Making Way for the New Grill

70 degrees today! A truly wonderful Spring day indeed. A small post to show you what I was up to.

Big Steel Keg and the Lawn
Well fairly early in the morning I went out to Lowes to get some supplies:
-Lawn fertilizer
-Patio Paver Stones
-Crushed Stone Base Material
-Leveling Sand
-Lump Charcoal

I started off feeding the lawn for the early Spring time, and the grass is already looking pretty good. One can hope for miracles after all the rain.

The main show was getting my new Big Steel Keg set up. I assembled it yesterday after work and it was break in time.

I washed all the grates and top valve. After drying I rubbed everything down with Crisco to coat up the cast iron. It was very messy to say the least.

I set up some lump charcoal (maybe 8 small-medium pieces) an used a starter block to get things going. The grill started off a bit slow but after about 10 minutes the grill was over 500 degrees! I had to mess around with the vents to get it to the suggested target of 400 degrees for the grate seasoning step.

After getting set around 450 (I will need to practice) I put all the grates in and let it run. That thing stayed at 400-450 for about 3 hours on the small amount of lump charcoal I used! Amazing.

While it was burning I built a small patio for the grill to be placed on in the back. I used the crushed stone as a base, level sand to well, level, and then used 4 slate patio pavers that were 18X18 for the grill's new home. Here is a picture of the small patio:

Not bad for an amateur!

Here is the new grill:

The white thing is the Big Green Egg indirect heat plate for smoking that I bought.

I will be testing it on real food tomorrow (Kielbasa I think) so wish me luck as I am very new to charcoal cooking.

Have a good night.

Debt Creation Approaching Escape Velocity?

It was a beautiful Friday here. 70 degrees and very sunny. Seems Spring is upon us once again. I assembled the new grill I mentioned yesterday and now I am chomping at the bit to use it!

A few notes, a small post and then off to the Entertainment!

Profiles of a Healed Economy
As you all well know, the economy is just aces right now and things are so bright we have to wear shades, maybe even at night!

Here are a few headlines that cover all the good news:
Bank Failures 31-37; Busy Day for the FDIC
Banks often fail in good economic times. Often.

GSEs Green Light $200bn Buyout of Seriously Delinquent Mortgages
Barclays says so and they would know! Great note:

One of the GSEs, Fannie Mae said in a press statement earlier in March that it expects to continue purchasing delinquent loans in subsequent months until the seriously delinquent loan population is “substantially reduced.” Analysts at Barclays Capital remarked that Fannie will likely begin “buying out loans on a coupon-by-coupon basis, for all products including 10/20s, ARMs, starting with the highest coupons in the April report, and then proceeding to lower coupons in subsequent reports.”

In case you don't know, you are on the hook for these things.

Fed Must Disclose Bank Bailout Records As Court Of Appeals Upholds Historic "Mark Pittman" Decision
I have it on solid inside info this will be fixed by amending the law on page 12,897 of the Health Care Bill.

Debt Creation Approaching Escape Velocity?
This is going to be short because of two factors:
-I simply do not have command of the subject enough to describe or explain the mechanics at work
-The topic deserves a full on post or even a series of posts that I cannot do at the moment

That said, I can point you in some directions and open a debate.

The discussion is about money creation and banking systems. This is important for many reasons and not the least is that the entire foundation of our financial structure is based on assumptions, confidence, and group subscription and these things can go away in a hurry.

Most can understand fractional reserve banking and I often use it as an example because it is easier to grasp than how money gets created in our system. I think if people really knew how things ran they would all panic because the whole thing is a sham. That said, the relevant posts:
German Central Bank Admits that Credit is Created Out of Thin Air
George Washington posts at Zero Hedge and has some great reporting. Read the entire thing as it really helps, but an small excerpt:

Private banks don't make loans because they have extra deposits lying around. The process is the exact opposite:
(1) Each private bank "creates" loans out of thin air by entering into binding loan commitments with borrowers; then
(2) If the bank doesn't have the required level of reserves, it simply borrows them after the fact from the central bank (or from another bank);
(3) The central bank, in turn, creates the money which it lends to the private banks out of thin air.

