CDS Positions on GM and Chrysler

I have wondered what impact the Chrysler and GM bankruptcies have had on credit default swap positions. Given that the CDS market is still tens of trillions, I have to think the effect is not minimal. Nonetheless, despite the piece I am linking, I have seen very little on the issue. If anyone out there has details on the knock on effects to the CDS market, please chime in.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aibJIxm34kYM

Disclosures: None

Green Shoots Abound

I am reading the mainstream financial press and everything is coming up roses. I mean auto sales are picking up, unemployment numbers are better than expected, the stock markets are climbing around the world and they are giving away free beer at the local car wash. Okay, I made the last bit up but government dollars that will not last forever made up the rest of the story. Seriously folks, how long can we live off borrowed stimulus dollars? Let me put that question a different way, when do we run out of borrowed stimulus dollars and actually have to consider paying down the debt? More debt, even on a government level, does not cure debt on an individual level, especially the way we have been focusing our stimulus dollars.

I am a lawyer, not an economist (please hold the jokes), but I do not think it takes an economist to see what is wrong with this picture. Indeed, it seems to take some who are not economists to see what is going on. Daily I am seeing "economists" citing anecdotal evidence as proof the recession is over. Repeatedly ignoring fundamentals that I assume they had to be taught at some point in time before people started quoting them. I feel like the blind man pointing out that the King has no clothes.

I know I am not the only one in this situation, but I am amazed at the number of people who I follow saying the same thing while the mainstream press has a growing mass of green shoot spotters clamoring daily on this or that seemingly positive news. I like positive news. Ask my friends, I am an optimist generally speaking. Yet I am not willing to stick my head in the sand.

With this being said, let me note that the last three paragraphs were written before I started reading the post I am about to link. Kinda spooky if you ask me as Yves is saying the exact same thing. An important lesson in the linked piece is that confidence is an important piece to a recovery but it cannot substitute for a proper foundation. Another point I hate to add, but must, is that once we pop the bubble on this fake recovery, confidence will be very very hard to restore. It is not wise to build fake confidence.

http://www.nakedcapitalism.com/2009/06/team-obama-con-game-gets-official.html

The fact that Yves at Naked Capitalism is saying the same thing is not surprising to me as I have followed her closely and she knows her stuff. What surprises me is that she links a piece at the NY Times basically saying the same thing. Far too few mainstream media folks have had the courage to do this to date - perhaps toting the "it is all in our heads" mantra. This is an op-ed piece and well worth read. It asks some hard questions that Obama needs to answer. I voted for the guy but am not at all happy yet with his financial moves, which I am sure you have guessed if you have followed me at all.

So you do not believe me or Yves on our less than stellar view of the economy. Who should we trust? Well we know not to trust the media - they have news to sell and will tell us whatever will sell. We know not to trust the government, they have lied to us throughout this process - despite Obama recently noting he would always give us the truth (words I am sure he will have to eat in time). We can, however, trust insiders at businesses to tell us the truth with their actions. Namely, are insiders buying or selling their company's stock? You know the answer without me telling you. They are selling big time and there is very little buying. I guess we have to call that a brown shoot.

http://www.financialarmageddon.com/2009/06/wall-street-still-clueless.html

Okay, this is a bit coincidental. I just went to Mish's Economic Trend Analysis and his lead story is pretty much the same - economists are way too optimistic. He has some good stats to back up the claim. I like the prediction that unemployment would stay under 5% through 2013. Hopefully the economists giving that prediction are now among the unemployed. And as he points out, the "adverse" numbers used for the non-stress tests we did on the banks - you know the worst case scenario - are already proving to be much more optimistic than reality. Some were already blown out of the water before the results were announced, but we still stuck by our original test parameters. Now that is a confidence booster in my book.

Decide for yourself. I did not see the massive market rebound from March 9 coming and certainly do not see it continuing, yet who knows what trillions in stimulus might eventually do. What I can see is that fundamentals of a sustainable economy are still sorely lacking and that has me quite worried for the medium and long term. I am truly frustrated at the short term focus of most governments around the world and truly hope we start working on the disease, not the symptoms.

Disclosures: None.

Similar to theGreat Depression?

I am posting a nice piece the compares our stats to date to how thing went in the Great Depression. This piece looks back in time and looks at how well we have done to date. It does not look to the future too much. It notes how our current financial stimulus is different from what was done then. Different yes, better? You decide.

http://www.voxeu.org/index.php?q=node/3421

That Birth - Death Thingy!

Here is a post on how some of the recently released numbers continued to be cooked a bit.

http://www.nakedcapitalism.com/2009/06/guest-post-payroll-data-mixed-despite.html

I am zoning right now so I will not give my own take on this. Hopefully this weekend I will catch up on reality. Which will be way ahead of most others, so I can take my time.

Disclosures: None.

Time To Bargain Hunt

This is brilliant. United is doing competitive bids for new jets just when the sellers are desperate for orders.

http://online.wsj.com/article/SB124408456205084093.html#mod%3DtestMod%26articleTabs%3Dcomments

Now is the time to buy - if you can. Let me emphasize the last part again - IF YOU CAN. I realize that not everyone or every corporation can pay for or finance any big purchases right now but that is exactly what any corporation or individual who can should be doing. I am not recommending buying things not needed but now is the ideal time to buy things that are needed, individually or corporate wise.

Just a thought. I know people are looking at stocks being cheap and a good investment, but it is a good time to think outside that box on other things you might need now or in the future - if you can afford it. Good luck.

