Monday, March 31, 2008

SAR #8092

Are the people who got us into this mess really the ones
most likely to get us out of it?


A Big Wooden Horse: The Fed re-organization plan was designed a year ago, just as the Patriot Act was drawn up before 9/11. It is intended to get rid of the few regulations left that hinder our financial wizards. Bush&Co are pushing the chairs closer to the rail and claiming this will keep the ship from sinking.

Brownied: A criminal investigation has forced HUD Secretary Alphonso Jackson to resign. The Decider called Jackson "a strong leader and a good man". Jackson did not call Bush an unindicted co-conspirator.

Bogeyman: Russia's Natural Resources Minister Trutnev reports that Russia's oil production is falling this year. Russia is #2 in world petroleum production. Peak Oil theorists have long predicted that Russian oil output would peak in 2007 and begin to fall. It's a Communist Capitalist plot.

Remedial Class: McCain claims he "learned from the Keating Five..." He learned about illegal donations, political influence, covering tracks and manipulating the media. All valuable lessons for a politician.

What Contracts? Philadelphia has stopped the sale of foreclosed houses. This economic martial law is designed to give owners who defaulted on adjustable-rate mortgages time to work out a new loan - so they can magically afford an unaffordable house. California and Florida may not be far behind. This will only spur banks to complete foreclosures faster, to avoid fiat losses.

Ripley: It's hard to believe that people bright enough to have the resources to vacation in the US are dumb enough to want to chance it. Is getting a picture taken with Goofy meaningful enough to risk being intercepted by the charming folks from ICE? How can a day at Magic Mountain possibly outweigh the chance of an indefinite stay in the Norfolk brig or in a cage at Guantanamo?

Phantoms: In the February employment stats, the government counted an additional 135,000 "new jobs" because "they assumed that every industry in the country added jobs." I wish they'd assume I'd paid my taxes.

Teamwork! We're now told that Bush personally threatened and bullied nations around the globe to support our invasion of Iraq 'or else.' Truly the Coalition of the Coerced - essentially the same approach he takes with Congress and the citizenry.

Definitions: The Federal Reserve is the central bank of the US. But it is a bank, a very big bank. Like any bank, if it is not careful about to whom it lends and the quality of their collateral, it can get into trouble. Our bank has been dealing with some questionable people of late, and accepting collateral that may not really be all that good. We should speak to Ben about this.

Otherwise: Saudi Arabia’s claim that its southern desert region contains vast reserves of natural gas is somewhat undermined by a string of exploration wells that hasn't found any.

Just Maybe: If you've not read Naomi Klein's Shock Doctrine, put down the coffee, get the car keys and go get it. Do this now. It may well explain the next few months.

An A+ For Insight: The credit crisis is simply too big for the government to "solve". The reality is that debt so far exceeds earned income that much of it simply cannot be repaid. Debt is extended based on the expectation of being repaid out of increasingly larger future production - growth! But the growth model is outdated and must be abandoned. Read the rest at Sudden Debt.

SAR #8091

The Federal Reserve System:
"Socializing risk and privatizing profit since 1913."


Competence: ICF was paid $912 million to disperse $11 billion to Katrina victims. ICF now says it overpaid 5,000 victims an average of $35,000 - and they still haven't paid one third of the qualified Katrina survivors. The homeless, broken victims have to pay it back. Now. And they can't go back to their formaldehyde trailers, either. Another government job well done by the private sector.

The Sting: Lehman Brothers, in a display of the thoroughness and acumen we've come to expect of investment professionals, lost $355 million to Japanese con artists. What goes around, comes around.

Like Cash, Only Different: UBS is lowering the value of some auction-rate municipal bonds held by their clients by 20%. Auction-rate securities are long-term bonds that behave like short-term debt and have long been popular with greedy conservative investors because of their tax-exempt status and greedy municipalities because they could save a few cents interest.

Light Dawns: Financial reports from Moscow suggest the Russian government is becoming disenchanted with "exchanging appreciating oil resources for depreciating dollars." Let's hope that does not become a widespread outlook in the world's other oil patches.

Goliath? Wal-Mart Stores has abandoned 64 proposed projects over the past 10 months - some killed by local citizen resistance, most because of a worsening economy. It's 2007 growth rate of 1.9% is dwarfed by the 5% growth rate 10 years ago and 13% back in 1987. Too much of a good thing?

