Monday, November 22, 2010

Bernanke Pulling No Punches.

I must admit, that Ben Bernanke's speech on Friday in Frankfurt, Germany was an excellent speech. Bernanke was clear, thoughtful, and insightful in his remarks. I have been very harsh on Chopper Ben, but I have to give the man his due.

He basically made a passionate point in regards to unemployment stating that millions more on the breadlines was unacceptable. Well of course it is. What Bernanke said on the state of the labor markets and the unemployment rate is open for debate. It is refreshing that he at least for the first time he is openly being empathic to Main Street. For this one point he needs to be given props.

His pointed comments about China and the general state of world trade is something I believe that is not open for debate. I believe that this particular speech basically says to the rest of the world that the USA is not going to be able to grow everyone out of slump they are in. He is making and taking a stance that the whole world if they want to decouple away from the US, he is all in favor of it. His speech on re balancing the world economy is the first salvo being fired stating that the US has surrendered unquestioned financial and economic leadership. Bernanke along with Geithner have started to let the entire world know that you guys are on your own if you don't start to fix the imbalances inherent in your economic systems.  

Look at it this way. We have massive current account imbalances all over the world. The number one reason is CHINA. China is pegging their currency to our dollar. They print up Renmimbi, use it to buy more USD, then use that to buy US Treasuries. This lowers our long term interest rates but massively distorts trade and current accounts here and around the world. The low long term rates were one of the reasons that we had a housing bubble here in the USA. The Fed leaving short rates very low is the biggest reason as all excess savings, leverage, and asset price inflation was exported to emerging markets. Emerging markets then took all of their savings and investment and plowed it back into the US. The credit markets were massively obese from all of the money that was being repatriated back to the states. This is what is commonly called the Global Savings Glut. Money has to go somewhere and it flowed into commodities and credit.

What the result is China has some $1.6T in USD reserves sloshing around in their economy. Normally, the CNY would be a lot stronger, but the Chinese is pegging their currency within a band, so they are manipulating their currency by not allowing it appreciate vs the dollar. This is unquestionably preposterous behavior by the Chinese. Let me first say, its not anything that the US has not tried or even succeeded in doing over the years, but China is really postponing the inevitable free floating of their currency. When that happens, the export party that China has been enjoying is over. This will be very good for Chinese citizens as their purchasing power goes up, but devastating for the Chinese economy as their imports are a lot less attractive at the higher CNY rate.

So what are developed countries and societies to do? The US as well as Europe are stuck in a slow growth high unemployment situation while EM societies struggle with high inflation and huge capital inflows. In essence the developed world is exporting not only jobs but capital and inflation as well. Bernanke is warning China and other Asian Tiger countries to let their currencies appreciate or face another global slow down. A global slowdown that the USA will not be be able to fix by themselves or subsidize. Bernanke is making the point that if Asian societies don't start to de peg from the dollar, the USA will not ease the burden when shocks hit the system. Bernanke in essence is admitting that US policy makers could and would no longer determine policy based on domestic conditions and force the rest of the world to tow the line.

What Bernanke and Geithner have discovered is that after the US housing market collapsed, the economy was severely weakened. We have a trade deficit, high unemployment, and federal deficit that are all structural in nature. US Policy makers have belatedly discovered an inconvenient truth about the virtues of globalism. 

Is this Bernanke's version of Paulson's bazooka? Is he stating that the US is no longer going to take this type of brazen currency manipulations for much longer? That there is a direct consequence for Chinese currency manipulations and that the US will allow the pain to spread much further the next time. You won't have the US cleaning up the mess or trying to re balance the pain the next time.

Bernanke is stating that a "two step" recovery may not be sustainable, that millions in unemployed US workers will have to be dealt with. He has made these similar points to the US Congress as well. Stating that a proper fiscal policy needs to be implemented to reduce structural unemployment and get growth going again.

Bernanke is letting everyone know that he is getting tired of printing money. He is printing money to sustain the US economy because heck no one else seems to care.

Bernanke is acknowledging that globalization has made it impossible for one to conduct efficient monetary policy in one country without global assistance and participation.

The speech that Bernanke made Friday is a very important speech that basically is a pointed threat that states that everyone has to start pulling their own weight and water.

Friday, November 19, 2010

Will History Repeat Itself?

The more things change the more they stay the same.
History repeats itself.
This time its different.

Here is a chart of the SPX as of today's close.

As you can see, the action in the SPX today is very similar to what was happening earlier this year. The market had a serious breakdown in early February over the Greek Debt problems. It completely forgot about those problems and marched exponentially higher for the next 2 months. It then had a serious break of its vertical uptrend in late April, it tried to fill that down gap back to its uptrend line, but that failed and the ensuing pain was felt culminating with the Flash Crash on May 6th.

Today, we have something very similar. The markets on the backs of QE2 have had a vertically exponential run up since late August. This sharp run up was broken this past week when the Irish Debt problems became a huge global focus. The last few days the market has been trying to get back above that trend line or fill the gap.

What happens next?

Requim For Bernanke Cont...

In my previous post  I was giving Chopper Ben some props for his the speech he gave in Germany. It was a clever, well scripted, thoughtful, and well prepared speech. Chopper Ben just went up 1 notch in my book. He has a long way to go but this was a strong first step in actually talking about Main Streets problems.

One thing caught my attention. It was his feelings about Inflation.

"Low rates of resource utilization in the United States are creating disinflationary pressures. As shown in figure 5, various measures of underlying inflation have been trending downward and are currently around 1 percent, which is below the rate of 2 percent or a bit less that most Federal Open Market Committee (FOMC) participants judge as being most consistent with the Federal Reserve's policy objectives in the long run. With inflation expectations stable, and with levels of resource slack expected to remain high, inflation trends are expected to be quite subdued for some time."

