Misery Economic Theater 2011

[Fusion_power]

Bernanke was categorical in defending the Fed's record of price stability in recent decades. He noted inflation has averaged 2.0 percent during his tenure and blamed regulatory failures, not excessively low rates, for the financial crisis.

http://news.yahoo.com/u-close-falter...065154564.html

You might read the above to mean that Bernanke does not accept Fed responsibility for the financial meltdown. This is pure misdirection and spin. The entire housing bubble was a direct result of the easy money Greenspan years. Granted there were regulatory failures, but Ben can't dodge this one entirely.

DarJones

[ewmayer]

Originally Posted by cheesehead

... any further drop would satisfy the formal definition of a bear market.

That seems as good a "reason" as any. :)

Mish weighs in on the topic:

Viral Nonsense About What Caused Tuesday's Rally

No fewer than a half-a-dozen sites featured or repeated a silly story about Tuesday's late rally that propelled the S&P 500 up 45 points in an hour. I am commenting because of all the emails I received on the idea.

Supposedly the Financial Times article EU ministers look at bank aid plans triggered the rally.

[excerpt snipped]

This is a case of looking for a cause and finding one.

The most likely explanation of this rally is purely technical. Support was breached, no more sellers stepped in and a short-covering rally from deeply-oversold commenced as bears covered. If you prefer, "short-term psychology changed for unattributable reasons"

It is highly doubtful this all happened because of non-statements with no details from Olli Rehn. Rather, Rehn just happened to be spouting nonsense right as the market was ready to reverse on short-covering.

It is a mistake to look for an immediate explanation for every market move. Sometimes the explanation will not come for days (then be attributed to something else), and sometimes there really is no explanation other than short-term psychology changed.

When everyone starts fishing for answers, someone will find one, no matter how silly, and the story gets repeated everywhere.

My Comment: It is certainly possible that a by-then large preponderance of short-sellers, seeing that the market seemed disinclined to drop further on the day, decided to take profits toward the end of the session. If too many shorts decide to cover at once that can lead to this sort of thing - it`s the short-side analog of a "stop-loss cascade" on the long side. Since the exchanges don`t divulge *who* is buying and selling (unless they are investigating anomalous market action or are served with a legal subpoena), we`ll probably never know who (or what, if it was an HFT algo) started the late-day buying frenzy.

In any event, it`s this sort of thing that makes me very glad I "sold too soon" (i.e. closed 90% of my short positions) last Friday, while they were still well in the money. To give you an idea how quickly things can move in option-land: One batch of puts I bought for $0.50 on 9/27, sold 70% of last Friday (4 days later) for $1.95, that contract last traded today at $0.36, i.e. down nearly 30% from my purchase price and down over 80% relative to my Friday-sell price. (And tbat`s not counting bid/ask spreads and transaction costs, which are much steeper for options than regular stocks, ETFs or mutual funds.)

Given the insane volatility and high expense, "why on earth would anyone play that game?" is a valid question. "I'm a compulsive gambler and need to be dragged physically away from the gaming table" is one possible answer. Another is that I consider current conditions to be as far removed from the "buy and hold" market everyone was conditioned to believe in as "normal" during most of the last 3 decades as one can get, so AFAIC the investment choices are (1) Don`t play (i.e. stay in cash, preferably US$-denominated), or (2) Put a limited amount of "I can afford to lose this" capital to work in selected options or leveraged-ETF plays, with a time horizon matching the volatility and "decay rate" of the asset class chosen. Having learned the hard way that shorting financials puts one on the opposite side of the trade from some very powerful interests (including the governments and central banks of the world), I like shorting tech-bubble stocks (a natural fit since I work in tech), others like to play commodities, gold miners, what have you. If you choose (2), find a smallish asset class you can afford (in time-terms) to follow reasonably closely, and for which you have developed a good "feel". And, like the referee says to the pugilists immediately prior to commencement of the boxing match, "protect yourself at all times". (Limit your risk exposure, be ready to eat a small loss before it turns into a big one, don`t get too greedy when it comes to take some profits, etc).

[Fusion_power]

Tonight the B of E announced Quantitative Easing to the tune of 75 billion pounds.

http://www.bbc.co.uk/news/business-15196078

My guess is that it won't take long for Bernanke to announce that the U.S. needs further stimulus and that he will inject another $500 billion to juice up the economy. Never mind the inflationary effects, there is no inflation. Or is there?

This is based on a 2 year time frame. The last time I looked, a loaf of bread had increased by 24% at a local store. The price of just about any kind of meat has increased by about 30% for chicken, 25% to 70% for beef, and 20% for pork. Fish is not up as much except farm raised which is being affected by the price of feed. The items we all have to buy are the items that have increased in price. The discretionary items like autos, appliances, and similar items have been more or less stagnant over the same time frame.