Lame, Halt, Blind: Alt-A is becoming the second leg of the mortgage debacle. Of the 2005 crop, 12% are delinquent. Some 16% of the 2006 class is delinquent. The 2007 group is already 14% delinquent. Ten percent of the 2006 group are "seriously delinquent, in foreclosure or owned by banks". Keep going, the peak is up ahead, in June, then the real foreclosures begin.

Re-formatted: Not only did the Bush White House not keep their e-mails as required by law, not only did they erase the hard drives with the e-mails on them, they physically destroyed the hard drives. They know that anything short of physical destruction leaves tracks. Why doesn't Congress ask NSA for their copies?

The Rules of the Game : The global financial system is so opaque and complex that no one actually understands how it all fits together. We've moved from a world of measurable risk to one of near complete uncertainty. Surprises keep coming out of the blue, because we're ignorant of our own ignorance. We're surrounded by unknown unknowns.

Sources: The world's businesses are very very good at increasing productivity while lowering wages. This generates profits. But underpaid employees are not customers with money. The only way customers can buy is to keep going further into debt. Ah, there's the rub.

Another Shoe: Americans have sucked over a trillion dollars in equity out of their depreciating houses. When a house sells for less than the mortgage, all the funds go to the mortgage, leaving nothing for the bank that wrote the home equity loan. What, me worry?

Hamming It Up: Smithfield Foods, which kills 32,000 hogs a day, has filed a RICO suit against union organizers on the theory that publicizing environmental and safety issues to pressure a company to unionize amounts to extortion. They also allege the union quoted Upton Sinclair.

Paul Revere: If you want a good quick reference as to why most of the things the Fed, the Congress and Wall Street propose to do to rescue the various elements in the housing debacle, try the rant at Stop The Mortgage Bailout!

Saturday, March 29, 2008

SAR #8090

"Better a miserable ending than misery without end."
Quoted by: Mike "Mish" Shedlock

Arrogance and Incompetence! The headline: Bush Says Basra Offensive Shows Iraq's Progress Quotes: "Civil war is a healthy sign of a free democracy." Or some such hogwash. Our Only President went on to say this was "helping Iraqis reclaim security and restart political and economic life.'' and that Iraq was "striving to build a modern democracy on the rubble."

9/10th's of the Law: The Fed, a private bank authorized to create money out of thin air, will soon be our Central Financial Planing Office. Controlling interest in the Fed is owned by: Rothschild (London), Lazard Brothers (Paris), Israel Moses Sieff (Italy), Warburg (Hamburg) Lehman Brothers(NY), Chase Manhattan (NY) and Goldman Sachs (NY). Will the trains run on time?

Second Thoughts: When a prospective buyer signs a contract on a house, the government counts it as a sale. If the customer backs out of the deal, the government still counts it as a sale. The average cancellation rate is currently 43%. The surge is working, too.

Storage Sites: It is bad enough there is a Texas sized clump of plastic in the mid-Pacific; now we're told that plastic in the ocean tends to concentrate poisons in the water near them. Assignment: For the next 24 hours carry a pen and notepad and write down all the ways you, personally, are corrupting the environment. For extra credit, do something about it.

Lascaux: We've been to see this picture before; there are lots of different explanations as to why this is not worrisome, but the "non-borrowed reserves" of US banks have reached -$61.7 billion. Chart is here.

All Things Being Un-Equal: For the fourth straight year, those at the very top made large gains (up 44% - an increase of $1.9 million each) in income, while everyone else (the bottom 90% of us) got gruel (3%, or 1% after inflation). The average 30 year-old makes 12% less than his father did at 30. What time is the revolution?

Supply/Demand: The price of oil is set by the laws of supply and demand. Not the demand for oil, the demand for cash. The Saudi government spends $55 a barrel to provide welfare to its citizens. Venezuela, $97, Iran, Nigeria - $75. The social costs and the actual costs of producing the oil makes $100 a barrel oil a break-even undertaking. They're not getting rich, they are going broke bribing their citizens so they can stay in power.

Returns: Maybe the average citizen is not as dumb as his financial advisors. Over the last ten years, the stock market - DOW, S&P - has gone nowhere. Meanwhile, inflation has lowered the value of savings by 30%. Makes the plasma TV, SUV and McMansion look like a better investment than a 401k.

Definitions: Big investment banks have "whittled their holdings" of LBO bonds this year by "offering the debt at discounts" as large as 80 cents on the dollar. I can think of other words to describe taking a 80% loss.