"Importantly, the Committee remains unwaveringly committed to price stability and does not seek inflation above the level of 2 percent or a bit less that most FOMC participants see as consistent with the Federal Reserve's mandate. In that regard, it bears emphasizing that the Federal Reserve has worked hard to ensure that it will not have any problems exiting from this program at the appropriate time. The Fed's power to pay interest on banks' reserves held at the Federal Reserve will allow it to manage short-term interest rates effectively and thus to tighten policy when needed, even if bank reserves remain high. Moreover, the Fed has invested considerable effort in developing tools that will allow it to drain or immobilize bank reserves as needed to facilitate the smooth withdrawal of policy accommodation when conditions warrant. If necessary, the Committee could also tighten policy by redeeming or selling securities."

This last part is interesting in the sense that he is stating that the Fed has a mandate to keep inflation in check to the tune of 2%. Now, if CPI prints a little higher in one particular month say .4 or .5 which comes out to way above 2% annualized, does this mean that the Fed will act and stop their QE program? Is he stating that inflation is very tame at the moment so its a good time to try this particular scheme, but if we see upward pressure on the CPI, all bets are off?

My personal opinion is that deflation is much more of a problem then inflation. This is at the moment. The countries biggest asset which are homes are losing value every month. Debt Deflation is the biggest worry. This obviously is the biggest worry that Bernanke has. My plan would be to let housing go through what it needs to go through. Restructure the debt and let bad firms go bust. Capitalism without failure can't exist in our country. Homeowners who don't pay their mortgages should be kicked out of their homes and put in rentals. None of this staying in your home for free for years garbage. Once the banks cleanse their balance sheets, they will start to make prudent lending decisions.

We will see some higher CPI prints in the coming months, the Fed will be worried about this. Who knows if they curtail their POMO's and QE, but one thing is certain, the Fed and Bernanke are letting everyone know the pressure they are under in terms of inflation. Bernanke has made his point about fiscal and trade policies.

Will the market call his bluff about inflation?

A Requim For Chopper Ben

Helicopter Ben is speaking in Germany today. He basically makes the point that millions of unemployed workers are unacceptable and that another round of QE was justifiable under current conditions. Its nice that he has come to this conclusion after all the Obama Administration thinks getting a gutted FINREG bill passed and enacting a useless Health Care Bill that is only another giveaway to the industry lobbyists was and is more important than jobs.

I have to give Benny Inkjets some props here. He is subtlety making the point that Congress is useless and that fiscal policy is more useful in creating jobs. We all know this is true. QE doesn't create jobs or increase aggregate demand. Fiscal policy, stimulus, and targeted tax cuts can increase AD and create jobs. Throw in some real foreign policy and a reasonable trade policy that protects Americans from jobs from fleeing to Manila, Bangalore, and China, and we may have something here. In the absence of competence, Bernanke is forced to use unconventional monetary policy to tackle mismanaged fiscal/trade policies. With the GOP reclaiming the House and gaining ground in the Senate, the emphasis is going to be away from further stimulus and spending but tax cuts for the wealthy is back on. The gutless Democrats will go along with it which means perpetual double digit unemployment for the foreseeable future. This means Bernanke will ratchet up more unconventional monetary policy, which means a perpetual ponzy scheme between Treasury and the NY FED will continue on.  This leads to both FINREG and ObamaCare partially defeated or even outright killed. The two big issues that Obama was obsessed about in his first two years totally down the drain.

...And they tell me I am too pessimistic!

I get his reasoning for QE, I think its stupid and misguided. My problem is why doesn't Chopper Ben come out and say it like it really is?

He should say the economy is bad. It can quickly unravel because the banking sector is in a zombie like state. The thing that most Americans look to in terms of the economy is the stock market. If we can prop up the stock market short term we can hope that the economy can come back. If w can create another bubble, hopefully this bigger bubble can close the gaps from the last one. When this current bubble bursts I can just blame Congress for not balancing the budget and fixing the trade policy. I can blame Obama for continuing to fight two ludicrous wars. I can blame Congress for extending the Bush tax cuts across the board which will increase the deficit which means I have to print more money to cover Treasury's borrowing needs, because China won't be as aggressive in buying our debt because by god they already own $800T. We can't keep hoping that the  Japanese can fund their deficits thru our Treasury Bonds via the interest rate differential. Those Japanese women are not fertile enough to expand their population, and the closed Japanese society wont open their borders to new entrants. All of this leads to the fact that Japan is quickly aging and an aging society is not a saving society. All those JGB's will soon not be rolled over but just cashed in to pay for the care of the Japanese elderly. When this happens, we can suggest that JGB rates will be higher. When JGB rates go higher, Japan's borrowing costs also go higher. When that happens its game over in the land of the rising sun. Bernanke would also be right in letting Congress know that their immigration stance should also be looked into. This country needs immigration, "legal" immigration is needed because for what ever reason Toll Brothers and their band of thieves keep building houses that no one wants. Probably because they are incentivized to do so by the government via our tax dollars.We need to expand the population and lower the average age in the USA. This is structural in nature. Congress doesn't seem to care about structural problems like unemployment or the deficit. They care more about cyclical issues like tax cuts.

Why can't Mr. Chopper come out and say the reason I am enacting QE2 is because our banking sector is in serious trouble, soon it will be toast. What degree of burnt do you want? The recent fraud closure problems the banks have been conducting only leads Bernanke to believe that the entire system is surprisingly rotten to the core. The basic rule of law doesn't apply to the banking sector and it never did. The Obama Administration along with Treasury and the Fed have moved mountains in favor of Wall Street and the banking sector, they have moved rates to permanent zero so that the banks can rebuild their Net Interest Margins. They have instituted HAMP and other tax payer giveaways so that the banks can pile on fees to homeowners without fixing the underlying problem regarding housing finance which is a severely overvalued housing market that needs principle mortgage reduction. They have instituted accounting fraud via FASB rollbacks so that toxic garbage loans can be priced way above fair value. They have made Fannie/Freddie the new AIG. This is the dumping ground for all of the bad mortgages that Wall Street doesn't want. Yet after all of the bailouts. All of the handouts. All of the giveaways. The banking sector is insolvent! Why you ask? Its quite simple! Its the debt stupid! Debt needs to restructured and in many cases defaulted on. If we don't get these bad loans of the books this economy can't recover. If we don't prosecute fraud and miss dealings in the banking sector the economy can't recover because there is no confidence in anything.

