Misery Economic Theater 2011

[ewmayer]

Looks like the Fed's "big announcement" of QE3, a.k.a. "Operation Twist" ($400Bln sell-short-duration paper and buy the long in order to force long-bond rates down even further), which the markets had already baked in in the "but we need much more than that" sense fell rather flat. If Bernanke wants to goose equity prices he's just gonna have to resort to old-fashioned "buy everything via the NYFed prop-trading operation" market manipulation. Or maybe start doing with mortgages like they do with the TBTF banks: Start *paying* interest on people`s mortgage debt, i.e. force mortgage rates to go negative. That could work...


TheOatmeal.com explains the recent moves by Netflix, in pictures:

http://theoatmeal.com/comics/netflix

[R.D. Silverman]

Originally Posted by Prime95

I'm a staunch advocate of the government not telling me how to run my private life.

I stand to lose $250 of "entertainment money". This points out the need to regulate rather than ban online gambling. It would create U.S. jobs, protect consumers from shady operators, and generate tax revenues. Its a win-win-win.

Of course it is. To all except the right wing retarded religious hypocrites
who disparage 'gambling' while running weekly bingo games in their church.

[R.D. Silverman]

Originally Posted by ewmayer

Looks like the Fed's "big announcement" of QE3, a.k.a. "Operation Twist" ($400Bln sell-short-duration paper and buy the long in order to force long-bond rates down even further), which the markets had already baked in in the "but we need much more than that" sense fell rather flat. If Bernanke wants to goose equity prices he's just gonna have to resort to old-fashioned "buy everything via the NYFed prop-trading operation" market manipulation. Or maybe start doing with mortgages like they do with the TBTF banks: Start *paying* interest on people`s mortgage debt, i.e. force mortgage rates to go negative. That could work...


TheOatmeal.com explains the recent moves by Netflix, in pictures:

http://theoatmeal.com/comics/netflix

Any guesses as to what the (very) recent congressional shenanigans
will do to the market? Republitards are refusing to finance continued
government operations as long as the Demotwits insist on including
disaster cleanup money for recent hurricanes...... The government will
shut down at the end of next week if a continuing resolution is not
passed. I'd LOVE to see it happen. Then we can watch all the fun and
fallout from the finger pointing and blame games.

I'd love to see more market panic and a further 10% "correction" over this
nonsense.

[ewmayer]

Originally Posted by R.D. Silverman

I'd love to see more market panic and a further 10% "correction" over this nonsense.

I wish I could buy puts on "congressional bipartisanship"...or buy shares of "government fecklessness".

But at least it promises to provide no small amount of merriment to those who hve learned to appreciate it purely for entertainment value - it's theater, after all. If it only weren't such *expensive* theater...

[ewmayer]

Fugly day in global markets ... "there is no recovery" seems to be finally penetrating the skulls of the financial-market bubbleheads.

Denninger has a pair of quality blog posts today:

This starts with the myth of "consumer and corporate deleveraging" which was allegedly occurring in the past 3 years and (again allegedly) setting the stage for long-term economic improvement:

Welcome To The Collapse Of 2011


This one has some sound advice about getting the economy back on sound footing which is usre to be ignored by its target audience - I quote only the trailing 2 paragraphs about 2 distinctly different forms of "sound money" systems, one a "sound fiat+credit" system (which resembles our current credit-based economy but with actual sound lending practices), the other a more-restrictive "hard money" system of the kind advocated by Mish and presidential candidate Ron Paul. Interesting stuff:

On Bernanke's Folly: I've been asked a few times by email and in posts on the forum the following question: Were I Ben Bernanke, what would I do?

...
Monetary policy in a debt-based currency world is pretty simple; it's a function of mathematics. The growth of money and credit cannot exceed the growth in the economy in the intermediate term. The mathematical law of exponents mandates that this be the case if you want a stable monetary and economic system. Since debt is tied to currency and debt repayment takes place over time you can run short-term differences if necessary to buffer shocks - but you cannot continually expand credit and money (summed) faster than production.