Murder, Inc. Private companies are installing "traffic violation cameras" at intersections at no cost to the community. Pictures of vehicles running red lights are taken, the owner of the vehicle is ticketed and part of the fee is kept by the firm providing the service. Why not contract out murder investigations, with a payment going to the firm catching the (or at lease a) perpetrator? Competitive policing!

Scale : Some worry about what we'll use for energy when the oil is gone. A bigger concern: what do we do with all the infrastructure that is built to run on oil and gas? Where do we get the capital to replace whole industries? Peak oil is not the end, it is the beginning of the end. The end will go on and on and on...

Friday, March 28, 2008

SAR #8089

It may seem impossible that a technologically advanced society
could choose to destroy itself, but we have.
Elizabeth Kolbert


Steamed: Global rice stocks are at their lowest since 1976. Rice prices, which jumped 30% in the last week, are at all time highs. Rice is the staple food for 2.5 billion people. You do the math, including deaths from 'civil unrest'.

Attendance: Why am I not reassured that SecDef Gates has ordered an inventory of US nuclear weapons. Is it because I thought they pretty well knew how many they had and where they were keeping them?

Privatization: Taxpayer bailout rules: No employee of a failed institution who was paid over $1 million in 2007 at a failed institution shall receive any compensation on dissolution. Personal assets in excess of $1 million shall be forfeit. Each such person shall serve a mandatory minimum of 2 years in a CCA run, for-profit prison.

Straight Man: Iraq’s Prime Minister Maliki's security forces are defecting to the Mahdi Army. Basra has fallen to the Saderists, as have several 'pacified' districts in Baghdad. Reports warned that "a threat of a civil war looms in the south." Looms?

Envy: The real estate market and developers are under siege, with signs of weakness in all the key markets. Developers are slashing prices amid plummeting sales. Expectations are for the bust to last another three or four years. And this is in China. Our exports are picking up.

Cheap Shot: Why keep money in a savings account that pays 0.5%, or a money market at 1.5% when the official inflation rate is 4% and reality-based inflation is about 10%? Rational people will spend the money instead of saving it. Paying off your debts and living within your means is unpatriotic. And Americans are a patriotic bunch.

No Reading Required: The headline tells the story: Donner Party Democrats.

Squaring the Circle: Chrysler and GM are taking money from employee pension funds to pay for a publicity campaign to get employees to retire by offering to pay them bonuses out of the very same retirement funds. Their retirement funds.

Next ! Felipe Sixto, special assistnt tot he president for intergovernmental affairs has resigned after being caught stealing money from USID funds. Usual prize goes to the reader who has even a vague idea how many this makes.

"plus ça change... " Wall Street investment bankers have been taught a lesson about the dangers of risk-taking: The Fed will rescue you. Will they learn anything? Yes; for they are already under even more pressure to reap big returns because of the the losses their foolishness had already earned. "Risk is just part of the game." Like death and taxes. Taxes used to save Wall Street from capitalism.

Somebody's Mother: Now Chertoff wants fishermen tell him they're going fishing, pose for pictures when they get back, and get visas for fish they import from the north side of Lake Erie. Canadian, y'know. Probably terrorist.

Thursday, March 27, 2008

SAR #8088

Vampire bats are more community-minded than Wall Street.
Naked Capitalism


Self Centered: We're so fascinated by the Ben Bernanke show that we've not been aware that our British cousins are deeper in debt that we are, for the same dumb reasons. Brits spend more than they make, too. Their household debt-to-income ratio is 1.62 compared to our 1.42 . Why, that's un-American.

Wrong Question: Joseph Mason asked, at the Wall Street Journal's economics blog, "Should the Fed Save Wall Street Firms?" Of course it shouldn't, but it will. The question should be "How Big Do You Have To Be To Be Saved?"

Re-Do: Pension systems in Pennsylvania and South Carolina see mortgage-backed derivatives as so cheap they can make a killing if they buy them now, on the hope of strong yields and capital appreciation as the country comes out of this recession. Suicide is a form of killing.

Clarity: Houses cost too much for most people to afford. The median income is $49,000. The median house is $234,000, which takes a monthly payment of about $1,500. An aftear-tax income of $3,000 a month will not cover a $1,500 house payment and things like food, electricity, etc. Anything the Fed or the Congress does that does not lower the price of the house to about $150,000 is not going to work.

Alleluia! Roubini (Global EconoMonitor):"This is the worst US financial crisis since the Great Depression... It is not the job of the Fed to bail out insolvent non-bank institutions. If a bail out should occur, that should be decided by Congress... after the relevant equity holders have been wiped out and senior management fired without huge severance packages." Amen and Amen.