Ben Bernanke and the Fed can't fix these structural issues.  He can only make monetary policy accommodative so that the banks can try to right their ships, but the banks are run by traders and most traders on Wall Street are psychopaths. They have no clue that their bacon was saved by the tax payer. These guys walk around like they are stars on a porn set. Instead of doing the right thing, they have paid lobbyists hundreds on millions of dollars to make the system more complex and more accomodative to their needs. They continue to pay themselves billions in compensation because they can. The CEO's and trader supply chain are richer than ever, but the taxpayers and shareholders will be left holding the bag. Bernanke knows all of this, the country doesnt have the stomach for another bailout of Wall Street and the banking sector. QE2 is 100% another shadow bailout for the psychopaths on Wall Street.

Wednesday, November 17, 2010

Stupidity At UCLA

Man I tell ya!
You live long enough and you will never be surprised how stupid people really are. Its not that stupidity is not prevalent in our society, we have huge copious amounts of it. But when supposedly smart people start talking like dolts is really when I would have to say enough is enough.

The Chair of The UCLA Economics Department Roger Farmer has this beaut of a piece in the blog section of FT.

Few things right off the bat.

1- How in the world can FT publish this drivle?
2- Now I know why California is in such trouble
3- What type of hash is this dude smoking?
4- Mr. Farmer must be long a lot of stocks or himself directly involved in a Ponzy Scheme

He can single handily solve all of our deficit problems if he can just give us the formula for the mind altering drug he was taking when he was penning this article.

Mr. Farmer doesn't want the Fed to indirectly prop up the market, as they are currently doing, but to directly prop up the market.

He wants the Fed to not buy Treasury debt but stocks. In his own words.

"I have argued in this Forum that more QE can create jobs and prevent a second Great Depression. But it matters how the policy is implemented. The Fed should buy stocks not bonds. And rather than commit to a fixed programme of stock purchases, the Fed should use its market power to stabilize swings in the stock market and smooth out bubbles and crashes."

I can't even begin to address the flaws in his logic.

There is more....

"If the Fed were to announce that the Dow would not be allowed to drop below 11,000 over the next three months, for example, it would provide the confidence to private investors to move back into the market and spend some of the $1,000bn in excess reserves that are sitting in the banking system. But guaranteeing no downside to stocks is not, on its own, a good idea. The Fed must also limit swings on the upside. If QE simply fuels another unsustainable asset market bubble it will have made the problem worse, not better. Just as conventional monetary policy stabilizes swings in interest rates, so unconventional monetary policy must stabilize swings in asset prices."

Mr. Farmer wants the stock market to trade with in bands. The Fed should sell stocks if they get to expensive and buy them if they get to cheap.

This guy heads the Econ Dept at UCLA!

The only reason the market exists is for allocation of capital to private hands and price discovery. Why have any Risk Management via Futures and Options?

The Federal Reserve with their meddling have only increased the dislocations and distortions in the capital markets. What you are seeing at the moment in the stock market is that the QE reflation trade is collapsing. When you create distortions from meddling, the only thing you really increase is volatility. When you create dislocations, volatility, uncertainty, and certain collapse in prices are whats in store.

Is there any reason why the Fed wanted higher stock prices leading to GM's IPO tomorrow?

Mr. Farmer's missive is so preposterous that I can't believe FT would publish it.
With Goldman Sachs and the 40 Thieves already owning DC, they would be able to free front run every single trade from no one to the end of man kind. This is socialism for the rich and busted capitalism for the rest of us.

Why in the world do we still believe in Free Markets?
Why do feel free to say the words Free Market anymore?

Mr. Farmer should be carefull - Ben Bernanke I hear reads the FT every morning when he wakes up.

Warren Buffet's OpEd in NYT.

I have posted before about Warren Buffett.

Today's OpEd in the NY Times doesn't change my opinion. It only fortifies it.

He should can the phoniness and just start out with.............

Thanks Morons.

Thanks Morons for bailing out Goldman Sachs.

Thanks Morons for bailing out Wells Fargo

Thanks Morons for not coming down hard on Moody's.

Thanks Morons for allowing the Banks to leverage up and take ludicrous risks without supervision and regulation.

Thanks Morons for giving us a impotent FinReg bill that will only further enable GS and Wall Street to take even more out sized risks that will sink the economy but not me.

Warren Buffett had no clue about the factors that led up to the financial crisis. He talked a good game about derivatives but allowed Berkshire to be knee deep in them. He personally enabled Moody's to conjure up phony ratings for hundreds of billions of CDO's. CDO's that GS packaged and sold all over the world.

He talks a good game about taxes and the such but somehow I must believe he is in the ear of Obama pleading with him to extend the tax cuts across the board.

In short, I don't believe anything this bum says. He has conveniently told the truth when it has served Berkshire's purpose. He is no different than Bernanke and Geithner.

Warren Buffett is a bad guy. I can't say it any clearly than that.

Tuesday, November 9, 2010

Mini Flash Crash & HFT

NY Times has a piece about a mini flash crash in Progress Energy.

I will say this about HFT.

When High Frequency Trading is moving or energizing the engine of the stock market it does add liquidity. The Problem I have is when High Frequency Trading itself becomes the engine. This is a problem when a sudden shock hits the engine and the liquidity disappears. This is what happened on May 6th more or less.

Every one says circuit breakers can do the trick. I doubt it. These rarely work in the sense that what ever needs to happen will happen eventually. You can't stop a market from going to a point where it deems is fair value.

More On Ireland's Housing Market.

Yesterday I posted on the absurd Ireland Housing Market Policy.

The WSJ also had an article on Ireland.

The WSJ piece has some real sobering and interesting facts.

-36000 borrowers or 4.6% of Irish mortgages are at least 90 days delinquent.
-200K Irish mortgages are expected to be underwater by the end of the year. This is 1 in 4 mortgages.