Disclosures: None

Back From the Great Wall

Let me preface this post with the fact that I have spent 28 hours traveling, I just had a couple of glasses of wine, and I am zoning - just a bit.

I have not had time to read up on financial matters, so I want to spend this post updating folks on my observations of China. I was there four years ago and again now, so I will focus a bit on the contrast:

• When I was there four years ago I went to three major cities. I began in Beijing. This was three years before the Olympics but I did notice things seemed to be evolving towards that event. Either way, I mentioned at the time that the national bird must be the crane, as in the construction crane. Cranes were in every view from every angle and buildings were going up everywhere;
• This time I saw a lot of cranes but most were just there not moving. A lot of major buildings seeming under construction but no activity. I noted that most of the scaffolding for sky scrappers - 50 floors plus - was bamboo, and had to wonder just how strong it is.
• Especially in Beijing it seemed that a lot of the old had disappeared over four years. There are a lot of new buildings up and a lot more under construction. The old shops and homes are quickly disappearing. Our guide noted that the older homes had almost disappeared in the last decade and most that remain are now regarded as historical landmarks.
• I saw a lot more Chinese people with money. I was at nice hotels and ate sometimes at the hotel restaurant. It was expensive by US standards, yet is was packed with wealthy Chinese.
• It seems the wealth disparity visits all countries

And now let me tell you some less financially oriented observations:

We were in Guangzhou to adopt but while there saw a lot of people, adults, playing at the play area and working out. This seemed to be a children's playground, but it was for the adults. They played there aged 2 to 90 (yes,90 and above) and they all had fun.

Despite all the progress I observed, toilets are still hit or miss. Even in nice venues, you get their squat toilets and commonly no toilet paper. Squat toilets, in case you are wondering, are holes in the ground. Sometimes they are glorified porcelin holes that actually flush but they are still holes in the ground that you squat over.

Still, in some respects I believe China is well ahead of us. They are very good on conserving paper. I am certain they do it for economic reasons and not environmental, but nonetheless they put us to shame. Now I am not a fan of no toilet paper, but there is something to be said for getting a small napkin or even just tissue to wipe your face at dinner. Even having tissue instead of paper towels in the bathroom makes sense.

I have a lot more observations and will add them as time goes on. I am a bit too tired to pass them all on right now. And I need to play with my son. Did I mention, I came back with the most wonderful two year old boy. And that, my friends, is yet another story.

Disclosures: None.

Heeellllooo from China!!!

This is my first and probably last post while visiting China.  The internet is censored and I am unable to read my own blog (directly).  I have a way around it, but we will keep quiet on that for the moment.  Most of the blogs I follow are also blocked and working around the blocks is a bit slow and cumbersome, so I am a bit economic news deprived.  Just as well, two little ones to keep up with here.  The youngest is taking a nap, which is giving me time to slip this in.

I see the markets ended May with a last minute"everybody in the pool" event.  I guess that solves it, recession over.  I can now shut down my blog and wait for the next economic crisis.

Unfortunately,  I think that would be a tad premature.  Think about it, the governments around the world throw a few trillion dollars at the crisis and, surprise, the economy "appears" to look to be on the rebound.  Tell that to the jobless folks and the tax collectors.  They are not seeing it just yet.

As Financial Armageddon reports, those collecting the taxes are going through a bit of a dry spell, and this is one stat the government has a hard time cooking.  (I would love to link the article but I am having some technical difficulties from half way around the world.  Go to financialarmageddon and find the article from May 28 on "Not Much Doubt in these Numbers" to see what I am talking about. 

From my perspective, the government is taking a scene out of a Kevin Costner film - build it and they will come.  There is a slight variation here, however, as the infrastructure is already built for an economy that no longer exists, so their motto has been "keep it built and they will come back."  There are some exceptions to this.  Auto manufacturers are downsizing - through bankruptcy or otherwise - to more sustainable levels, and some other no longer needed retailers are going out of business, yet we insist on spending trillions in taxpayer dollars maintaing financial behemouths that have outlived their useful lives.  Go figure?

The policitians have yet to latch on to the new reality.  We need to downsize in all the sectors built on over-leveraging, be it on the individual or corporate level.  We need to get to a sustainable economy, i.e. one that is not dependent on government stimulus for survival.  There is a lot more shrinkage needed and the sooner we get on with it the better.  Nonetheless, we are hell bent on spending trillions to prevent a well needed correction.  We are, my friends, simply kicking the can down the road.  For me, the challenge has become trying to figure out how far down the road we can kick it before we have to face reality.  Right now I am thinking it could be  a couple of years or so.  We will see.   Either way, we will catch up to the can.  Be ready for it.  Meanwhile, who knows what to expect.  One thing for sure,  I disagree with the "majority" of "economists"  who apparently are saying we are on the verge of recovery and everything should be honky dory by 2010.

I must say, however, if we are going to spend the money the BRIC proposal seems much more sensible;  spending it on the real economy, not the financial sector.  I agree with their assessment that our stimulus approach to date has been misdirected and "shallow."

You can get the full story at www.economicroadmap.com/2009/05/meet-the-new-bosses.html

You may think my predictions are wrong, but keep in mind that I am 12 hours ahead of you.  So, some of your future is already my past.

Disclosures: None

See You Later!!

I am outa' here. I am in China for the next two weeks and expect to have little to no ability to blog. So search elsewhere until mid-June. One last passing thought - the market was up a lot today. I am looking for gravity to take hold here soon.

Disclosures: None