So Where From Here?

I honestly have no idea. At least short to medium term I gave up a long time ago on trying to figure it out. I focus on macro issues and the market does not. I have learned the hard way that I can be wrong for a very, very long time only to be proven right later in time after losing some money investing on my beliefs. I have made no new investments for pretty much the entire year as I am disgusted at the irrational behaviour of the markets. Ironically, I know that irrational markets are the norm so it is irrational for me to expect anything else.

So, as much as I still hope I am wrong, I fear now my macro beliefs are proving true and we have some relatively severe pain ahead. I simply see no way around it despite what our inept politicians do to stop it. More significantly - and pay attention here - I do not think we should figure out a way around it. Instead, we need to figure out a way to allow - perhaps even make- it to happen but with the least collateral damage possible. Ask Japan (my heart goes out to them with all the natural disasters this year including today) whether it makes sense to kick the can. They have been doing it for roughly 20 years, seriously 20 years. We need to take our medicine, figure a way to take out the garbage with the least pain, and move on with it. As Moody's or S&P or whoever said in its downgrade this week of the big boys - you know Bank of America, Citigroup, and WF, their downgrade was based in large part upon their belief that the U.S. government no longer considers them too big to fail and may allow them to fail in a new financial crisis; not that a new crisis will happen or the U.S. will do this but the odds have increased.

Here is my proposal, flush the toilet and get rid of the stench. Let the weak players fail and clean up the mess. When they fail, let the governments of the world build more deficits, yes more, to clean up the mess, put it behind us and let the economy start to grow again so we can put this behind us and start reducing the deficits.

And behind my recommendation is a big secret. Listen close, yes put your ear up to the screen and listen carefully as this is a major, as in do not disclose, as in Max Smart talking into his shoe phone type of secret. Ready for it, well here it is: THERE ARE A HOST OF MAJOR COMPANIES IN THIS WORLD WITH AN ABUNDANCE OF CAPITAL SITTING ON THE SIDELINES WAITING TO BE PUT TO WORK BUT THEY WILL NOT DO THIS BECAUSE THERE ARE NO GOOD PLACES TO PUT IT TO WORK. TAKE OUT THE DEAD WOOD AND LET THIS CAPITAL BE PUT TO GOOD USE. THE CREATED FINANCIAL VOIDS BY TBTF COMPANIES GOING UNDER WILL QUICKLY BE FILLED. AND, BY THE WAY, SINCE NO ONE IS BORROWING ANY MORE, TELL ME EXACTLY WHAT FINANCIAL VOID EXISTS THAT WE WILL NEED TO FILL?

Just my take, sports fans.

Disclosures: None.

Twist and Turn, Twisting in the Wind, Twist and Shout, A New Twist, Twisted Ben

The headlines are flying and likely to fly more tomorrow on how my dearest friend Ben has announced his and the Feds (three dissented) to sell bonds with short term maturities and replace them with bonds with six and 30 years. In addition, mortgage backed securities they own now will be replaced with new ones to support the mortgage market. Plan is to lower long term rates below their already record lows. Every one and their brother recognizes that rates are not the problem and this is unlikely to do much, but Ben is not one to sit on his hands and the political environment is not there at the moment for more QE. Either the market did not like what is being dubbed "Operation Twist" or they did not like talk about "significant downside risks." Either way, they did a cliff dive. On the other side, they may just be waking up to the fact that there is little economically to be real happy about at the moment.

http://www.bloomberg.com/news/2011-09-22/asia-stocks-commodities-drop-on-fed-comments-bank-downgrades-won-sinks.html

I mean after all, poverty is up in the U.S., the middle class is making less than it did 10 years ago and effectively what it did 20 years ago and all the money in this country is increasingly consolidated in the very wealthy. Indeed, the collective worth in the Forbes American top 400 went up by 12% over the past year. Gates is at the top of the list followed by Warren Buffet. But here is something a bit odd, the person Forbes reported as the richest person in the world just a few months back was not on the list of the top 400 in America. I admit I did not read the entire list but back in March Carlos Slim Helu had $74 billion and I went down the Forbes 400 list to the $5 billion level and he did not appear. Either he has had a horrific six months or Forbes does not consider him an American. Last I checked America included a lot of countries and not just the U.S. Mr. Slim Helu is from Mexico, which is part of America just as much as the U.S. , Canada or a host of other countries. So maybe the list needs to be called the 400 richest people in the U.S., which I believe is what it represents. Just a thought.

Disclosures: None

Pulling a Japan

So, S&P just cut the Italian sausage.

http://www.bbc.co.uk/news/business-14981718

No big deal, just fate coming down the road. Hey, the EU is going to suck wind for years to come and all the moves there and in the U.S. are simply determining how long our problems will take to work out. Unfortunately they/we are pulling a Japan, so this could take a very, very long time. We need to take some pain now and stop kicking cans but politicians cannot take pain now as they need to get elected.