In the US.

-4.3% of US Mortgages are delinquent.
-11MM or 4.3% of all mortgages are underwater.

A few big differences.

US 10 Year yields are at 2.56%
Irish Yields are nearing 8%

This may be oversimplification, but stay with me.

So the US is effectively financing mortgages between 3.5%-4% with 10 Year Treasuries at 2.56%. This is not great but its better than financing 5% mortgages when your 10 Year T-Bond Rate is approaching 8%.
If GAZOO ever came down to Earth from outer space, he would be shaking his head along with Yogi Berra and the Aflac Duck.

Bernanke's Lies

Wasn't it just some 17 months ago that Ben Bernanke told all of us that the "Federal Reserve Will Not Monetize Debt."

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said in testimony to lawmakers today. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.” He said the Fed won’t finance government spending over the long term, while warning that the financial industry remains under stress and the credit crunch continues to limit spending. “Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation,” Bernanke said in response to a question. “The Federal Reserve will not monetize the debt.”

Well! We all know that was BullSh&*^T!

Just like TARP, FASB, TLGP, HAMP, ZIRP, and the latest round of QE, what Wall Street demands! Wall Street gets.

The last bastions of Democracy is a free press and yesterday we had Dallas Fed Head Richard Fisher basically calling out Bernanke's lies.

"The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt."

“The remedy for what ails the economy is, in my view, in the hands of the fiscal and regulatory authorities, not the Fed. I could not state with conviction that purchasing another several hundred billion dollars of Treasuries—on top of the amount we were already committed to buy in order to compensate for the run-off in our $1.25 trillion portfolio of mortgage-backed securities—would lead to job creation and final-demand-spurring behavior. But I could envision such action would lead to a declining dollar, encourage further speculation, provoke commodity hoarding, accelerate the transfer of wealth from the deliberate saver and the unfortunate, and possibly place at risk the stature and independence of the Fed.”

Richard Fisher hits it right on the nose. SWISH!

QE is just a continuation of failed polices enacted by the Fed for the benefit of the Banking Sector. The Banking Sector pushed by Wall Street wants an economy that is 100% finanialized, an economy that is not regulated, where perverse incentives are created. They want to create an environment where dangerous financial products that cause market distortions can breed and live. After everything blows up they have the Fed and the Taxpayer to clean it all up. This type of policy only emboldens the imprudent and miss allocates resources to unproductive parts of the economy.

Richard Fisher along with Tom Hoenig are one of the few Fed officials who have any clue about risk management and monetary policy. Fisher is not a voting member but Hoenig is.

Mr. Fisher speech is full of accurate information. Although he is quite idealistic when he states this:

"Otherwise, the effect of quantitative easing will, in my view, simply result in financial speculation, further investment in more welcoming quarters abroad and, ultimately, in “super ordinary” inflation. The FOMC is taking a calculated risk. If the Congress and the Executive fail to deliver, I believe the FOMC will have to consider changing course. Here is the message: The Fed is going out of its way to be a good citizen. It is time for the Congress to do the same."

Congress is owned by the financial sector. Case closed!

Back to Bernanke. This is further evidence that Bernanke can't be trusted to lead monetary policy. He should , if he has any self respect left resign immediately for his lies and treason against the American public. If this traitor keeps perpetuating this Wall Street created farcical ponzy scheme he should be impeached from his post and tried for treason.

This next point I am not overstating.
He is no different than Timothy McVeigh.

Monday, November 8, 2010

Where Is Market Liquidity?

This market has gone up for one simple single reason - LIQUIDITY!

The Economy even though is not technically going into a double dip recession is still very weak. For many the first recession never ended. They are still fighting their first depression.

Housing is a complete disaster and the foreclosure problems will only add to the malaise.

Private sector payrolls added some 150K in the month of October yet the unemployment rate didn't budge. This is politically a major problem for Obama.

Consumer credit last month did nudge higher but that was non revolving credit. Revolving credit took it on the chin once again.

This chart of the Highbridge Stat MKT NEUTRAL Index has been making the rounds today.  From this market liquidity has crashed the last few days.

Were the last few days of gains in the averages just window dressing to get individual investors in on the ponzy?

Is an impending correction upon us?


Luck Of The Irish? Try Stupidity!

Whats worse? Notre Dame Football? Or the Irish Economy?

Why do we have to read foreign newspapers to get the straight story?
You thought US Policy Makers were stupid?

If you thought the bank bailout was bad, wait until the mortgage defaults hit home

Its getting worse in Ireland.

Please remember that home prices are driven by the size of the mortgages that banks lend out.
I don't have to embellish this fact. Long term interest rates in Ireland are nearing 8%, yet the Leprechauns are still issuing 5% mortgages. Please! Someone tell me this is not so?

The Irish housing market makes Florida Real Estate look healthy. To keep an artificial floor on Irish home prices, the banks with of course help from the Government are keeping rates lower than they otherwise would be.....Sound familiar? This keeps home prices higher than they would otherwise be...does this sound familiar?

Without this absurd behavior, home prices would completely collapse which would lead to banks going into bankruptcy.

One problem here and this is why Ireland will assuredly need a bailout from the IMF and the Euro Stability fund is that next year all Irish Banks will come under the control of the ECB. This is devastating for the Irish Banking Sector, Irish Housing Market, and Irish Economy. By that time ECB rates will be higher. The ECB will force the Irish Banks to stop lending and to deleverage and reduce their balance sheets. This means the ponzy ends. No new inflated mortgages propping up inflated homes will lead to a massive housing correction.

The current extend and pretend policies of the Irish banks will meet face on with the ECB. The ECB wins.

Sunday, November 7, 2010

Clueless As The Day Is Long

The master central planner in charge Ben "Benny InkJets" Bernanke gave this absurd speech on Friday afternoon in of all places Jekyll Island at Jacksonville University.

The money printing Wall Street sycophant went through in step by step fashion the systematic destruction of the US Economy. He was pretty dead on explaining the crisis and the Fed's role during the crisis. Remember, Bernanke is an academic. Bubbles don't exist in his world. He can only print money and hand over to Wall Street so they can clean it up.