One Hand Clapping: Aren't all of these big brokerage firms competitors, exposed to the same challenges? Stearns was leveraged at 34:1 and couldn't meet the margin calls. Lehman is leveraged 40 to 1, Carlyle was at 32:1. Citi is at 41:1. Citi is a counterparty to $34 trillion in derivatives. The Fed's piggy bank is not big enough..

Dilemma: Americans don't have enough money to pay back their mortgage and credit-card debt. They are not ever going to earn that much. The Chinese, the Arabs, and the bankers are going to get tired of losing money and insist that consumers to change their ways. No, not going back to our parent's level of frugality. Our grandparents'.

Rumsfeld Economy: The markets are not jittery because of the risks they face, they are jittery because they don't know the risks they face. Unemployed mathematicians invented credit derivatives, credit swaps, off book accounting, conduits and all the rest. A new one surfaces every day. And that's what is spooking the markets - the woods are full of unknown unknowns that come stumbling into the light only to expire.

Statistical Static: John Williams over at shadowstats.com provides non-government versions of government statistics, "without the business bias." M3 (the "old" money supply data the gov. stopped tracking) grew at 16.9% last year. GDP declined -2.3% instead of growing 2.5% as the gov. claimed. Inflation, they say, is running at nearly 12%. And unemployment now tops 12%. Who benefits from which set of data?

Monday, March 24, 2008

SAR 8085

SAR is on vacation this week and may be too lazy to post...

Sunday, March 23, 2008

SAR #8084

Every bailout rewards speculative behavior,
ensuring the next bailout will be bigger.

Rumor! Rumor! Central banks are discussing the of mass purchases of mortgage-backed securities as a way to mend the credit crisis. The Central banks dismiss these rumors, pointing out that such a program would require public acceptance of the nationalization of home ownership. Okay, but the first step would be starting rumors...

Rinse Cycle: To celebrate the success of the "surge" in Iraq, insurgents delivered a heavy rocket and mortar attack on the Green Zone in Baghdad. US commanders warn that " recent security gains in Iraq are both fragile and reversible." And possibly imaginary.

Gobbleization: Global trade has slowed almost to a standstill so far this year. The last time annual growth in trade went negative was in 2001, with the US recession and the 9/11 economic slowdown. 'Decoupling' joins 'containment' as a failed concept.

Revelations: Gold had its biggest weekly loss since August 1990 after reaching a record $1,033.90 an ounce on March 17. Oil plunged almost $10 over three days, after reaching $111 a barrel. Now that gold is back to $925 an ounce and oil is only $100 a barrel, I feel much better.

Plan Ahead: Go to E-Bay now and bid on a gross or two of the Whip Inflation Now buttons President Ford's estate has for sale. They'll be in demand this summer.

Brother Can You Spare A Dime ? Own part of America! For the first time, the general public can buy US bonds paying less than the inflation rate, directly from the publisher, in $100 increments. Be the first on your block to invest in US Government Securities guaranteed to return less buying power than you started with! Act NOW!

How Low Is Low? Another in our series of unusual places to find excitement, we give you One Month Treasury Rates.

The Prize: Iraqis have been turning down the $20,000 "oops" money they were offered when their wives and kids are "collaterally" killed. But did you know our soldier's widows get $500,000 as a consolation prize? Would make an interesting plot line for a murder mystery.

Cui Bono? While Gov. Spitzer's antics were interesting, the way they were revealed (leaked from the FBI to the NYTimes) was bizarre. Why him, why now, who benefits? Spitzer was complaining that Bush&Co had prevented him from preventing the whole sub-prime smash-up by not letting NY protect its citizens from bad things the administration thought were good things. Maybe, maybe not.

Stormy Weather: The low-pressure system that brought flooding to much of the central US last week also stirred up 15 to 30 foot waves in the Caribbean. Beaches are littered with broken coral throughout paradise. This is a sign of extensive damage to reefs - possibly the worst since 1991.

Saturday, March 22, 2008

SAR #8083

The Fed is now the largest landlord in US history.

Saying "No!" but Maybe? The U.S. Federal Reserve said it is not discussing coordinated purchases of mortgage-backed securities with other central banks. It is simply a coincidence that the central banks have independently decided to purchase dodgy mortgage-backed derivatives.

