of stories that made say Hmmm over the past couple of days.

First up is a Robert Reich blog post at Talking Points Memo. Relevant confusing excerpt:

It's a Depression
Capital markets may or may not unfreeze under the combined heat of the Treasury and the Fed, but what happens to Wall Street is becoming less and less relevant to Main Street. Anxious Americans will not borrow even if credit is available to them. And ever fewer Americans are good credit risks anyway.

All this means that the real economy will need a larger stimulus than the $787 billion already enacted. To be sure, only a small fraction of the $787 billion has been turned into new jobs so far. The money is still moving out the door. But today's bleak jobs report shows that the economy is so far below its productive capacity that much more money will be needed.

This is still not the Great Depression of the 1930s, but it is a Depression. And the only way out is government spending on a very large scale. We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.

Mr. Reich correctly puts together the pieces that the US consumer is tapped out, and they are not taking out credit they do not need, at least for a while. Repair of personal balance sheets after a debt binge never seen before on earth sounds like a sound decision. Mr. Reich even acknowledges that the pool of "good credit risks" is getting more shallow every day. What's confusing? Nothing if he had stopped right there.

Mr. Reich then goes all Keynesian on us and makes the case that to support debt accumulation (it is not lending and borrowing, but debt assumption) close to the absolute peak the Government must jump in and spend whatever is needed to restore the old activity level.

Nowhere does Mr. Reich offer an opinion on whether this is a good idea. At no time does the writer cast any value at all on overconsumption and debt fueled asset bubbles.

As far as the note that the economy is "below its productive capacity", isn't it always? I mean if need be we could force into labor the entire able bodied population to make things like cars. Would anyone buy them? What is the point of activity for activities sake? Again, no mention of this.

So I am confused. The US citizen has outstripped their net worth in spending, and the government must come in and support spending at unsustainable levels otherwise the economy collapses. Let me know how that works out.

The second item comes from my favorite bond guru, Bill Gross of PIMCO. Regular readers are well aware of my long standing issues with Mr. Gross. In a small, almost blip of an CNBC video summary Mr. Gross makes the following observations:

Bill Gross: Job Cuts Will Get Worse Before They Improve
Bond guru Bill Gross sees the unemployment rate jumping to double digits before it improves, and even then the economy will evolve into something we haven't seen before.

We're going to have a positive quarter at some point in the second half," he predicted. "Those that would look for bottoms in the economy or the stock market, though, I think are really focusing on the wrong thing, because that implies that we're going to return to what is a normal stasis. We think that's incorrect. We think that unemployment will go to 10 percent before it returns to 8."
Instead of that "normal stasis," Gross said he sees something quite different.
"We're evolving into a 'post-levered' financial economy which will witness intense regulation, and a redistribution of profits and wealth, most importantly, to previously disadvantaged groups, and so that's the 'new normal' that in no way resembles past experience."

I have no idea what Mr. Gross means by a "redistribution of profits and wealth, most importantly, to previously disadvantaged groups". I am confused because the only redistribution I see going on is the distribution of taxpayer funds towards bailing out the fat cats like PIMCO. The only money I see going to disadvantaged groups is more bailout cash, lending programs, and bad asset scams serving those that should be disadvantaged; the idiots that wrote all that paper!

Again, I am confused.

The last item concerns FED head Ben Bernanke's talk today at a FED conference. Relevant excerpt:

Fed 'extremely uncomfortable' about bailouts
Bernanke: Fed 'extremely uncomfortable' about bailouts; but strategy to ease crisis is working
CHARLOTTE, N.C. (AP) -- While acknowledging that the Federal Reserve was "extremely uncomfortable" about last year's bailouts of big financial companies, Fed Chairman Ben Bernanke said Friday the central bank's strategy to ease the financial crisis is working.
In remarks during a Fed conference in Charlotte, N.C., Bernanke said the central bank was forced to take action because the collapse of those companies would have dealt a serious blow to the financial system and the national economy.
The situation underscores the need for new powers to allow the government to safely wind down such huge firms, he said. Bernanke and Treasury Secretary Timothy Geithner recently asked Congress for such powers.
During his speech, Bernanke also defended the Fed's decisions to revive the economy by plowing trillions of dollars into efforts to stabilize the banking system and to lower interest rates. Its program to buy mortgage-backed securities of Fannie Mae and Freddie Mac has helped drive down the rate on 30-year mortgages to record lows.
"These are extraordinary challenging times for our financial system and our economy," Bernanke said. "I am confident that we can meet these challenges, not least because I have great confidence in the underlying strengths of the American economy."
To brace the economy, the Fed has slashed a key interest rate to an all-time low of near zero. The central bank has turned to unconventional tools -- such as its recent decision to start buying government debt -- to pull down interest rates on a range of consumer loans. The goal: entice Americans to go out and spend again, which would help lift the economy out of recession.

This is not so much confusing as a collection of useless lies.

- Note the story uses the line "last years bailouts". There are no bailouts this year? Ongoing lending facilities, auto maker money, etc. Nice move.
- The FED in "uncomfortable"? When I am uncomfortable with something I do not do it. I went to the doctor and told him it was uncomfortable when I raised my left arm over my head and he said "Don't do that!". Little joke.
- Spare me the whole "wind down" talk. Bernanke had already said in quoted words that there will be no more bank failures so do not even pretend.
- If Bernanke had great faith in the strength of the US economy I would offer that the FED would not have had to exhaust the alphabet in acronyms for all their lending facilities. Next up, Chinese alphabet acronyms (the Chinese ok'd this at the G20 meeting) for more lending programs.

It would seem to me a much better use of time and taxpayer money would be to develope industry and more robust economic machinery in the US rather than to try and prop up asset bubbles and keep the debt splurge pedal matted to the floor. just my 2 cents, but then again I only went to state school!

Friday Night Entertainment
Another long week deserves some fun!

WARNING: SERIOUS TIME WASTER
I am lax to even put this up as I will drop way too much time playing this game, but here is mini putt 3 to drive you crazy:
Mini Putt III
You were warned!

Rock Blogging
A little music to get your weekend off right!

Another YouTube "not embeddable" band is "The Cure". I was able to find a live performance of "Friday I'm in Love" that I could embed, so enjoy on a Friday!:


Another tough embed is "Til Tuesday" and "Voices Carry" long a gulity pleasure of mine!:


I found an old school video of "Wayward Son" by the band "Kansas". Great song, scary video:


Last call!

Something a little faster and with an edge. Take a listen to "Judas Priest" and "Ram it Down":


Have a good night.