The whole discussion is about 45 minutes long and honestly I had to restrain myself from throwing my PC out of the window on multiple occasions.

This guy is 100% unfit for his current position. He makes Greenspan seem competent.

Bernanke should have been thrown out on his ass when he stated during the discussion that QE is not inflationary and that it is merely an asset swap. I am sure Lloyd Blankfein's intern wrote that for him. This claim by Bernanke is an academic claim that only belongs in the halls of Princeton University. In Bernanke's world he is correct in that assumption, but in the real world, all of the money on the other side of the swap is being used to run up equities and commodities. Its asset price inflation. It is a weapon to make asset prices trade at higher prices than they normally would. Guess what? QE is an asset swap, but it is 100% inflationary and in all of the wrong places. Bernanke seems to believe that because commodities are being run up because of speculators that it doesn't count as inflation because corporations can't pass that cost onto consumers. They cant? Have you gone to the pump lately? Bought a carton of eggs? Buy a gallon of milk? Ludicrous! Even if corporations can't pass the costs onto consumers they will suffer from margin compression that leads them not to hire anybody. Its a vicious cycle.

Again Ben Bernanke is an academic. He doesn't live in the real world. Just because he has written a book about the Great Depression doesn't give him the right to print $600B on any given weekday.

Bottom line. Ben Bernanke is an incompetent fool who totally missed the economic crisis. He minimized the Fed's role leading up to the crisis and embellished the Fed's actions during and after. The Federal Reserve can't lead the country's economy if the economy is not in a bubble. They need easy money and bubbles to justify their jobs and to further their ambitions on Wall Street after they leave the Fed.

All I hear is that Bernanke is a smart guy. He is highly respected. BLAH BLAH BLAH. 

Degrees don't make you smart. They make you marketable.
Money doesn't make you smart. It makes you powerful.
Being well read doesn't make you smart. It makes you aware of the issues.
Experiences don't make you smart. They build and toughen your resolve and character.
What makes you smart? Very simply! The decisions you make.

If Ben Bernanke has any self respect left, he would tender his resignation as soon as possible.

Friday, November 5, 2010

Let Them Eat Cake

This dude here just had his best day ever in the stock market. Watch him brag about it on Fast Money today about how he's been riding Bernanke's money printing wave.
Way to go Bernanke! You are robbing from the hard working middle class and transferring their hard-earned cash to thieves like this.

But if you want to survive in this world, this schmuck Brian Kelly ought to be your role model. The Fed has an inflation targeting mandate. The Fed, an anti-free market secret society that is not democratically elected but rather appointed by a consortium of international thugs and yet they are more powerful than the government. This clandestine banking cartel is turning us into a nation of gamblers. You better own gold if you want any chance of survival. Yet gold is so speculative, what if it corrects 30% after you buy it! Well, that's the risk you are going to have to take.

So quit your jobs, working for an honest living is just not going to cut it. The value of the dollar is collapsing and with that all your precious time and labor is worth nothing. The gambling stocks by the way are on a tear! Look at LVS for one. How telling is that!

The Fed allowed the stock market to crash for 6 months in the fall of 2008 and early 2009 until most people lost their savings and were forced out of the market at the bottom. Market participation by the public was at its highest until that. Where was the Fed to save the market then? Yet now when most of the public are out of stocks and it's only PD's, their machines, and hedge funds in the market, now the Fed will not allow the free market to determine prices, no now the Fed will not let the market go down, they will drive asset prices all the way up until they can lure the public back in at lofty prices again. Meanwhile the speculators would've already made hundreds of millions. QE is just a direct transfer of your tax money to their pockets, keeping the price of real estate in the Hamptons from ever depreciating. It's very clear who the Fed works for, and this mafia wants to force everyone into gambling and prostitution for survival.

Inflation is great for speculators but terrible for the middle class. For average people in america or what the press and elites often referred to as the proverbial "little guy", food is the largest component of their spending. That the price of a half gallon of milk goes up from $2.50 to $5 hits them really hard. But for the speculative elite, they're laughing if you bring that up, after all the prices of big ticket items like mansions and yachts are falling in price. People in our government as well as Bernanke and Fast Money etc live in a completely different reality from the commoners.

When our politicians refer to The American People, what they are really saying is gullible suckers!

On another note, I perused a number of articles about George Soros the other day where he was angry at Germany for their austerity, he actually said germany caused the great depression with their austerity! My goodness, everyone knows it was just the opposite, it was their monetary easing that led to hyperinflation which resulted in Weimar depression. But Soros, the man who was hailed a hero by the financial community for breaking the british pound in 1992 and making a billion dollars overnight at the expense of hundreds of thousands of ordinary people's livelihoods, this singular man who bets against the masses, has been stating over and over again that SDR's will be the new reserve currency, that it will be backed by a basket of gold, other precious metals, commodities and select strong currencies. So Soros has every reason to want the US dollar to crash, he is betting on SDR's and the only way for the dollar to be dropped from reserve currency status is for it to crash. And though he doesn't openly state it, this is the reason why he has been pushing for a massive QE2 and chastising Germany for pushing austerity.

Tuesday, November 2, 2010

Capitalism Without Failure Can't Exist

I have posted before that Capitalism's Kryptonite is and will always be bailing out failure. TBTF or Too Big To Fail must be eliminated from our Financial System.

For Capitalism to function properly we need creative destruction. For us to get to this point we at least have to agree that there are many stresses to our economy. Housing and housing finance at the moment is a huge barrier to any sustainable recovery. Why in the world Fannie and Freddie are still around after all we have seen is simply mind boggling. Economics is the study of supply and demand. Financial markets were only created so that investors can have some idea of what price discovery is. As long as Fannie and Freddie are allowed to exist, the study of economics and finance is a waste of time.