It's not just Bernanke ... the central banks and their owners - the private commercial banks - have been running the printing presses for hundreds of years.

Of course, as I pointed out Tuesday, Bernanke is pushing to eliminate all reserve requirements in the U.S. If Bernanke has his way, American banks won't even have to borrow from the Fed or other banks after the fact to have reserves. Instead, they can just enter into as many loans as they want and create endless money out of thin air (within Basel I and Basel II's capital requirements - but since governments keep overtly and covertly throwing bailout money, guarantees and various insider-get-rich-quick schemes at the giant banks, capital requirements are meaningless).

The system is not based on assets. It is based on creating new debts, and then backfilling from there.

Not quite what you thought, huh?

Kid Dynamite offers more on yesterdays post today:
More on Bank Reserves and their Potential Meaninglessness
The comments section is where the meat is. It is worth some time.

My take was left in the comments section at Kid's site and I offer it here to frame how I see things:

What the summary here seems to be is that:
-As long as "liquidity" is available than money is fungible because you never really have to have it all at once.

Of course in the end the FED has a printing press so the argument is that liquidity can never be an issue.

While true in the lawyer/legal sense of the argument, it is also bullshit.

In essence the banking system is built on the idea that money once in motion, stays in motion and there is never a "called all in" to borrow a poker term. Of course back at the apex of the crisis when money markets were being drained this was a partial call and the FED/Treasury wet their pants in fear over the removal of a small (relative to the "liquidity" out in the system) amount of real money from the system.

The evidence would make the pie in the sky argument that reserves are meaningless and money can be created from nothing as long as loans (credit) are made a failure because why did they bother to do anything if everything was all set?

Sorry to simplify but all the tangled paths of this make something so simple very complicated.

The oldest profession is prostitution because it is hard to screw up (pun intended) and it is very profitable. The second oldest is banking for the two same reasons. Of course over time smart asses with theories have bent things around theoretical constructs so much that banking is screwed up. Classic. Remember the models and theories that said people would never, ever "walk away" from a home mortgage and never pay a credit card or car loan before a mortgage? Working out nicely indeed.

Taken as a whole it makes sense that debt is created and then some form of payment is arranged some how. The US consumer makes up 70% of the economy? They need to to keep accumulating the debts (money) issued by the banking system. No wonder no one this side of Wall Street can get ahead, everything is designed to maximize separation of you from your "money". I often wondered why the FED was so terrified of a recession and now we have the answer. Any speed bump in the debt accumulation race and things get ugly fast. Maybe debt has reached escape velocity and we cannot carry enough to backfill it. What then? Now I am dizzy.

Friday Night Entertainment
I need a drink and some fun stuff! Off we go!

WIN instead of FAIL
Let's try some WINS from the Failblog.

Reading the signs can help:


It is always the little black dress that causes trouble:

Yup!

Film Clips
Great film is, well, great!

One of the scariest scenes in a movie for me was not even in a horror film. In 2010: The Year We Make Contact there is a scene that sends chills down my spine. When HAL 9000 relays a message to Dr. Floyd and tells him to look behind him I still get those chills! (start at 1:20 mark):


Because I have seen About Last Night I know that Rob Lowe can act. The closing scene is pretty good stuff:

Under rated film.

Rock Blogging
It just might be time to let it rock. Wait, ok, now it's time!

Anon requested the Go Go's and "Our Lips are Sealed" which was strange because I had this song in my head this week after hearing it on the radio! Weird! Here it is:


Lead singer Alex Chilton of The Box Tops died this week and one of my favorite old school songs is "The Letter" so check it out:

Obviously before the dawn of email!

Loyal reader Gawians, who if you have not been checking out his real estate commentary in the comments section you are really missing out, requests "Spiral Architect" from Black Sabbath and I mean who could say no to an unsung Sabbath tune?:

Awesome tune.

