Econ 2009

[__HRB__]

Originally Posted by Prime95

The more important questions are how do we get out of the mess and/or what happens if we don't.

1. Nuke Washington, D.C.
2. Progress will be simply something that happens elsewhere. Compare: ancient Rome, Greece, Persia, Egypt, Mayas, Aztecs. Also: The British Empire, Austria-Hungary, France, Germany, East-Germany...

[ewmayer]

[Re. the announced impending ban on flash-order trading:]

Originally Posted by ewmayer

I wonder if da prop-traydah boyz over at 85 Broad Street (a.k.a. world headquarters of Giant Squid Inc ... get it, "squid ink?" Damn, I made a funny) will try one last furious market ramp-job-slash-short-squeeze before they are once again forced to "innovate in the financial markets" in order to pay their million-dollar bonuses.

2nd day of a huge ramp-job-slash-short-squeeze in all the garbage financial and cREIRT stocks going on as we speak - check out the illustrious brand names on the list below:

[cheesehead]

Originally Posted by Prime95

Oops, I replied too quickly.

(Didn't you have about 50 minutes of edit time left on #646?)

[cheesehead]

Originally Posted by ewmayer

Uh, unless I`m misunderstanding your point, "Run up the credit card in order to Feed the Beast unlimited meat" is every bit as big a problem as the "Starve the Beast" (as actually practiced by most of its self-proclaimed advocates) option.

What I was referring to was that the conservative hope that "Starve the Beast" would force spending cuts at the federal level was not well-founded.

At the state level, where the unlimited federal capacity to borrow doesn't exist, it does eventually work ... messily ... as we are seeing in California now.

But at the federal level, that conservative hope was unrealistic (... as "trickle-down economics" and self-paid-for tax cuts also were ...), so the continued effort to prove that "Starve the Beast" is effective federally there has only inflated our debt ... and given Democrats less reason to exercise restraint when they got back in power, since Republicans had made nonrecessionary deficit spending oh-so-respectable and bipartisan.

Now that the country really needs Republican restraint to balance liberal spending, Republicans have thrown away the fiscal credibility that would have given them suasion power.

[ewmayer]

[Couple news items culled during my lunch hour yesterday which I never got around to posting]

Paul Krugman`s latest NYT Op-Ed discusses Giant Vampire Squids and other mythical sea creatures:

Rewarding Bad Actors: Neither the administration, nor our political system in general, is ready to face up to the fact that we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer.


Another Back-Door Wall Street Bailout Comes to Light: Even better is that the 9alleged) government overseers are fully aware of these goings-on - check out the highlighted quotes by Barney Frank (Chair of the House Financial Services Committee) in the article:

Financial Times | Wall Street profits from trades with Fed

Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.

The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.

However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

The resulting profits represent a relatively hidden form of support for banks, and Wall Street has geared up to take advantage. Barclays, for example, e-mails clients with news on the Fed’s balance sheet, detailing the share of the market in particular securities held by the Fed.

“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”

A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”

The central bank’s approach to securities purchases was defended by William Dudley, president of the New York Fed, which is responsible for market operations. “We believe that opting for transparency is a greater good,” he said. “If we didn’t have transparency, we’d be criticised on other grounds.”

However, another official familiar with the matter said the central bank “has heard that dealers load up on securities to sell to the Fed. There is concern, but policy goals override other considerations.”

Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system.

“You can’t rescue the credit system without benefiting some of the people in it.” Still, Mr Frank said Congress would be watching. “We don’t want the Fed to drive the hardest possible bargain, but we don’t want them to get ripped off.”

The growing Fed activity has coincided with a general widening of market spreads – the difference between bid and offer prices – as the number of market participants declines. Wider spreads enable banks, in their capacity as market-makers, to make more profit.

Larry Fink, chief executive of money manager BlackRock, has described Wall Street’s trading profits as “luxurious”, reflecting the banks’ ability to take advantage of diminished competition.

“Bid-offer spreads have remained unusually wide, notwithstanding the normalisation of financial markets,” said Mohamed El-Erian, chief executive of fund manager Pimco in Newport Beach, California.

Spreads narrowed dramatically during the years of the credit bubble.

Brad Hintz, an analyst at AllianceBernstein, said he doubted that spreads would ever return to those levels, a development that could be pleasing to the Fed.

“They want to help Wall Street make money,” he said.