Let me put this in a different perspective. Average wages have not just been stagnant, they have SHRUNK over the last 2 years. Cost of necessities like food have increased. This is putting a squeeze on the lower income brackets pushing more people into poverty. Why would anyone expect that people would spend money in this environment? More important, why borrow money given the economic malaise we are in.

DarJones

[ewmayer]

Fitch Downgrades Spain

Fitch downgraded Spanish debt 2 notches this morning:

Spain had its credit rating cut two levels by Fitch Ratings, which cited the “intensification” of the euro crisis, slower Spanish growth and regional finances as risks to the nation’s debt outlook.

Fitch cut its rating to AA- from AA+, the company said in a statement today from London. The outlook is negative. Fitch cited similar reasons for also downgrading Italy one level to A+, while maintaining Portugal at BBB-, saying it would complete a review of that ranking in the fourth quarter.

My Comment: Here is Mish on Spain`s crushing debt load

B-but, we were being told just a year ago that Soain`s debt was "far lower" than that of its fellow little PIIGS.

Occupy Wall Street

OWS is less a coherent "movement" than a collective "enough!" by the huddled masses of all poltical stripes who have been victimized by the Great Financialization of American life. Karl Denninger has a post from a fellow libertarian which describes it nicely:

You know what the "Occupy Wall Street" movement is?

It is all the things that were in the original Tea Party, but were steadily ignored as the TP became a Republican booster club.

The Tea Party is a contradiction. They want a balanced budget, but they also want the US military to intervene everywhere. Obamacare is a dirty word, but don’t dare touch social security or medicare. Individual rights are important too, but don't push it too far. After all, republicans came up with today's policies.

There are a few nuts in the OWS crowd, but from what I hear "Occupy Wall Street" is about bringing the fraudsters to justice. Its about changing the banker/government dynamic that runs this country. It's about free markets. It's about ending endless debt. It's about stopping the wars. It's about the rule of law. It's about the libertarian soul of America.

Since the TP lost the focus of addressing the root problems of America, they remain unresolved.

It’s sad, really. The TP talks about sewer legislation, redistricting, and supporting House Speaker Boehner's plan to add $2 trillion in debt, while the real issue is Congress has spent more than it takes in, and the costs of the promises outweigh the means to pay them. In the process, you and I are less free than we used to be.

There was no place left for folks to go.

All You Need to Know About the European Bank "Stress Tests"

ZH has a hilarious posting illustrating the bad joke which was the Euro-bank "stress tests" - Check out whose Tier1 capitalization "performed best under the adverse scenario":

Epic, Grotesquely Surreal Friday Humor


Have a good weekend, all - I leave you with a quote from the late Steve Jobs, dating from the early 1980s, when Jobs was trying to recruit John Sculley, who was at the time the president of PepsiCo, to come help him run Apple Computer:

"Do you want to sell sugar water for the rest of your life or come with me and change the world?"

Of course that proved to be a "careful what you wish for" moment for Jobs, as Sculley and the Apple board ousted Jobs from Apple a few years later. (Based on Jobs` bizarre antics at the time I can`t say I blame them). It is well-known that subsequent to his ouster, Jobs sold all but 1 of his shares in Apple, keeping the 1 so he would continue to receive the annual report. (Had he kept his original stake, it would have been worth ~$35 billion today). As a result, most Jobs` net worth at the time of his death was in fact a result of his sale of Pixar (which he acquired for just $5 million) to Disney in 2006 for $7.4 billion. But for Jobs it was never about the money:

"Being the richest man in the cemetery doesn't matter to me … Going to bed at night saying we've done something wonderful … that's what matters to me," said Jobs in a 1993 interview with the Wall Street Journal.

[cheesehead]

Originally Posted by ewmayer

Occupy Wall Street

OWS is less a coherent "movement" than a collective "enough!" by the huddled masses of all poltical stripes who have been victimized by the Great Financialization of American life. Karl Denninger has a post from a fellow libertarian which describes it nicely:

I've been warily watching news of OWS to see how much airheadedness it (*ahem*) incorporates. I pleasantly note that there seems to be some substance to it.

Here's another take, from Reason Magazine:

"Occupy Wall Street: Beyond the Caricatures

Outsiders are criticizing a heterodox movement that they choose not to understand."

http://reason.com/archives/2011/10/0...eet-beyond-the

Originally Posted by Michael Tracy

It's very easy to decree from afar that the Occupy Wall Street demonstrators flooding Lower Manhattan right now are there for no other reason than to recite hackneyed leftist bombast. Indeed, without interviewing a single attendee, National Review editor Rich Lowry determined that the thousands who have flocked to Liberty Plaza in recent weeks are nothing more than a "woolly-headed horde" spouting "juvenile rabble."