One more, two more? Two more seems about right.

Of course because I love Joan Jett and I know what rocks, they decide to make a film about her early band "The Runaways" that contained a few names you may recognize. Anyways, enjoy Joan playing "Light of Day" with the man that wrote it, Bruce Springsteen:

Studio version here.

Last call! The streetlights are on, time to go home!

Closing the show is always a struggle. Do I end with a ripper? A mellow relax tune? This is harder than it seems!

Well I could not decide between these two so you get BOTH! HA!

Close the show with a Depeche Mode double feature!

"It's No Good":

Kicks ass!

My favorite Mode song, "Personal Jesus":

Unreal.

Have a good night.

Looking for Bagholders?

This week has been great weather wise! 60 degrees and sunny all week and it could hit 70 on Saturday. I have a brand new grill to get seasoned and I hope to get it done this weekend and maybe attempt my first cook with The Big Steel Keg. Being new to charcoal cooking this could get funny in a hurry!

I had a post in mind all day and I will get to it but there was plenty of other stuff that caught my eye that will make it on tonight no matter how late it goes. I am done the boxing workout so I am ready to roll. Get requests in for Friday night entertainment as well!

The "Motor City Cobra" in Foreclosure?
Regular readers know I am a huge boxing fan so when I caught this post over at Tim Iacono's site (updated the bookmark in the blogroll, but I prefer the old site!) I knew I was going to write something on it:
"Hit Man" Thomas Hearns Now in Foreclosure
You can read the details if interested.

Thomas Hearns started with the nickname "Motor City Cobra" and switched to "The Hit Man" after recording big knockout wins. His fight versus Marvin Hagler is one of the best all time, second only to Alexis Arguello vs. Aaron Pryor I in my mind. Thanks for the great find!

Banking Reserve Requirements; Useless or Need to Grow?
Last night I posted a quick piece on FED head Ben Bernanke offering that banking reserves could go to zero in the future, via The Economic Collapse. Again, key take away:

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

Kid Dynamite, who survived the rainy downpours here in the northeast, had some thoughts on this (and gave a cool hat tip over here as well):
Reserves? We Don't Need No Stinkin' Reserves!
KD's thoughts:

Now, it's been brought to my attention that there are several countries who currently operate banking systems without reserve requirements. The real question is, is Bernanke suggesting that we don't need reserve requirements because in a rational free markets world, banks would hold adequate reserves anyway, and thus don't need more expensive restrictions imposed on them? I think that claim can be easily refuted by saying "See: U.S. Banking System 2007-2009." The alternative, then, is that Bernanke really believes that banks don't need to hold reserves at all.
Ben Bernanke's expertise in banking is greater than mine. That much is given - although I wasn't riding shotgun next to Alan Greenspan as the metaphorical car that is the U.S. Financial System was driven off a cliff. However, I literally do not understand how zero-reserve fractional reserve banking can work. If, in reality, banks lend out every dollar of deposits, with no allowance for depositor redemptions or decline in collateral (read: LOAN) value, isn't the system guaranteed to fail?...

Anyone care to explain this? Anyone? I'm looking for someone who can explain to me the rationale, even in theory, for how banks could operate with no reserves. My specific questions: most importantly: if you have no reserves, and the price of your assets (loans you have made) declines, aren't you instantly insolvent? Also, if you have no reserves, how do you handle depositor requests for redemptions? Is the answer simply that the Federal Reserve is there to backstop insolvencies arising from these two situations? That's not really an answer. Maybe the answer is that the Fed backstops "temporary" insolvencies until they can recover and right themselves - until the value of the assets "comes back." Extend and pretend! What if the value doesn't come back though?

Great points and indeed there was plenty of great debate in the comments section for this post. Stuck at work I could not really participate!