The simple reason these toxic twins are still around is to perpetuate Too Big To Fail. Who else can the TBTF institutions sell their toxic debt paper to?  There is no other dumping ground for Wall Streets credit excess. We all know that the real economy won't get its groove back until housing stops going down and stabilizes. This only happens when the private sector starts to add real jobs.  This is not new. You don't need to be an intellectual to figure this out. Even the ignorant can figure that job loss and the subsequent housing collapse got us in this mess and the only way out is? SURPRISE! Jobs and housing.

That is why the following article by Tobias Levkovich in Bloomberg is absolutely infuriating.

Housing Matters Little to U.S. Consumers' Wealth


The Citigroup chief strategist incredibly believes that housing matters very little? Of course! EUREKA! We were imagining all of the hard luck and bad times. It was all a mirage. Total household destruction and all of the wealth loss was in our minds. It never happened.

Its kind of funny that his employer (My Former) Citigroup who were loaded to the gills in MBS paper had this feeling as well?  Reading this article has me convinced that a majority of people employed by Wall Street and the financial economy think that no crisis ever took place.

How in the world can the chief strategist at Citi have this opinion? Does he have a clue? Housing and owners equivalent rent make up almost 1/2 of CPI! The average American spends most of his discretionary income on either rent or mortgage.

I am still stunned that this clown thinks real asset values don't matter. The whole idea that QE is going to restart animal spirits and from this a wealth effect will be born is totally non sensible when not looking at where the economy came from and where its going. The financial system has too much debt. Consumers are not in the mood to add debt when they are balance sheet constrained.

As I have noted before, The Fed has only one playbook. The playbook never changes. It has been handed down from Greenspan to Bernanke.

It basically says:
Monetary Policy Will and Always Will Be Accomodative To Wall Street Institutions.

What I think ultimately is happening is that many on Wall Street are trying to justify the financialization of the economy. This has been the trend since the 80's. They are trying to justify a Ponzy Financial Model. Its this same model that was created out of deregulation sponsored by and large by the GOP and powerful lobbyists. The DNC didn't want to be left out so they made it a mandate that everyone should have the opportunity to own a home. Financial alchemy and derivative finance became the over whelming petrol that fueled the US Housing markets since the 80's. The economy took its cue from that. Where steel and big industrials left off in the 70's, housing took the slack. Housing and Finance are one and the same. Thus the financialization of the economy and keeping the status quo are government policy. What the real alchemy was how a dream became a nightmare, not CDO's and or ARM mortgages. When the whole thing blew up the government just papered over the problem, bailed out all of the failures, and tried to re inflate old bubbles and create new mania's.

These morons in government still don't get it. You can't sustain an economy on fumes let alone no petrol. The idea that by keeping asset prices above where they would be normally will lead to a wealth effect is completely preposterous. The idea that if we can just keep prices up we will all be rich again is borderline asinine.

Its very frustrating and bottom line infuriating to keep hearing this line of thinking from policy makers. Here we are almost 2 years past one of the worst economic crisis in the history of the world and we still don't have one original idea to fix our rotten to the core system. These guys have not learned their lesson. Its an upside down world, a Bizarro world in fact. Where savers are punished and speculators are rewarded. Where failure is not punished but rewarded with bailouts and promises of future millions. Where fraud is not prosecuted but institutionally encouraged via control fraud.

One of the founding themes of economics is the idea of incentives. What is the incentive to continue to pay your bills or mortgage? What is the incentive to go to school? What is the incentive of savings and acting prudently? What are the incentives of working hard? What is the incentive not to speculate if you are working on Wall Street? Traders and speculators who happen to be employed by TBTF institutions have all of the incentives in the world to take out sized risks in this perverse financial system that has been created.

When they take failure which is a big part of life not withstanding the financial system out of the equation you are basically saying that its every person for himself. This is why our financial system is broken and broken beyond repair.

Disconnected Street

I must tell you that every day I walk into work and turn my quotes on I get a little more flabbergasted and a lot more stunned. This was the feeling I got when I used to walk into work in early 2000 watching the NASDAQ go berserk day after day. We all know how that ended up and this time will be no different. I remember many traders just resigned to the fact of massive green opens that any and all information good or bad was used to run up global equities.

They all walked in and bought. Mindless buying without any thought. Buying because you had to buy. The Fed was on your side remember. Never fight the tape or the Fed EVER! Why wouldn't anybody take this advise? After all the Fed  had opened up the liquidity tap because god forbid the Y2K would level the economy. You just had to own Telecom Infrastructure, Semiconductors, and any Internet Stock that had .COM at the end of it. Sprinkle some human genome names and you had an all out cluster^&%k of ignorance. What many investors don't remember was that the broader markets stopped going up a month before the NASDAQ imploded. The internals of the market had already turned, what we heard from the monkeys on Bloomberg and CNBC was that the economy was changing. This was an new era.

What we saw was indiscriminate buying of all NASAQ names.

They bought Ariba. They bought Infospace. They bought Yahoo. They bought Commerce One. They bought VerticleNet. They bought PMC Sierra and KLA Tencor. They bought Celera. They bought MicroStrategy. On and on it went. Money was flowing out of slow industrial names and into fast tech. The NASDAQ finally ran up to 5132.50 on March 10th 2000 dropped to below 4500 real quick then ran back up over 5000 on March 24th. That was an incredible two weeks of trading trying to figure out who the inmates were in the asylum. As the old women so aptly stated in Titanic, that was the "Last time the NASDAQ ever saw daylight." The tech heavy NASDAQ crashed from over 5000 on the 24th all the way to 3265 on April 14th. It finally bottomed in October 2002 near 1100.