This, incidentally, is the essence of the FOMC's actual charter - but it has been intentionally and willfully ignored.

In a non-debt-bearing currency system the requirements are much more strict. In such a system money and credit (summed) must match production in the present tense. This means that during economic slowdowns you must withdraw money and credit from the system, or you get immediate inflation ("stagflation"), which is insanely destructive. It also means you must "deficit spend" during expansions! This policy is politically difficult to implement as when the economy slows there are always screams for "more drugs!" to buffer the pain. In a debt-based system over the short term you can provide some accommodation. In a non-debt-based system you cannot without immediate monetary damage.

My Comment: I omitted the various text special effects KD is overly fond of from the quoted snip - for the original "you must listen to me!" version see the full post.

[Fusion_power]

The stock market took another dive today. This is getting to be almost monotonous. Thursday we slide 300 to 500 points, Friday most of it is recovered. What this choppiness masks is the underlying fragile economy where nobody is borrowing and very few are spending.

A very pessimistic look at market trends would presume this is a prelude to another dive within the next few weeks. I dunno what an optimist would presume, they seem to rare oonts these days.

Has anyone noticed the share price of GM? I seem to remember that the U.S. Gov owned quite a bit of the post BK company. Are we still holding this bag?

DarJones

[Jwb52z]

Why doesn't everyone realize that all these things we worry about are self-imposed and only mean what we, for all intents and purposes, force them to mean? The stock market is only bad because people get scared when they don't have to let it happen because that fear is controllable. The economy goes up and down due to mostly the fears and irrationality of people when things don't go the way we've set things up as some idea of how they "should" go. I can't be the only one to find all this ultimately absurd, right? We're basically screwing ourselves on purpose without realizing it because we can't stay calm due to these imposed definitions and circumstances that we could actually change completely in reality if people would wake up and realize it and do it all at once. The ultimate reason anything actually goes wrong outside of natural disasters is generally because of some stupid human behavior that was avoidable.

[ewmayer]

Originally Posted by Jwb52z

Why doesn't everyone realize that all these things we worry about are self-imposed and only mean what we, for all intents and purposes, force them to mean? The stock market is only bad because people get scared when they don't have to let it happen because that fear is controllable. The economy goes up and down due to mostly the fears and irrationality of people when things don't go the way we've set things up as some idea of how they "should" go. I can't be the only one to find all this ultimately absurd, right?

There is some truth to what you say, but there are also very real consequences of these "imaginary demons". For example: The government works very hard to get most people to put significant chunks of their retirement nest eggs into equities. Partly as a consequence of tens of millions of baby boomers - even with their relatively paltry savings habits relative to preceding generations - plowing their 401(k)s into the sock market and partly due to 3 decades of fake wealth and unsustainable demand resulting from a historically large credit expansion, we had a 3-decade bull market because all that money (real and 'fake', i.e. borrowed into existence) chasing a less-readily-expandable pool of real assets (businesses and their imputed wealth creation capacity) drove stock prices relentlessly upward. Until "peak credit" was reached around 2007, that is. Now the dual credit and stock-price bubbles must necessarily deflate, but all that fake wealth evaporating has very real effects on the folks who were counting on it to be there for them when needed, and basing real day-to-day economic, career and lifestyle decisions on its existence.

And while I have frequently expressed amusement at the irrational disconnect between the equity markets and the 'real' economy during the entirety of the bogus 'recovery' of the past 3 years, it seems to me that the current market downturn reflects the long-awaited re-correlation of the markets with reality, i.e. the realization by even the most-delusional bubbleheads that nothing of what ails us has been fixed, and the past 3 years have been nothing more than a giant, futile, expensive can-kicking exercise.