My Comment: After all, helping Wall Street make money is a key part of the Fed`s Charter ... the "unwritten" part thereof, that is. Interestingly, the bailout circus is not strictly one-way: I`ve posted on several occasions about the growing signs of stress in the bond markets due to the U.S. commitment to financing its bailouts of the financial industry and stimulus package (on top of its still-growing defense budget, exponentially growing entitlement-program outlays, etc) via massive borrowing. Uncle Bennie finds himself in a bit of a pickle there: He wants to do everything in his power to keep treasury (and related borrowing, e.g. mortgage) rates artificially low, but if he makes it too obvious by way of continuing to increase the Fed`s multi-trillion-dollar balance sheet in order to play shell games with U.S. debt (e.g. the Fed buying up Treasury debt), that would likely spook the bond markets even more and drive away the last vestiges of foreign-government buying. Raising taxes to increase revenues is also out (at least at the levels that would be required to even make a dent in the debt explosion), so what to do? Why, impose a hidden tax (or perhaps more aptly "future tax", although the falling dollar is already pricing some of it in, it seems) by way of backdoor bailouts of the banks as described above, and have one palm grease the other, by "encouraging" the banks to buy up the debt at artificially low yields. Even better, the more successful the ongoing "green shoots" propaganda campaign is at inflating stock prices (especially of the same banks), the easier it is for them to raise money by issuing price-inflated shares, leaving the retail investors buying into the market pump holding the bag - a gigantic "CNBC regular viewer" tax, if you will. Then as soon as any major cracks in the market-pump campaign appear and the Big Playazz have all gone short, you begin a "black shoots" campaign where the MSFM begin to emphasize how *bad* things really still are, leading to the Next Leg Down, during which the insiders make a killing shorting the market, retail investors get another hit to their 401(k)s and realize they'll have to work at the local Wal-Mart instead of enjoying any kind of retirement, and all the newfound gloom and fear allow you to propose a 2nd stimulus package - with the perk that if the banksters have played their cards right they won`t even need "TARP 2" by then, which can be spun as a "positive sign of healing in the financial markets" while main street America takes another big leap down the ladder to eternal serfdom. As our fearless leader warned us, "shared sacrifice" will be required - Wall Street and its well-paid government puppets share in the spoils, and the remaining 99% of the citizenry (a.k.a. the Lumpenproletariat) sacrifice their hopes and dreams to serving the financio-governmental oligarchs.

[axn]

Originally Posted by cheesehead

(Didn't you have about 50 minutes of edit time left on #646?)

Shouldn't he have gajillions of minutes of edit time left?

[ewmayer]

Originally Posted by axn

Shouldn't he have gajillions of minutes of edit time left?

Only if his edit-time-remaining has a large short interest. (Or even better, has already filed for chapter 11 bankruptcy).

--------------

Columnist Rolfe Winkler takes investing icon Warren Buffett to task in his latest Reuters Blog posting:

Rolfe Winkler | Buffett's Betrayal

When I was 14, Warren Buffett wrote me a letter.

It was a response to one I’d sent him, pitching an investment idea. For a kid interested in learning stocks, Buffett was a great role model. His investing style — diligent security analysis, finding competent management, patience — was immediately appealing.

Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company’s annual meeting. I was hooked. Today, Buffett remains famous for investing The Right Way. He even has a television cartoon in the works, which will groom the next generation of acolytes.

But it turns out much of the story is fiction. A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.

Berkshire Hathaway, in which Buffett owns 27 percent, according to a recent proxy filing, has more than $26 billion invested in eight financial companies that have received bailout money. The TARP at one point had nearly $100 billion invested in these companies and, according to new data released by Thomson Reuters, FDIC backs more than $130 billion of their debt.

To put that in perspective, 75 percent of the debt these companies have issued since late November has come with a federal guarantee.

...

[Buffett] even traded the bailout, seeking morally hazardous profits in preferred stock and warrants of Goldman and GE because he had “confidence in Congress to do the right thing” — to rescue shareholders in too-big-to-fail financials from the losses that were rightfully theirs to absorb.

Keeping this in mind, I was struck by Buffett’s letter to Berkshire shareholders this year:

“Funders that have access to any sort of government guarantee — banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella — have money costs that are minimal,” he wrote.

“Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that … are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.”

It takes remarkable chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.

My Comment: Spend 5 or 10 minutes to read the full article (also the reader comments, if you have more time) ... excellent stuff.


Mish spotlights this analysis of real-vs-fake GDP by analyst David Rosenberg, best read while humming the tune to and paraphrasing the lyrics of a catchy 80s pop hit "I think we`re turning Japanese, I think we`re turning Japanese, I really think so...":

Global GDP Rebound Is Underway, But Who's The Buyer?