What we saw was how liquidity in its simplest form can not only create bubbles, but also sustain them. As Rick James has stated - "Cocaine is a powerful Drug." Liquidity is the drug of choice on Wall Street. Back in 2000 there was far too much liquidity chasing too few tech names. It was a vulgar display of market power that took the NASDAQ to over 5100, but it was even more vulgar the correction to 1100. What goes up must always come down. Liquidity is like leverage. When its in your favor, all is good. When leverage and liquidity go against you like LTCM in 1998, the power of unmitigated selling pressure hits you in the grill. When their is no more booze left the party is over. The party ended for LTCM in 1998. The Halcyon days for the NASDAQ ended in 2000. Both of these bubbles were fed by speculation backed by liquidity and leverage. The Fed policy leading up to those epic collapses was in one single word -  ACCOMMODATIVE

The "Quant Quake" we had in August 2007 was primarily a liquidity driven Algo/Program trading phenomena. It was a very narrow market that was leading the averages. Statistical arbitrage programs were controlling the market. These Stat Arb programs have a mean reversion strategy that tends to dampen market volatility. Stat Arb made the market more safe than it was. It was masking major problems. When a narrow market leads the averages its a recipe for a crash. When the Stat Arb programs needed to unwind the entire market unwound with it. Just like in 1997 and 1998 with the Asian and Russian currency crisis, liquidity and leverage led a narrow market. Obviously the nitwits who were buying Commerce One and running it up to 500 bucks had not learned their lesson in NASDAQ ville in 2000. Why learn the lessons when the ponzy scheme gets new buyers? Every single market correction and crisis has its brand new entrants but the characteristics are the same. Too much liquidity supplied by the Fed, too much speculation fed by leverage, and to narrow a market to implement the strategies. It all works as long as the candy is still in supply by the Fed. The Fed is single handily the most destructive and perverse institution in the history of the world.

What we come back to inevitably is this. The Federal Reserve has never had a plan to grow and sustain a financial system other than printing money to feed speculative behavior. NEVER! They have no answer other than to print money. Its no different when the GOP says "If lowering taxes doesn't do the trick, then we are all out of ideas." If drunken money printing doesn't work you are on your own is the Fed's only mandate and creed. They will print money and then print some more. After they have printed some more they will print even more. This will go on until toilet paper and the USD are one and the same. Ben Bernanke is fully capable of this ludicrous behavior because the Banks are pulling his strings. The banks are the inmates in this asylum and they are 100% dead set on taking this economy over the cliff at any cost. Look at the way they have handled the foreclosure crisis. Look at the way they have fought tooth and nail over any type of financial regulation. Look at the way they killed mortgage finance in this country. They simply don't care. Wall Street doesn't care about anybody except Wall Street. Calling these guys Psychopaths is an insult to Jack Nicholson.

What we have today is a disconnected stock market. It is disconnected form the broader economy on such a large scale that even for someone like me who has lived through past bubbles can't wrap his thoughts around it. It's like the stock market wants a housing double dip. It wants more unemployed workers. It wants more gridlock in DC. It wants more people on food stamps. It wants the to see the economy go into the tank. It wants more personal bankruptcies. It wants this because as long as the real economy is in the tank and the country is falling off the cliff, the Fed will keep rates at zero and keep printing. As long as tens of millions of Americans are jobless and even homeless, the Fed will keep supplying Wall Street with its drug of choice. This will keep Wall Street and the financial economy in charge. This will keep the wide disparity in incomes and wealth. This will keep the elites in charge. This is really the grand plan. The total destruction of lower and middle class America to the benefit of the Financial and Industrial elite. As soon as this economy starts creating jobs and real growth, the stock market will start to head south. The powers that be want to totally gut and loot the country. They have the toxic people, platform, and the policy to do it.

I have totally given up on DC to figure out and solve problems in our once great country.
They should throw all of our elected officials into the dumpster.

There are only three ways this country figures out problems.

1-Lower Taxes
2-Print Money

This is the sorry state of the union on election day. Again, we all should vote to throw every one of these bums out on their carcass. It won't happen today, 2012, or even in my life time.

A man can dream.

What will happen on that solemn occasion?
I figure another massive green open because at the end of the day when Rome Is Burning Wall Street is churning. When the real economy is dying Wall Street is crying YIPPEE!
Of course when there is no government or anything left to loot and rape, the Fed has to keep rates at zero and continue to print correct?

Monday, November 1, 2010

Whats A Ponzy Scheme?

If you ever wanted to know what exactly a ponzy scheme is?

Check this out.....

U.S. Treasury to borrow $362 bln in Oct-Dec quarter

We all know that the Fed is starting there new asset swap scheme with Wall Street Institutions on Wednesday November 3rd.

This has been aptly named QE2. 
So....The Treasury issues/auctions bonds to raise cash to level/even out the reserves in the system. They primarily auction this debt to Wall Street institutions and foreign central banks. The Fed then buys the same Treasury Debt form the Wall Street institutions.

To which I say....

Why in the world is the Treasury going through the trouble of auctioning these securities to Wall Street Institutions when they should just swap them to the Fed in exchange for cash? We all know direct bidding by Wall Street PD's is at record levels, they are really the only ones buying.

The reason is quite simple. Treasury can auction these to the Fed, but the Wall Street Institutions who run the Fed and Treasury combined want it their way so that they can take newly printed Fed Money so they can feed their HFT machines with more candy. This is the only reason why are stock markets are not making new lows.

For example...In Todays POMO, the Fed monetized $2.5B from PD's, $85MM of the amount was part of an auction two weeks ago!. So stay with me. Treasury auctions to PD's, the PD's hold them for two weeks, then they sell the bonds they bought from Tax Cheat Timmy to Benny & The Ink Jets. They get the newly minted dollars from the Fed and automatically buy in this order:

3-Apple Computer
9-F5 Networks

Sometimes you truly can't make things up.

QE = Another Banker Bailout

Now that QE2 is officially 2 days away, I am pondering and scratching my head trying to figure out why the Fed is implementing such a policy when all of the evidence points to the fact that QE does nothing for the Real Economy and Main Street?