Post-It Note: While you were out of the office on Friday and the markets were closed, S&P lowered the outlook for both Goldman Sachs and Lehman Brothers to negative. Do you think the Easter Bernanke is going to leave each of them a $30 billion bailout basket?

Papers! Herr Chertoff warns that, soon, if you do not have an internal passport (Real ID), you will not be permitted to fly. You may be permitted to be flown, however, to Guantanamo or a select black site.

Curtain Call: District Judge Paul Friedman has ruled that Bush&Co violated the public's right to free speech by keeping protesters corraled in remote "free speech zones." Word is, the judge will soon resign "to spend more time with his family".

Picture This: If you were taking comfort from the Fed's actions to calm the credit markets, take a look at what's happening in the world of Alt-A mortgages - those are the Liar's Loans with no proof of income, assets or jobs. Alt-A's written in the third quarter of 2007 were defaulting at a 10% annualized rate by the end of December. Go look at the graph here.

Wind, Blowing: A British court lifted the Exxon instigated $12 billion freeze of Venezuelan assets, indicating that it was unlikely that arbitration would reward Exxon sufficiently to require funds on that scale. It's not the whole story, but you are unlikely to hear this side of it fromour own media.

Blackwater, Jr. The 80,000-strong Sunni militia mercenaries - who were largely responsible for the success of "the surge" - have stopped working because their $10 a day was stopped. If the US doesn't resume paying them, they will go back to being insurgents. US payments to the far better equipped Blackwater continue uninterupted.

Report Card: US high school graduation rates are somewhere between 63% and 86% depending on how 'graduation rate' is defined. The Bush administration allows states to use dozens of different ways to report graduation rates. If the schools can get potential failures to drop out before entering 12th grade, they don't count as failing to graduate.

Cracker Jax: By 2025, fully a third of the planet's population will have insufficient water. Even today a child dies every 20 seconds due to poor sanitation from contaminated water. But the biggest surprise in the article was this: "With worldwide food production set to expand 50% by 2030... " Makes you doubt the stuff about the water, too.

For Mature Audiences: An adult bookstore employee has been convicted of killing and dismembering a vagrant. This is the sort of thing could give adult bookstores a bad reputation.

Depends: Hopes for a government bailout have spread to the U.S. Commonwealth of the Northern Mariana Islands, where 50% of homeowners under a government-backed loan program face foreclosure. What ever happened to grass skirts and thatched huts?

Friday, March 21, 2008

SAR #8082

The main thing about life is that one day you'll be dead.
- David Shields.


Not About Oil: General Petraeus is calling on "large Western corporations" to invest in Iraq's energy sector as Bush Iraq looks for ways to boost oil production. Part of the job description, selling off the oil.

Conform, Consume: Farmer's Insurance has an ad running that shows folks on bikes, with the subtext message: 'let us help you be normal and get back into a car.' Deviant behavior, not driving everywhere.

Mum's The Word: Thursday the Fed told the leading investment banks "to support Lehman Brothers to try to preserve financial stability." Brokerage departments were instructed not to make any comments that could damage Lehman. The army calls this a preemptive strike.

New IED Threat: GI's in Iraq are facing a new type of IED - Indoor Electrical Device. At least 12 service members in Iraq have been electrocuted - the latest while taking a shower. The Pentagon has opened an investigation into KBR Inc., the Houston-based contractor responsible for maintaining... Yada yada.

Bears In The Woods: Bear Sterns has amended its bylaws to allow for the legal expenses of employees to be reimbursed by the company. Why in the world would they need to do that?

Strike Two: If BinLaden really wanted to cripple the US, he'd be shorting Lehman Brothers and Citibank.

Allowance: Free market capitalist investment brokers pawned about $9 billion in mortgage-backed trash at the Fed and withdrew $13.4 billion in treasury notes. Don't get upset, they could have asked for more. And will.

Down East: The New Hampshire House voted in favor of decriminalizing possession of small amounts of marijuana. That's nothing, you ought to see what goes on in Albany.

Efficiency: Plans for an elite Canadian military counter-terrorism unit ended up in a pile of garbage on an Ottawa Street and were turned over to the regular police, who were not authorized to receive them.

Revelation! Financial wizards have discovered the obvious: people who bought too much house also bought too much car, too much HDTV, too much healthcare and found that Visa was taken everywhere they wanted to be. And it is not just the mortgage they are not paying, it's the car loan, school loan, hospital bill, credit cards and the church pledge.

Privatization: In Australia, the M2 motorway is a private toll road. Sidney is considering extending the Metro system. One of the considerations is how much to pay the people who own the roadway for their lost traffic. It's called privatization because no one wants to be caught doing this in public.