An Anon poster (of course) seemed to think the system was so solid this was all fine because banks always have so much collateral to save themselves from losses. I know, funny stuff. He did make several good points but in the end I felt he was too theoretical and was ignoring reality. I would encourage you to read the dialogue from the comments section and make observations here. My take in the comments section:

Well I am at work and thus cannot be involved here to much degree but the conversation to me seems to boil down to theoretical debates vs reality. In reality the banks have abused fractional lending and made poor loans that are so bad it has toppled the pyramid, which in theory could not be toppled. That seems to be Anon's point, nothing KD (or I) says about solvency has any meaning because it cannot happen, well except that it just did.

Furthermore, I thought getting loans from the FED was bad and had a stigma? Seems now the new theory is ultra low non-market based loans from the FED forever. This is quite possible but I think though forever may not be so long.

Later I added:

Good stuff everyone, and a good debate.
My only issue here is the assumption that the FED is now the permanent lending arm for the banking system from here to eternity and all that implies. If the system can only work at 0% rates and taxpayer backing for losses, how awesome is the system?

Worth a look.

Now not even a few minutes after writing the added comment, I see this over at Bloomberg:
Greenspan Says Banks May Need to Raise Reserve Capital by 40%
I mean, you cannot make this stuff up! Either zero or raised by 40%? What's the deal? From the piece:

Former Federal Reserve Chairman Alan Greenspan said regulators may need to compel banks to raise capital levels by as much as 40 percent, saying that’s a more effective way to ensure stability than new regulatory rules targeting risk.
“The most pressing reform that needs fixing in the aftermath of the crisis, in my judgment, is the level of regulatory risk-adjusted capital,” Greenspan said in a paper prepared for a Brookings Institution conference today. “Adequate capital eliminates the need for an unachievable specificity in regulatory fine-tuning.”
Banks may need to hold capital equal to 14 percent of their assets, compared with about 10 percent in mid-2007 before the financial crisis, Greenspan said.

We have a serious disagreement here! Obscure movie quote: "Stir the Tiles! Stir the Tiles!".

Now of course Greenspan had his entire tenure at the FED to make these kinds of overtures but instead lobbied hard (at the time) for a bare minimum of regulation and reserves. While this may be a way for him to try and regain some semblance of credibility (impossible?) it does make sense. Of course what's 14% as opposed to 10% really?

I do not have time to open a big debate on this tonight. Suffice to say that I think reserves are both necessary and should be large given what we have seen.

Looking for Bagholders?
I read a post over at The Big Picture today that I wanted to discuss all day long.

The post, titled "Household Equity Exposure", uses a great chart from Ned Davis Research to show "Stocks as a Percentage of Household Financial Assets (Adjusted for Pension Funds)". It is quarterly data from 1952-present. I would LOVE to post the chart but could not secure clear permission and unless you want a tip jar installed, the usage price is a bit more than I want to go for!

So please open the post above and use the chart as the visual aid. In reality one look over should do to follow what I am going to offer here.

Barry notes:

Household balance sheet data is accumulated by the Fed, and no one makes it look prettier than Ned Davis Research. Using the Federal Reserve data, NDR shows that households are now fully invested, roughly equivalent to 1972 (when rates were much higher)

Not to differ with NDR, but the present levels are only modestly over-exposed to equities — nowhere near 2000, and still a good ways below 2007 peak.

I am not sure we can say the US household is “All In” just yet. Somewhere in the 1200- to 1250 range should get us pretty close . . .

And this stuck with me all day.

Up front, I think Mr. Ritholtz is a great writer and he seems to have a firm grasp on all things Wall Street. This post, to me, really seemed a bit off for him in regards to main street though.

Looking at the chart household exposure to stocks was highest at the Tech Boom Bubble top in and around 2000. Of course the bagholders on that collapse were regular people as Wall Street unloaded all their shares to the public right before the meltdown. Weird coincidence, yes? I have talked about this time and again. No bailout for the regular Joe's that stocked up on Yahoo and Red Hat that crashed, they got what they deserved, right?

Another top was right at the peak of the housing/stock market top in 2007. This time the collapse was tied closely with Wall Street and things like mortgages and credit vehicles that only Wall Street held in large amounts. Of course household stock holdings fell as well but they were much less invested this time and this is where I want to focus.

