Government Bemused by Lack of Lending

I saw the Tennessee Titans play for the first time last night. They moved to a record of 7-0 after beating the Indianapolis Colts. The Titans have an amazing defense, and a solid offense. They look pretty good to me. The Colts lost back to back games for the first time in a while, and they now play my New England Patriots next Sunday night. I do not think the Colts have ever lost 3 games in a row with Peyton Manning, so I guess that is a bad omen!

Government Bemused by Lack of Lending
It seems the White House and others in the government are puzzled by the fact that all the cash that has been handed out to the banks so far is still sitting there. What happened to all that credit and lending we were promised? What about the golden new era of bank lending the bailouts were supposed to provide? We were assured that a simple lack of liquidity was the culprit, and a money tsunami was just the fix! What happened? Here is the headline form Yahoo Finance (no not from the comedy site "The Onion":
AP
White House to banks: Start lending now
Tuesday October 28, 5:44 pm ET
By Jennifer Loven, AP White House Correspondent
White House tells banks getting federal aid to quit hoarding money and start lending it
"Hoping to thaw the credit freeze that has chilled the economy, the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.
"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said. While there are limits to Washington's power to affect banks' behavior, the White House decided it was time to use its bully pulpit.
"They (regulators) will be watching very closely, and they're working with the banks," Perino said."

Soon this administration will be gone and while I am sure the next one coming in will be no better on things economic, at least we might get statements that make sense! I mean reread this one and see if you can spot the problem:
"the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending."

So which is it? Are people cash starved and in dire need of credit, or are they pulling back on their spending? I guess the idea is to "take a loan, it is patriotic!" or something.

What is escaping the powers that be and the smart guys running the Treasury and the FED is that we need a clearly defined and tangible bubble to put any new credit to work on. Houses are dead money for a while. The stock market is too jumpy. Commodities are busted. Bonds seem too weak. What is needed is a clear national goal of a new bubble. Maybe antique cars will do? That way GM and Ford may get a boost as well! Beanie babies? Cabbage Patch Kids? What will do the trick?

I have repeated my question about all of this bailout cash, so i guess one more time will do:
To whom and for what will all this money be lent out to?

I still hear crickets.

Opposing Headlines
While finding totally opposing statements in the text of an article is great fun, sometimes you can do it with just the headlines. Consider these two headlines on the main Yahoo Finance page:
"Dow jumps nearly 900 points as bargain hunters grab stocks in anticipation of a Fed rate cut"
and
"Treasury official says rescue operation will generate unprecedented borrowing needs"

So we have a big rate cut in the works for tomorrow, but the US government will need to borrow massive amounts of money going forward. See the issue? I thought that when you need to borrow big money, the rate on that stuff goes up, not down. So the FED is on their way to a FED rate of 0% (hello Japan!) while at the same time getting ready to sell treasuries by the cargo load. I am so sure that is going to go well and work out.

Maybe the banks can lend the US government money right back to them! Now there is an idea that Paulson needs to look at. Can the US take taxpayer money and debt, loan it to the banks, and have the banks loan it to the US in a closed loop? Maybe I should get a Nobel Prize with this kind of powerful insight.

Market Rally Banana Republic Style
Look, one cannot deny that solid, efficient markets just do not gyrate to the tune of 10% and and down on a daily basis. That kind of volatility means only bad things. Things like market participants have zero idea what is going on. Things like government intervention makes panic moves happen almost daily. Things like no underlying fundamentals to support a move up or down. Those kind of things.

A rate cut tomorrow is viewed as a positive, but the FED may have only 1 or at most 2 moves left after tomorrow. All the rate cuts to this point have done nothing, so maybe this one does the trick? Whatever. Almost all the action has been happening in the last 30 minutes of the day, and that means something. What I do not know, but I imagine it will be interesting to find out.

Good Financial Poem
James over at Bubblemeter had a great original poem up yesterday. Check it out:
Real estate was
The way to get rich.
Just buy a home
And give it a flip.

If you bought more house
Than you can afford,
Helicopter Ben
Will dump cash your door.

He's Helicopter, Helicopter,
Helicopter Ben,
The money-throwing man
Who works at the Fed.

Money from the clouds,
Money from the sky,
Manna from heaven,
Thank that helicopter guy.

Full post:
http://bubblemeter.blogspot.com/2008/10/helicopter-ben-makes-good-on-nickname.html


Have a good night.

Volatility - Hallowed be Thy Name

I was attending a birthday event for my niece this evening and thus am unable to put together a full post due to time constraints. I am aiming for a Saturday wrap up and entertainment post instead. With everything going on, a little reading and thinking is in order anyway before writing a post.

My Apologies to the Gold Market
The author of Economic Disconnect would like to extend his heartfelt apologies to any and all in the gold market. It was my entering this morning that single handedly crashed the spot price for gold. While I know I usually have this effect, I was hoping that I would go unnoticed with all the drama happening. I am sorry and hope we can still be friends, or at least that you will not burn my house down. SORRY!

Seriously, the action in gold today made no sense. Luckily for me my small order was lost for most of the day and was not filled until after lunchtime. I got a nice 6% loss in one day, but it could have been much worse (about 18% from the open!). Small miracles!

Volatility - Hallowed be Thy Name
Everyone in my office area was running around this morning talking about the Nikkei crashing and a possible "circuit breaker" day here in the USA. While I would expect that from people that read this blog, this was coming from people I have never even heard speak about the markets! Wild Stuff. Suddenly everyone is watching. After a crash of 10% on the DOW at the open, the markets rallied harsh and were up on the day at one point. Stocks closed slightly down.

With the Lehman CDS auction all the rage, maybe that was the catalyst. Maybe a big hedge fund blew up. Maybe lots of things happened. We might know tomorrow or we may never know or there is nothing material to know. Who knows, you know?

Market Ticker has some sharp comments today, and you should take a look:
http://market-ticker.denninger.net/archives/604-POTENTIAL-ECONOMIC-SEIZURE-DEAD-AHEAD.html

Key excerpt:
"Open Market Operations) at The Fed. Read this report carefully. Note that there are no Agencies and no Treasuries left on The Fed's balance sheet. All gone. All that is left is $80 billion of crappy MBS. Bluntly, without printing raw money, The Fed is out of Treasuries with which to lend into the market, and thus cannot perform OMO any more; they must do "other things" (like print money.) We are now officially into the twilight zone and Fed Solvency is an issue on the table. President Bush spoke again but none one word about forcing transparency among financial institutions. Raise cash now and be prepared for potential essential good and service disruptions as the supply pipelines could begin to go dry on these as soon as early next week."

I had come to similar idea on FED printing and that is why I got into gold (sorry again guys!). With a G7 meeting which I am sure is going to involve money creation the world has never seen, something has to give. As far as supply disruptions and the like, I wish I could say that was impossible. But it is not.

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.