Containment: Dairy farmers in the northeast are reporting that their credit lines at local banks are being withdrawn. Soon they will start liquidating their herds to survive. I'd make a joke about "liquidating milk cows," but suspect there is not much humor in this.

Shaken, Not Stirred: The National Snow and Ice Data Center has relesed new data showing that over the past 12 months the Arctic has undergone "the steepest yearly decline in perennial [i.e., old, thick] ice on record. Because we had a cold winter, the public might think things have gotten better," the report said, . "In fact, the loss of the perennial ice makes clear that they're not getting better."

Bailing, Bailing: The Fed keeps bailing out parts of the financial world without imposing any discipline, i.e. regulation. Every time Bernanke pushes a stack of chips forward, the Street sees him, raises him and watches to see if Ben will bail them out again. And he will, he has no choice, until the table will no longer take his markers. Then the game is truly over.

Crude-saders: Robert Fisk points out the West has 22 times as many soldiers in the Muslim world today as were there during the Crusades. He asks what in the world we think we are doing, and I have no answer that does not involve oil.

Thursday, March 20, 2008

SAR #8081

The dollar is even losing value against the euro,
the currency of a make-believe country.


Anybody Still Counting? The Pentagon inspector general's chief investigator of procurement fraud and official misconduct, quit his job and pleaded guilty last month to violating U.S. banking laws. It was not related to his job and thus was unofficial misconduct.

Casablanca: Martin Wolf, in the Financial Times, expresses dismay that hedge fund managers make a lot of money even if they don't do a good job. Has this boy been living in a closet? If CEOs get paid extra when they fail, why shouldn't hedge fund managers? All this was explained by Galbraith's little book on fraud.

Pour encourager les autres: The Associated Press president Tom Curley says that the unprecedented 'accidental' deaths, the bombings of news facilities, and the imprisonment of reporters in Iraq is less than happenstance. As he was led away by Homeland Security, He alleged that the US is rounding up journalists in an attempt to control information.

Democracy: Dialog with Dick. During an interview on ABC, Cheney was asked about the surveys that show two-thirds of Americans say Iraq is not worth fighting over. His response, "So?" Asked if cared what the American people think, he replied, "No." A Reuters/Zogby poll finds that 81% of Americans believe the country is headed in the wrong direction.

Club Card: Starbucks is going from "an affordable luxury" to a place to get a cup of coffee. There will be lower prices, free refills, discounts for using prepaid cards, free wireless access and would you like fries with that? Probably the most understandable economic indicator to date.

Seems Like Old Times: JWM Partners' Relative Value Opportunity fixed income hedge fund has lost 24% of its $1 billion investment so far this year. The firm is run by John Meriwether, previously head of Long-Term Capital Management. Too many jokes, too little time.

Thin Crust, Please: Rising wheat prices are pushing up costs. Even pizza is getting more expensive. Only four weeks ago, pizza makers were paying just $16 for a bag of flour. INow it's $37.

Mirror, Mirror: Citi put out a "sell" recomendation on itself and warns investors to "avoid companies and countries that have grown to rely too much on borrowed money." Their list of such companies and countries stretches from A to B.

Where's Waldo? In a world of risk we can generally figure out the probability of various outcomes. In a world of uncertainty, we are lost. Most of Wall Street would like a hint or two as to where in the world the next shoe will drop from.

Double Dating: Joining UPS, FedEX sees "limited earnings growth" in next year or two. Their report ends with the ever encouraging: "We are scrutinizing all expenses to realign them with the current environment." I've been a realigned expense once or twice myself.

Rock, Paper, Scissors: Merrill Lynch bought default protection on some bonds from Security Capital Assurance. The covered bonds defaulted. Then SCA defaulted. Merrill is out $3.1 billion (plus the insurance premium) and is suing the bankrupt insurer to recover the losses from the bankrupt bonds. Who has a chance to make any money out of this except the lawyers?

Viva la Difference! The headline was the whole story: The Difference Between Investment Banks, Hedge Funds, Credit Card Borrowers and Microcredit: "The Poor Always Pay Back" and while you're at it check out Kiva.org.

Wednesday, March 19, 2008

SAR #8080

The institutional memory of the financial industry is
about the lifespan of a fruit fly. John Diszard


Fear Factor: Has it dawned on you that we are being rescued by 13 economists, a lawyer, and one MBA. Bush claims he is "on top of the situation." Another thing to worry about.