First off most regular people, which are the only kind I know, never got over the tech collapse. Stocks may never capture their large scale attention again. Never. They did fall in love with real estate however, due to it's perceived "safety". As that has now been smashed that makes the trifecta of finance vehicle collapse; stocks 2000, homes 2007-present, stocks 2007-2009.

Lost in this is that I know many people (regular types) that borrowed large amounts from their 401k's to buy homes and now have the great pleasure of being underwater on their homes and paying back their downward adjusted 401k account at par.

What I am trying to get at here is I am not sure what The Big Picture post meant. Is an influx of household money into stocks after a run up of 60% or more from the lows a good investment idea? If it is, is it good for households in general or private paying clients?

My prediction is that regular money will not be making it's way into the stock market any time soon. The low volume melt up done by banks bidding futures up to each other will have to carry the boat. What if the algos have no bagholder to unload on? I guess another bailout will be on the way for them.

My friend who runs the Housing Time Bomb had a great post on this a while back:
Is America Losing Interest in the Stock Market?
The post fits in well here. I commented at the time:

I think money is going into bonds but anything with the "real estate" tag will be left out. We will see the FED step back in in that space. Many regular investors got smoked in the dot com bust and I think most felt they got in over their head. They switched to real estate and vanilla S&P index type funds and low and behold they got smoked on two fronts once again. At this point I think return OF capital is more important to main street than return ON capital. Too bad our whole system is based on juicing things into bubbles.

I stand by that.

Best comment from the post at TBP? A guy that sees what's coming:

scharfy Says: @ March 18, 2010 at 4:20pm
Awesome chart.
I dunno, lot of bears on this board. The market seems comfortable with current multiple (15 times 2010 earnings) plus 2 percent dividends which will likely grow due to record corporate cash from lack of capex spending/hiring…. Should earnings grow to 100 your are lookin at 1500 in the S&P….

The natural question would be how the hell can they grow earnings with their customers not working and in bad shape?

Thats where I am open to the “decoupling” of corporate America from the working stiffs. Bottom line, they will squeeze us. We will still eat at McDonalds, buy an ipod, watch TV, search on Google, buy gas from Mobil , Bank at Chase and pay our mortgage. We just won’t save a lot or have a lot. This is how the poor have done it for eons and now the middle class can have a turn.

But this doesn’t mean that Corporate America will die a painful death. They might just keep right on truckin.

Sharp.

I have argued that the crap will hit the fan with the stock indices at all time highs and Unemployment at 9% and everything else that is wrong now is still wrong. Hard to explain that one, yes?

Of course it helps when you have the might of the full Federal Government behind you as well as the FED and the Treasury. They just do not have our backs. Be careful.

Have a good night.

The End of Pretend?

Just enough time for a quick thought.

The End of Pretend?
I will not bore you with how fractional reserve banking works. Let's leave it at the fact that none of your money is really at your bank. Banks are required to keep minimum reserves to meet things like withdrawals and banking losses. The losses part is a drag because, well, of all the money the banks have lost in real estate loans. This kills earnings and limits lending.

Of course in the new age of taxpayer backed speculation, Ben Bernanke wants to up the ante and allow the banks to lend out not $8-$10 dollars for your every one at the bank, why not lend out infinity? Why bother carrying cash to cover losses when losses are the sole responsibility of the US taxpayer? Why indeed?

I thought this was a joke but it is a real story (Hat tip The Economic Collapse:
Money Out Of Thin Air: Now Federal Reserve Chairman Ben Bernanke Wants To Eliminate Reserve Requirements Completely?
Key footnote line:

That simply does not make any sense. But it is right there in black and white on the Federal Reserve's own website....

The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.

I guess this is the logical extension of our situation. Maybe the pretend is over, just do whatever you want.

I think I want more gold and silver.

Have a good night.