I strongly disagree. By and large, the folks I've spoken to have not come off as "woolly-headed" in the slightest. On Wednesday, for instance, I chatted with Jack Zwaan, a self-described "Tea Party Libertarian" and Ron Paul supporter who had flown in from Little Rock, Arkansas, to attend the demonstration. Zwaan wielded a humongous Gadsden flag—yes, the kind of flag commonly seen at Tea Party protests.

While there's no question that the Occupy movement has an ethereally left-leaning tilt—and to be sure, the appearance of traditional unions can make that tilt more pronounced—all the "End the Fed" advocates,Ron Paul supporters, Internet freedom activists, and even some who identify as "Tea Party Patriots" in the mix make this phenomena difficult to characterize with pithy soundbites.

. . .

[Christenson]

Mr Cheesehead:
A sample of one? Let's sample 2^43,112,609-1, a flamboyant attendee at the GIMPS rally, and see how mamy mersenne primes it makes us think there might be, or how easy it is to find them.....

As Ernst is making clear, the level of gamesmanship on wall street, with no positive effect o nthe economy (Wall street has positive effects on the economy when it makes it possible for organisations to borrow money they expect to repay and do something productivel with), is at a level not seen since 1929, or possibly since the dutch tulip craze.
The distortions of the so-called markets, including continuance of obvriously bankrupt banks, is simply amazing.

Occupy wall Street is a response to that. Hopefully we don't have that "back to the supposedly golden past which was simple like my childhood" of the tea party mixed in too much.

[cheesehead]

Originally Posted by Christenson

Mr Cheesehead:
A sample of one?

?

[Christenson]

Originally Posted by cheesehead

?

On Wednesday, for instance, I chatted with Jack Zwaan, a self-described "Tea Party Libertarian" and Ron Paul supporter who had flown in from Little Rock, Arkansas, to attend the demonstration.

This comes to me as a sample of one....

[Fusion_power]

News today is full of purported plans to break up Belgium's Dexia bank. While the overall plan seems to be rational, there are numbers that need to be clarified. The plan involves selling off healthy assets for cash, absorbing some units into French banks, nationalizing the main bank into Belgium, and placing toxic assets in a "bad" bank.

The first significant item the reports bring out is that Belgium belongs right in there with the piigs. If you rank them in debt/GDP order, it would be Greece, Italy, Belgium, Ireland, Spain, and Portugal. Maybe now we should start calling them the "bigpigs" though that would involve adding another country to make up the second G.

The second significant item is that Dexia's exposure to credit risk totals $700 Billion. Of that total, approximately $200 Billion is significantly at risk. Of that amount, $12 Billion is weak sovereign nation debt, aka Greece and probably some in Spain and several of the other piigs and $7 Billion is from exposure to the U.S. mortgage market. Now if you do the math, Dexia is NOT collapsing over $12 Billion in sovereign nation debt. Dexia is not collapsing over $7 Billion in U.S. MBS. Dexia is collapsing because they have $180 billion in assets that are so seriously devalued as to become WORTHLESS. Ask yourself what these assets are?

The third significant item is that Dexia has a major French presence and France can't wait to absorb them into existing French banking entities. This smacks heavily of the same mindset that got Countrywide, Merrill Lynch, etc. absorbed into U.S. banking entities. I question the legitimacy of such an action.

http://news.yahoo.com/france-belgium...053508357.html

The fourth significant item is .... Dexia is first, who goes next? Please note the emphasis. We have up to now been dealing with sovereign nations that are on the verge of default. Now we have huge banking operations that suddenly are bankrupt and having to be broken up and sold off. Dexia was considered among the strongest banks in Europe. If it was strongest, what does that tell you about the other big banking entities?

DarJones

[garo]

Dexia was not considered among the strongest banks in Europe. It has been a weak bank for over a year now.

[cheesehead]

Originally Posted by Christenson

This comes to me as a sample of one....

... perhaps because of ignoring the sentence preceding your short selection: "By and large, the folks I've spoken to have not come off as "woolly-headed" in the slightest." (Note the plural.)

... or of not bothering to actually read any more of the two-page article than the short portion I quoted? (I did put an ellipsis at the end of what I quoted, signalling that there was more in the actual article.)

Later on the first page, the author quotes four more participants (not counting Ron Paul or Mayor Bloomberg). Did you read those?

Did you follow either of the article's links to YouTube, or to another Internet article with both photos and quotes of participants?

... or are you implying that I formed my opinion based on only the short portion of the article that I quoted?