Promo's: D.R. Horton, one of the nation's largest builders, is holding auctions of new houses advertised as "50% Off!" If you paid full price for a Horton house in Ventura County, or Riverside, in the last year or so, don't you feel honored?

Deja Vu All Over Again: The government is dumping another $200 billion in equity into the markets today. Through Fannie and Freddy. They are saving the little guy by saving the big guys first. The details get boring.

"A friend of a friend sort of thing.": Let's build a toll road! First we'll get our friends in government to pass a law saying that we can issue tax-exempt bonds to raise the money - it's for a social good, after all. And to make sure our friends in the administration kill government projects that would compete with us, we'll promise them jobs when they leave government. And then... What? Been done? Oh.

300 Words Or Less: In 2007, Americans' debt grew to 140% of their take-home pay. Once they got home they had to write a check for 14% of their take-home to the banks, just to stay even. Depressed, they got in the SUV and went out to dinner to cheer up. Over dinner, after agreeing to go to Cancun next week, they asked each other why they couldn't seem to save any money.

BBC: Egypt's President Mubarak has ordered the government to use its foreign reserves to buy wheat and has ordered the army to produce and distribute bread, in an attempt to cope with serious shortages caused by the price of what tripling since last summer. Shocking, having the army do things like that. Where's Halliburton?

Good Idea: Congress has required all 33 million foreigners who visit the US be fingerprinted when they arrive and when they leave the country. Congress did not say precisely the value of identifying a terrorist who has slipped into the country after he had slipped back out.

Making A Profit: It's claimed that some hedge funds shorted Bear Stearns, started rumors about Stearns solvency which started a run on the bank, from which they profited greatly as Stearns tanked. Cost? The Fed threw $30 billion in the pot. Possible, yes. Reminiscent of Reminiscences of a Stock Trader. The SEC is investigating.

Vanishing Act: The rate at which glaciers are thinning and melting more than doubled between 2004 and 2006, and the end is in sight. Glaciers in the Himalaya, for example, feed rivers that nearly 1 billion people are dependent on for water for themselves and their crops. It won't be just the glaciers that are thinning.

Twisting In The Wind: The leading industrial nations and their imitators - the gang responsible for 80% of greenhouse gas emissions - again have failed to agree on an approach to curbing these emissions. At the same time, scientists insist that emissions must be reduced by up to 40% in the next decade. It is the opposable thumb that sets us apart, not foresight.

Hair of the Dog: We're told that the root of our current problem was an environment of too low interest rates and the extension of too much credit, which lead to the housing bubble and the resulting credit contraction. Glance at what the Fed is up to: lowering interest rates and encouraging the extension of credit. Cause and the cure are the same, how convenient. Now if we could only find an environmentally sound bubble...

Honors Day: I was a few days late stumbling on Jeff Huber's latest rant, but I know a really good one when I see one and you should go read this one.

Tuesday, March 18, 2008

SAR #8079


And America lived happily ever after!


Monkey Do: Senator Clinton is urging the leadership of the Democratic Party to "look beyond mere delegate strength" in picking the party's presidential nominee. Much like Bush asked of the Supreme Court. She also says that the US cannot win in Iraq. Wonder which bothers her more.

Diplomacy: European Union countries have agreed to an emissions control plan that exempts heavy industries - those that emit emissions - from the controls. They got the idea from Bush's Clean Air Act.

Reckless Endangerment: The Federal Reserve decided to reduce the value of the dollar while increasing inflation by lowering the Fed Funds rate to 2.25%. Inflation's running above 4%. The government used to encourage savings... and victory gardens.

Tidbit: Russia has imposed export tariffs on nitrogen fertilizers (8.5%) and potassium (5%). More for the homefolks, less for the others; that's pretty selfish.

Incomplete: Visual aids can be quite informative. For example a data set of net non-borrowed reserves of depository institutions (banks!) by the St. Louis Fed is pretty drab, just numbers. But a chart of those numbers! Go take a look . The vertical line at the far right is not a mistake, it's a revelation.

Genuine Fakes: The SEC has ruled that municipal borrowers bidding on their own securities differs from putting on a cheap beard and a red wig and bidding on your own stuff at auction. Mostly the difference is they don't need the red wig.

Idle Hands: A New York securities trader is suing the club where he claims to have been injured during a lap dance. He should have tipped better or stayed at work and watched the market gyrate.