Voice from the Past

It has rained to the tune of 9 inches here since last Friday. Many streets and highway ramps were closed today due to flooding and that made my commute home a lesson in alternative route planning on the fly. Just unreal.

Voice from the Past
A bit short on time due to the weather, but I already wrote tonight's post back on September 19th, 2008. Allow me to set things up.

By now you must have followed the Lehman collapse report which details all the juicy tid bits about cooked books and stress tests run on a sliding scale. For some color Zero Hedge is on top of this as is Naked Capitalism.

I do not need a detailed report to tell me what I already know, but it is great reading!

From my post in September 2008:
Enron Was Ahead of Its Time

You have to feel bad for those poor souls which ran Enron. They were years ahead of their time, they were just unappreciated as clever geniuses. If Ken Lay and crew had only waited a few more years, history would regard them as savvy players that used the whole "systemic risk" pocket aces to great effect.

Those poor Enron guys. While they were attacked for accounting fraud, Fannie Mae had their purchase caps lifted and was able to operate for 2 years without a single shred of quarterly reports. I mean, falsifying earnings reports is bad, but now that is the new good! Too late for Enron.

Enron used wild and complicated derivatives bets to lever up their small initial working capital into a mammoth, if hollow, money base. At the time this was panned as dangerous but today it is known as the investment bank business model. Again, too late for Enron.

Enron hid losses and wildly exaggerated their asset values using internal parameters that had no basis in the real world. Now this is currently known as "Level Three Asset Accounting" and "Mark to Model" pricing. Again, just missed by a sliver of geological time! Poor fools.

Enron shopped around for a buyer to help them survive, but after looking at their books there were no takers. Once again, we see that the Enron model was not wrong, just early. Today we have the FED and Treasury forcing mergers and buyouts for insolvent institutions, and when that fails they just bail them out themselves.

I think it is clear that the so called scandal that was Enron was something else entirely. I think Enron was punished and attacked so harshly because they exposed the clever plan the banks had for screwing the US taxpayer into paying for their never ending party. Enron was early once again, and paid the price. Their model was then copied and amplified to arrive at the point in time we are now at. I am not writing this to be funny. There is no material difference between Enron's behavior and that of today's players. Sick? Yes. Sad? That too. Basically what we deserve for being the losers that vote in fools? You bet your ass.

Any part of that not true or not clear?

Not to worry those of you with a bullish mind, reality has long since departed the collective soul of US markets.

Have a good night.

Living Life on a Friday

Well it seems I will be around this evening so a post is on the way!

Market Commentary
What's left to say? Everyone knows that things are a scam but no one wants to miss a move in the magic show. Take this post by Barry Ritholtz over at The Big Picture:
Accounting Fraud, Short Sellers, and the SEC
Mr. Ritholtz lays out the worst of the Lehman collapse fraud and hits all the big points. Final summary thought offered:

All in all, the entire system failed. The situation is utterly disgusting, and if the investing public pulls its money out of the completely corrupt public markets for a generation or more, it would not surprise me . . .

Of course Mr. Ritholtz was clear that he was buying the market last March (right on the lows, amazing!) so I guess a rigged market full of fraud is too juicy to leave alone. In fairness it is his job to manage stocks but this is the central issue why nothing ever changes. Asset markets are too important (going up only that is) to leave alone and if that is true it will also be true that rampant fraud will occur because it can.

With this in mind, next week I will lay out a "bullish Enabler of Fraud" portfolio that I may well try out to get a seat at the casino. My proprietary trading software (my mind) targets the S&P at 1250 in the next month or two so there will be ways to jump on that ride.

Living Life on a Friday
I spilled quite a few pixels this week on things economic. In honor of my birthday I am going to have an all around fun post with slices from all over the world of interesting. I hope you enjoy!

Real Estate's Favorite Line in Jeopardy
When asked why buying real estate is a good idea no matter what, the most often cited reply is "they are not making more of it". Well that may not be the case.

What about Waterscapers?:

At least they are not making any more ocean, are they?