We all know that QE doesn't lower interest rates. Just look at the UK, where bond yields are up since QE was put into effect there. Our bond yields went up after QE1 was announced. In fact, the whole point of QE is for investors to flee safe assets and park money in risk assets, isn't it? The Fed will come out and lie because that is what they do, apart from printing money. They tell the ignorant that QE lowers long term interest rates. This is a blatant lie that goes against the whole point of QE in the first place. If long term interest rates going down is the desired effect, then one can't be invested in risk assets. When long term interest rates go down it is a omen of slower growth and a non inflationary environment. This is the opposite of what the Fed wants. When rates head down, people hunker down and move out of risk assets into safe liquid assets that can be liquidated at a moments notice. This is why ultra short rates are near zero, in fact the Treasury auctioned off ultra short term securities with negative real yields.

On top of all this, QE failed in Japan. The BOJ even admits this.Rates in Japan plummeted not because of QE, even though many started to front run the BOJ, but investors lost all hope and confidence in Japanese risk assets. Millions lost everything and they did not want to hear the words Nikkei 225 ever again. What you saw in Japan was a massive real estate bubble that popped. The ensuing bank crisis quickly spread through out the Japanese corporate sector. This slowed down the entire Japanese economy. Long term rates went lower as the printing presses started to churn out trillions upon trillions of Yen. Japanese investors, public pension plans, Japanese corporate sector, and most importantly individual investors fled equity risk assets for the relative safeness of JGB's. QE came after rates had already gone lower. Rates went even lower as all investors started to front run the BOJ. This is normal human behavior. Read and React. Fear and Greed. Rinse and Repeat. The BOJ have been trying to reignite inflation for 20 years and have failed to do so at every turn.

The Nikkei has had some major up moves over the last 20 years, but it currently stands at or near 9000, which is almost 80% off its peak.

This always gets the media excited but if the BOJ follies have any merit, this is what the US has to look to forward to for the next 15 years. Huge cyclical bull markets within a giant secular bear market. Some money will be made but most money will be lost.

QE did manage to ease the strains in the credit markets and did improve bank balance sheets. I give props to the Fed for there quick action, but another round of QE is just another bank bailout.

The US has a demand side economic problem. QE is a supply side solution. QE thus cant increase aggregate demand. There is no wealth effect in regards to QE, as any and all attempts to keep risk asset prices above where they normally would be always fail.

QE has no long term value for the real economy because it doesn't create jobs or increase demand. There is zero economic rationale for higher stock prices.

This leaves me to my original question. Why is the Fed implementing this policy? QUITE SIMPLY! They are owned by the banks, run by the banks, and every policy implemented by the Fed only benefits the banks.

QE doesn't add any financial assets to the system. It just moves them around. Its an asset swap scheme. Its just rearranging the deck chairs on the Titanic. The Fed has expanded their balance sheet and the monetary base without actually adding any new net money to the system. This is evidence by the roughly trillion dollars sitting with the banks in excess reserve mode. This money is not going back into the real economy. It sloshing around the banking sector running up risk assets and equities all around the world via High Frequency Trading.

The Fed, Treasury, and ultimately the Obama Administrations prime motive for QE is to get the Banking Sector re-liquefied. They want to rebuild bank balance sheets. An asset swap and massive transfer of risk from private to the public sector. This was the primary goal of the government. It worked brilliantly! One problem, politically 9.6% unemployment is problematic for the Obama Administration. Even though Bernanke and Geithner were successful in clearing toxic sludge from bank balance sheets so they can sleep a fine death at the hands of the taxpayer, they made two mistakes.

1- The Banks even in a slightly better financial position were in no financial shape to re lend to stimulate the economy. This is two fold. The banks like Fed and Treasury, lie for a living. Even as they have transferred trillions of bad mortgage paper, they still have trillions they need to offload. This is why we are having another round of QE. Secondly, most importantly, the US consumer is tapped out. We are in a balance sheet recession just like Japan. Housing prices are still over valued, bankruptcies are still rising, and the economy is stuck in quick sand because employment is going through structural changes.

2-Both the Treasury and Fed were caught off guard with regards to Foreclosure gate. One of the reasons why we are getting another round of QE is that the banks are a lot worse off than even the banks know. We have heard many lurid stories of flat out fraud being conducted by the banks. One big problem for the banks is that we still live in some sort of Democracy where the rule of law still stands. The banks are going to have to raise hundreds of billions of fresh capital just buying back all of the bad loan paper they stuffed into CDO's and the such.

As the real economy suffers, the financial economy gets more bloated. I can't figure out how and why the banks would re lend after this next round of QE? They didn't do it after QE1! Bernanke added $1T to bank balance sheets and the economy ex inventory build up went no where. You don't need a Nobel Prize to figure out where this is headed. Demand side problems aren't fixed with supply side solutions. Tax cuts won't fix our economy. QE won't fix our economy. We need demand side solutions. We need to clear excess housing inventory. We need trillions in  private sector bad loans to be restructured. We need to get home owners out of houses they cant afford. We need to get Fannie and Freddie out of the housing finance industry.

Somehow I already know how this is going to end. Bernanke also knows all of this. What is Ben going to say? What is Ben seeing at this moment? A weak economy, a weaker job market, a housing market that is already rolling over, and a fraudulent banking sector all wrapped up into one giant SH&^&T sandwich. But as long as extend and pretend and money printing are the official US policy responses, a zombie economy will just trance along making Wall Street bankers more wealthier at Main Street's expense.

What we are seeing at the moment is another bank bailout. Another TARP. There is no way Congress would ever vote yes for another bank bailout, but with the Wall Street owned Fed, we don't need Congressional support. We have Ben Bernanke who is overtly creating his own version of TARP.

The Fed has already embarrassingly failed in its mandate of full employment, they have only partially been successful in their other mandate.

The MSM along with the Fed and Treasury has tried to sell this QE policy as a main street solution. What a farce. These are the same guys who are fighting a demand problem with supply side solutions.

What do they say?
Don't bring a knife to a gun fight. The Fed thinks it has guns, but they are wrong.

I think what we will see on Wednesday is a measured QE over the next few months. The Fed will start off small, kind of like what the hucksters do on the corner with their shell games. Bernanke doesn't want to go all in even though he is already there. He has already taken the country over the cliff but he doesn't know it. Wednesday will be a solemn day for Main Street, but of course if you are a banker. Its all good in the hood.