Range War: Chinook salmon, the most prized of the salmon species, have disappeared from the California-Oregon coast. Fishermen blame farmers for taking too much water from the rivers. Couldn't have been over-fishing.

Repositioning: Swiss bank UBS plans to cut 8,000 jobs. This is where the boss walks in and explains that it's nothing personal, but in order to save his job the company, you'll be out of the building in 20 minutes.

Conundrum: If lenders go back to the mortgage standards of yesteryear - the ones that worked - of 3 times annual take-home pay and 10% down, that would limit the average mortgage to $120,000. But we've a recession coming, incomes will drop. If income drops, prices will have to drop. Where's a calliope when you need one?

While You Were Out: Industrial production dropped sharply last month, with mines, factories and utilities running at only 80% of capacity. I've lost money on horses that ran harder than that.

Squeezed: The cost of the energy needed to mine "oil" from Canadian tar sands has again increased, making the undertaking questionable from both a energy return on energy invested basis and a dollar return on dollar invested basis. Extracting oil from the Alberta tar sands will be profitable soon, maybe when oil reaches $30 $50 $100 $150 a barrel.

Chute: Delta Air Lines is offering "voluntary retirement" to half of its employees and cutting flights by 5% as part of a drive to improve its business. It used to be in the service business, catering to travelers. Live freight seems to be the new concept.

Circus Acts: A chorus of legislators have begun chanting "save the housing market". The government must, they say, rescue the poor over-reaching mortgage issuers holders. How do they get so many clowns in such a tiny car?

Monday, March 17, 2008

SAR #8078

Things are going to get worse, before they get worst.


Three Balls: The Fed has created a new lending facility for "primary dealers" (big brokerage houses) which will let them dump their defective mortgage backed securities and receive Treasury Notes in return. The pawn will be for 90 days at the discount rate. The Fed also lowered the discount rate immediately, by 0.25%, to 3.25%, which is not enough to make anyone happy, but is enough to ratchet up inflation and further downgrade the value of the dollar.

Sooner Than Later: Police in the UK insist that primary school kids should be entered in the national DNA database "if they exhibit behavior indicating they may become criminals in later life." We got our concept of civil liberties from them. Maybe we should offer to loan it back, we're not using it.

Ice Skating: Bear Stearns was worth only 10% of its claimed balance sheet, probably less. If you subtract the Fed's $30 billion gift from the $250 million Morgan paid, Stearns net value appears to have been about minus $29.75 billion. Makes you want to read the footnotes.

Teacher's Pet: Twenty thousand California teachers are being notified that their positions are being abolished due to cuts in the state's education budget. Now the kids have not only been kicked out of their homes, they're getting screwed out of schooling, too. Quite an education they're getting.

Foam: The markets anticipate large write-downs of 'goodwill' by investment firms over the next few months. Writing off 'goodwill' is an accountant's way of admitting you paid too much for something. Ask Sprint about Nextel.

Adjustments: Kenya is acting out the doomsters' scenario for a post-peak oil world. The country's farmers are not preparing their fields for planting because of the high cost of fuel. Predictions are that yields will be less than half of normal. Some predict that that will become normal.

Clean Coal: Go to Eastern Kentucky, West Virginia. Fly over the Appalachians. See clean coal in the getting. Each week, coal companies use explosives equal to the Hiroshima bomb to turn mountaintops into rubble. Then they push the rubble into local streams. The EPA calls it "fill", not waste. The waste is the current EPA.

John Denver : With local government facing tax shortfalls, infrastructure repair and maintenance will suffer. We've been expecting more potholes and such. But in Michigan, three counties are considering letting the paved roads go back to gravel. Doing nothing as a plan.

Bluffing: The Army conducts 'lessons learned' examinations. Doctors attend 'morbidity and mortality' conferences. Learning from past mistakes is one of the hallmarks of professionals, learning from the mistakes of others is a mark of intelligence. A complete and willful disregard for history seems to be a prerequisite for a management position on Wall Street.

Mission Creep: The Federal Reserve Act has been mysteriously amended to enable the Fed to prop up not just banks, but brokerage houses. Directly. A former director of Monetary Affairs at the Fed says "It is a serious extension of putting the Federal Reserve's balance sheet in harm's way. That's got to tell you the economy is in a pretty precarious state." Comes as a shock, I tell you. A shock.

The Winner Is... Some think of my comments as mini-rants. Every now and then a really good rant is called for: today's Most Excellent Rant award goes to Sudden Debt's modernization of George Orwell. Go, read.