Eerie March 12 Factoid
Long time readers know how much I really hate The Beatles. In a swing of cosmic irony not lost on me I noticed on the Wikipedia page for March 12th the following factoid:
Born March 12, 1914, Julia Lennon, mother of musician John Lennon.
Unreal.

Things You Should Know About
Inquisitive minds will like:
-How the Moon was formed. Wild.
-Aerogel. Amazing.
-Early Picture taking. Stay still!
-What happened to the USS Scorpion?
-Telomeres are strange.
Enjoy.

FailBlog, an Odyssey
Today was a huge day for FailBlogs. Two samples:
Really?:

"Wendy, I'm Home!"

Not quite the help group one may think:

Nice!

Rock Blogging
Some musical selections to start the weekend.

Of course I go out in Boston like twice a year and it is going to rain big time. Reader Anon says they have been swamped with rain for a while so Karen Carpenter's "Rainy Days and Monday's" will fit:

What a voice.

We can get a little nasty with White Zombie and "Thunderkiss 65":

Great guitar chords.

Another great tune on the "Zombieland" soundtrack is "For Whom the Bell Tolls" via Metallica:


Great live version of "The Thunder Rolls" from Garth Brooks:


One more? Two more? Ok, two more.

Take a ride with the Rolling Stones and "Paint it Black":


Last Call! Grab a drink, the mouse and load the tunes!

I get one for my birthday and I once again play the intro (Ride of the Valkyries!) and first song from the greatest live album ever made, "I Don't Know" by Ozzy with Randy on the Tribute album. "ROCK AND ROOOLLLL!!!":

Always a real treat.

Have a good night.

Cheerleaders and Pom Poms

I had my teeth cleaned today which is never fun....SCRAAAAPPPEE! Still Economic Disconnect prides himself on his teeth (one cavity since 1995!) and a cleaning only takes about 30 minutes. Tomorrow is my Birthday and I am not sure if a Friday night post will be up as I have no idea what I may be doing.

NOTE: Gawains left a comment last post which noted that Freddie Mac offers a 2 year Home Warranty. Gawains, how does that work? What is covered? How is it paid for? I would love to have details on that item.

Isolated Case of Fraud
Look, I am 100% sure some lawyered up market savvy reader/writer can explain away the following clear case of lying, but so did OJ' s defense team so there is that.

Zero Hedge has done some work on the newly released Lehman Failure Report and finds "Repo 105" to be about what you would expect:
The "Repo 105" Scam: How Lehman Fooled Everyone (Including Allegedly Dick Fuld) And How Other Banks Are Likely Doing This Right Now
The post is a heavy duty one and I think it worth your time to check it out. Short version; accounting gimmicks to massage capital ratios gone wild. I am sure they were and still are the ONLY ones doing this. You Betcha!

Cheerleaders and Pom Poms
I had a post in mind for tonight and when I was making the rounds I saw that I was scooped by Mark over at The Illusion of Prosperity blog. While great minds do indeed think alike, I cannot lay claim to inventing one of the most successful computer games ever sold! Here is the post:

Credit Cards Being Paid Off?
Not really.
NEW YORK — With unemployment high and personal wealth diminished, how was it that strapped consumers were paying down their credit card debt last year? It turns out they probably weren't.
The bulk of 2009's drop in credit card debt instead came because banks were forced to write off loans consumers failed to pay, according to an analysis of Federal Reserve data.

Most headlines just ran the screamer "CREDIT CARD DEBT FALLS", but of course it helps to did a little deeper.

I was thinking along these lines as it seemed today I was inundated with cheers and cheerleading about how great a recovery is happening right now across all things everywhere all at once. After reading a few articles I was puzzled how headlines did not match up with the substance of the piece. The above catch was one example, but there were plenty of others.