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

And speaking of bubbles, gold and silver crashing *hard* this week. Haven't looked over there yet today, but I bet ZeroHedge is screeching louder than ever about "silver price manipulation." I like that site in general, but they have a curious blindness about their own their pet bubble-assets.

[Jwb52z]

Originally Posted by ewmayer

There is some truth to what you say, but there are also very real consequences of these "imaginary demons". For example: The government works very hard to get most people to put significant chunks of their retirement nest eggs into equities. Partly as a consequence of tens of millions of baby boomers - even with their relatively paltry savings habits relative to preceding generations - plowing their 401(k)s into the sock market and partly due to 3 decades of fake wealth and unsustainable demand resulting from a historically large credit expansion, we had a 3-decade bull market because all that money (real and 'fake', i.e. borrowed into existence) chasing a less-readily-expandable pool of real assets (businesses and their imputed wealth creation capacity) drove stock prices relentlessly upward. Until "peak credit" was reached around 2007, that is. Now the dual credit and stock-price bubbles must necessarily deflate, but all that fake wealth evaporating has very real effects on the folks who were counting on it to be there for them when needed, and basing real day-to-day economic, career and lifestyle decisions on its existence.

And while I have frequently expressed amusement at the irrational disconnect between the equity markets and the 'real' economy during the entirety of the bogus 'recovery' of the past 3 years, it seems to me that the current market downturn reflects the long-awaited re-correlation of the markets with reality, i.e. the realization by even the most-delusional bubbleheads that nothing of what ails us has been fixed, and the past 3 years have been nothing more than a giant, futile, expensive can-kicking exercise. These systems we set up are for expediting things and usefulness. They shouldn't be used forever just because they were set up once. When they stop working or become awful for the majority of the populace, they should be revamped from the ground up getting rid of all the crap bits and not allowing them to happen twice.

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

And speaking of bubbles, gold and silver crashing *hard* this week. Haven't looked over there yet today, but I bet ZeroHedge is screeching louder than ever about "silver price manipulation." I like that site in general, but they have a curious blindness about their own their pet bubble-assets.

That's why it's awful because we should know it was all fake and stupidly self-imposed. The fact that we somehow willingly let it be the way it is simply because it's been that way for a long time or that's what we have lived with is insane. These problems could go away very quickly if we, as a whole, were willing to just stop believing they were real and change things back. If it is truly not real, then we are, or at least should be, obliged, or even obligated, to stop behaving as if it is real and do something else better if we really want to fix things. It's all just an insane asinine mess that is unnecessary.

[garo]

We are probably due a bounce here but I suspect it will be weak (1150-1200 would be my guess) and the market will roll over again. I expect us to go below 1000 in the S&P this year before the Santa rally gives us a positive December.

Gold and silver's plunge is severe but that's what it does. I remember being invested in gold - through a double leveraged ETN no less - in Sept/Oct 2008 and it was like having a root canal without anesthetic. $60-$70 dollar drops in a day. Thankfully, this time I bought some puts when Gold was at $1900. I'll be a buyer of Gold at 1450 or thereabout but after the crazy run this summer it had to go down. At this point, crazy as it sounds, being in USD cash is probably the safest investment for the next 6-12 months.

[Fusion_power]

The piigs are squealing and grunting tonight. The major plan of the moment is to raise the european bailout fund aka the EFSF to 2 Trillion and to cut Greek sovereign debt in half. Roughly speaking, that means a write down of Greek debt to the tune of about $250 billion. And like it or not, it means a haircut for investors. The market is going to have a heyday with this one.

What is triggering this overt action? Simple, Italy and Spain are sweating as their borrowing costs go through the roof. Is 2 Trillion enough? I posted on 2011/08/04 that it would take about 3.5 Trillion euros to get the bailout fund big enough to be meaningful. I stand by that position. Raising the bar to 2 Trillion is just an incremental step.

Pop some popcorn, get something to drink, prop your feet up, intermission is over and the show is about to resume.

DarJones