The reason why we remain skeptical over the sustainability — the operative word for investors — is because the U.S. economy (or the global economy for that matter) has yet to show any ability that it can stand on its own two feet without the constant use of government steroids. At a time when the U.S. government is running a 13% fiscal deficit-to-GDP ratio, it somehow has enough in the coffers to try and perpetuate a cycle of spending by inducing a populace in which 20% are already three-car families, to go out and buy a new car to support a shrinking industry at future taxpayer (or bondholder) expense.

Look at what happened in that first quarter GDP number — total GDP contracted around $30 billion at an annual rate, but when you strip out all the government activity, ranging from spending, to tax reductions, to benefit payouts, the decline exceeded $300 billion. In other words, without all the government intervention, the decline in GDP in 1Q would have been closer to an 8% annual rate, not 1%.

Motor vehicle sales surged to a 10-month high in July — an annualized 11.2 million units compared with 9.7 million in June. The results largely reflect the “Cash for Clunkers” $1 billion program that ran out of money in barely more than a week.

THIS IS SO REMINISCENT OF WHAT HAPPENED IN LATE 2001/EARLY 2002

In the aftermath of 9-11, the Big Three unveiled 0% financing to rejuvenate auto sales, which were moribund at the time. So what happened was that motor vehicle sales soared from 16.1 million annualized units in September 2001 to 21.7 million in October — a 3,643% surge at an annual rate! Retail sales skyrocketed 6.6% that month (+116% at an annual rate), a record that holds today. We never came close to seeing 20.0 million units on auto sales again.

But what all these gimmicks do is bring forward consumption — they don’t “create” anything more than a brief spending splurge at the expense of future performance — the pattern gets distorted as opposed to there being any real permanent change in the trend.

...in Japan, wages (wages, including overtime pay and bonuses) slid 7.1% from a year earlier in June, the 13th consecutive decline but the biggest since the data series started in 1990. The U.S. is suffering from a similar deflation in the labor market, with wages and salaries sliding at a record 4.3% over the year to Q2 (have a look at what is happening to boomers coming back into the workforce on the front page of today’s NYT — Years After Layoffs, Many Still Struggle To Match Old Salaries.

My Comment: I would correct the "it somehow has enough in the coffers to try and perpetuate a cycle of spending..." bit in the first quoted paragraph to "it figures what's a couple Billion more in T-bills? and decides to try and perpetuate a cycle of spending...".

[Fusion_power]

The news today is trumpeting the 'fall' in new unemployment claims. Unfortunately, this just means that there are not quite as depressingly many as we had a month ago. Spin doctoring converts this into some kind of positive. Removing the spin finds that govt measured unemployment ratcheted up another 1/10'th of a percent to about 9.6 which means that true unemployment is now nearing 18%. Compounding the problem is the expiration of benefits for about 500,000 people who can't find a job in the current economic climate. At current flow, unemployment should hit an official govt count of 10% in either November or December. Welcome to the wonderful world of semantics.

Depressing ain't it!

Unemployment is more than just those who lost jobs this week,
it is more than just the people whose benefits ran out,
it is more than just those who gave up looking for a job,
it is more than just college enrollees who are getting grants,
it is more than just illegal immigrants who have to write home for money to live.


On a side note, the local 2 year college is enjoying a booming business. So many chronically unemployed people are going back to school that classes are jammed full and overflowing.

DarJones

[R.D. Silverman]

Originally Posted by Prime95

Here's a much less convoluted "follow the money" for conservatives/Republicans. If taxes are lowered, the rich keep tons more of what they make. The grateful rich will bankroll conservatives so they can stay in power. Screw the unemployed, welfare recipients, fiscal responsibility, and the long-term future of the country.

And how do liberals and Democrats "follow the money"? It might look like this:

If we shower the masses with free gov't goodies that we take from the wealthy and future generations, they will be grateful and will vote for us so we can stay in power. Screw the evil rich, fiscal responsibility, and long-term future of the country.

An accurate summary!

[__HRB__]

http://www.reuters.com/article/topNe...edName=topNews

U.S. stocks have entered a new bull market, and the S&P 500 index could rise as much as 10 percent from current levels by the end of this year, Abby Joseph Cohen, the head of Goldman Sachs' investment policy committee, said on CNBC on Thursday.

Read: the probability that the bear-market rally has ended is 0.5 and it's time to go delta neutral. Going net short is probably premature, as GS will want to unload a lot, we're likely see some more hyping in the next couple of weeks.

[R.D. Silverman]

Originally Posted by R.D. Silverman

An accurate summary!

Oh... And the middle class winds up getting squeezed between the two
groups.......