From Calculated Risk:
Flow of Funds Report: Mortgage Debt Declines by $53 Billion in Q4
I picked this one because CR is too smart to not know why this is, but many others jumped to the wrong conclusion very quickly. Mortgage debt written off is not quite the same thing as paid off, like in the above credit card example. From the same CR post comes this amazing stat that is pure scary based on this graph:

The scary part:

Note: something less than one-third of households have no mortgage debt. So the approximately 50+ million households with mortgages have far less than 43.6% equity.

That is not good in case you were wondering.

Some more headline cheerleading that falls apart when reading the actual story? Next up is this one from Yahoo Finance:
Slowly, Americans are regaining their lost wealth
Sounds good. Let's dig in:

WASHINGTON (AP) -- Americans are recovering their shrunken wealth -- gradually. Household net worth rose last quarter, mainly because the healing economy boosted stock portfolios. But the gain was slight. And it was less than in the previous two quarters.

Not exactly a great opening paragraph. Plenty of qualifiers. Why mess with a great headline though? More story:

Net worth had risen by a more robust 4.5 percent in the second quarter of 2009 and an even faster 5.5 percent in the third quarter. Net worth is the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards.
Even with the gain, Americans' net worth would have to rise an additional 21 percent just to get back to its pre-recession peak of $65.9 trillion. That illustrates Americans' vast loss of wealth from the worst downturn since the 1930s.
Growth in stock portfolios delivered the biggest lift to net worth in the October-to-December period. The value of stocks rose by nearly 4 percent to $7.7 trillion. Higher home prices helped a bit. The value of real-estate holdings edged up 0.2 percent.

Stocks are not the primary vehicle of wealth for most households, homes are. The housing ATM was the engine that powered consumption to bubble highs, not stocks. See the Technology Bust for an example, but short version: the tech bust did not bother consumer spending or home equity withdrawals at all.

An illustration again from this CR post:

The 2000 Tech Bust made a slight dip but the uptrend in extracting any equity one could was in full effect.

CR notes the following:

Equity extraction was very important in increasing consumer spending during the housing bubble and I don't expect the Home ATM to be reopened any time soon. So any significant increase in consumer spending will come from income growth or a lower saving rate, not borrowing.

Income growth? Are we not in a deflationary environment? I say consumer spending may be facing headwinds, not tailwinds.

The cheerleader pom poms right now are limited to:
- A rising stock market
- Lower continued job losses
- Census hiring sure to feed headline hyperventilating over the next few months on jobs

Stock market gains do not have the same bang as other asset classes for the regular joe, but they do help. I know several people that did the old 401k loan thing to buy a home at bubble peaks and they get the full prize of:
- Paying back themselves the foll 401k loan amount after seeing the 401k drop 50% or more
- Being underwater on their home
I sure hope they get some income growth!

A final word about housing. Home prices will not return to the last peak for at least 10 years. That's TEN years. That is the minimum and it may well be longer. When thinking about the home plans floating around right now, ask if any are really workable over that time span. If I am wrong and homes reach the past peak in 5 years or less, it is likely we have had a currency issue and that is far worse.

Ok, one more housing nugget, found over at Housing Doom. When asked why I am so negative I like that I can always find a story that backs me up 100%. So the home market has bottomed and now is the time to dive in and go nuts? What about this?:
Politics, shaky economy create no rush to restructure Fannie and Freddie
Key quote:

Some analysts say it's an inopportune time to wind down the companies -- or even hint at major change -- while the housing market and economy remain in bad shape.
"Any suggestion now about future changes could destabilize the market," said Karen Shaw Petrou, managing director of analysis firm Federal Financial Analytics and a longtime observer of housing finance policy. "The U.S. mortgage market is so fragile that all Treasury needs to say is 'boo' and it could fall apart."

Nobody say 'Boo' then.

What Kind of News do You Want?
I loved this article from Ultimi Barbarorum blog:
Econobloggers need their crisis back
A well written piece that describes some reasons for the loss of interest in econo blogs after the big panic last year. Worth a read.

Along these lines I have a new poll up which asks what kind of news/stories/content you would like to see now that the recovery is in full swing and all is well in America. Please vote!

Have a good night.