Conspiracy Theories Abound!

Recently there has been a number of articles and blogs on Zero Hedge and some other conspiracy theory type blogs. I do not comment here either way, but I must admit it is a fun read. First, I link an NY Times article on Zero Hedge, a blog that came out of no where this year to be a cult favorite. Second, the first article quotes from Jim Chanos, of Kynikos Associates, which is the subject of a good bit of discussion at the second blog I link, which to me is a good bit more entertaining. Indeed, it has movie, or series, written all over it if it were not perhaps true or close to it.

First Link

http://nymag.com/guides/money/2009/59457/

Second Link

http://www.deepcapture.com/

If you are bored and want some entertainment, both are worth a few hour of fun reading. And imagine if half of what they say it true.

Disclosures: None.

I Don't Get This Math

Yes, the savings rate is up, but if you look at this chart, you will see it has a long way to go to get back to historic norms. With the wealth evaporation of the past two years, mounting job losses, aging baby boomers past their peak and other considerations, one has to wonder where the savings are coming from, even at this low level.

http://www.businessinsider.com/chart-of-the-day-personal-saving-rate-2009-9

Moreover, Bloomberg is reporting that consumer spending was up significantly in August. Indeed, the biggest jump since 2001 and not all of it was due to cash for clunkers.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSbaO.gu.aps

Yet first time unemployment claims were higher than expected last week and foreclosures - residential and commercial - are on the rise.

http://www.bloomberg.com/apps/news?pid=20601109&sid=ak__6D.HTBQM

Finally, might I add that we as a country still have record amounts of debt.

http://blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

While on an individual level we have begun to deleverage (either through payment or default) on a government level we are increasing debt to dangerous levels. And there may be a limit to how long China and Japan will continue to fund our spending spree. Most Treasuries are now being bought by the Fed and foreign purchases were down 40% in the second quarter versus the first, so the government punch bowl may be taken away sooner than many expect.

There is something about this math that does not calculate for me. How can we make less, spend more and increase savings? The only answer I can think of is government stimulus. And government stimulus is not the same thing as an economy rebounding. And when that goes away we will see the recession in full bloom. Some view recession as a bad thing. While not dismissing the financial and other pain people will feel in a recession it unfortunately is the only cure for our excessive debt levels. It is a correction to many years of economically unsustainable spending on our part.

Disclosures: None.

The Sky is Falling!!

This is terrible, absolutely terrible!!! Compensation limitations may put Citigroup and Bank of America at a recruiting disadvantage. Oh my! I am not sure I will be able to sleep tonight!! Oh what will they do, what will they do?!

http://www.bloomberg.com/apps/news?pid=20601087&sid=av0Tkl_Q_pro

This Bodes Well!

Stocks are at their highest valuation in five years. Think about that a moment. Between two and five years ago we were in a roaring economy, or at least we thought. Things looked fantastic. Housing was booming, consumers were spending, businesses were opening left and right, yet the valuations on the stock market were less than they are today. Today we have housing continuing to struggle, consumers ramping up their savings rate, unemployment on the rise, commercial real estate beginning a long fall, foreclosures on the verge of an Alt-A explosion, and debt, on a government and individual level, still in record ranges. Yet we have the highest stock valuations in five years. Yep, that bodes well for the market.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ae0oGD7XmN9U

Disclosures: I have a number of put options.

The Voodoo that Feds Do

Okay, I just migrated away from my blog without saving an hour worth of work and it is all gone. So without all the verbage I had written, here are some well worth the read links about how the Fed is doing, and has for decades done, a terrible job and is in no small part responsible for the mess we are in, and is in no small part responsible for the new bubble we are seeking to build to get out of the last. I only hope they fail miserably so that we can suffer and take our medicine now. I for one do not want to put our mistakes on my children to deal with.

http://www.nakedcapitalism.com/2009/09/5324.html

http://www.calculatedriskblog.com/2009/09/fed-and-subprime-lendng-watchdog-that.html

To the Moon Alice!!

I think the market is taking off from here, not. Why not, let me count the ways:

• consumer debt, while a smidge lower than it was at the beginning of the year, is still near historic high;
• unemployment, while slowing, is going to go over 10%, perhaps 12%, and real unemployment is much higher, so this does not bode well for an economic recovery;
• commercial real estate is heading into the dumper big time. I need not link anything here if you are reading up on things, but daily there are articles on how hotels, malls and the like are suffering;
• residential real estate is reaching a bottom but, absent first time home buyer incentives, is still sucking wind. Builders still cannot hope to make money, especially if you include condos, which most stats do not include;
• the market has climbed to a very high P/E, even in good times. This glass is the more than half full society is bound to come back to Earth;
• there is a well known shadow inventory in the housing market. This is based on banks not foreclosing, homeowners not listing properties they would like to sell and the like. While official inventory is reduce down to less than eight months supply, we will see . . .; and
• the too big to fail banks still have significant toxic assets on their books. No one, including them, knows how much.

And so folks, I continue on the doom-and-gloom troop. I dare you, convince me I am wrong.

Disclosures: None.

It's 10:00, Do You Know Where Your Portfolio is Heading?

I don't know that the market will continue its decline tomorrow or even if it does for how long, but I do have a firm conviction on a macroeconomic level that the market is well above where it belongs at the moment and there is just so long it can defy gravity. I have given up on trying to predict when, but it will fall. And if the Nikkei is any indication, at the moment it is down 2.8%.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5wn0rKqNziY

"Shared National Credits [Pain]"

There is this thingy known as Shared National Credits whereby $20 million or more is collectively loaned by three or more unaffiliated institutions like banks, foreign banks, insurance companies, hedge funds, pensions and the like. Just think of them as big loans for big stuff. The FDIC just did a review, sampling, of these loans to see how they are doing. Answer, not too good. Mind you, there are $2.9 trillion of these outstanding, so not too good is problematic. What they call "criticized assets," i.e. anywhere from needing special attention to expected to be a loss, represent $642 billion of the loans, which is significantly higher than what they were in last year's review, when they stood at $373 billion. And you thought the worst was behind us.

http://www.fdic.gov/news/news/press/2009/pr09175.html

Then The Big News

Existing Home says unexpectedly declined in August. But if you are reading this, I suspect you already know that.

http://www.calculatedriskblog.com/2009/09/existing-home-sales-decline-in-august.html

Disclosures: None

The New Reality in Judging Success

French President Nicholas Sarkozy recently asked some very smart folks, including Joseph Stiglitz, to reassess how we should be gauging posperity. The traditional measure, growth in GDP, simply does not seem to hack it any more. At least that is what Stiglitz and the others concluded. They did not necessarily agree on the new roadmap or exactly what the new guage would be, they just agreed the old gauge is highly flawed.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aCcM_7rg22Bw

http://www.nytimes.com/2009/09/23/business/economy/23gdp.html?_r=1

Among the problems with a single-minded focus on GDP are:

• It can be built on a debt bubble and, as we are now seeing, this is not a good thing http://www.nakedcapitalism.com/2009/09/its-the-debt-stupid.html;
• It ignores environmental degradation and other quality of life issues that might potentially weigh on GDP growth;
• It ignores economic inequality in that we don't care where the GDP comes from or whether it is benefitting everyone;
• It ignores jobless rates;
• It ignores health care; and
• It ignores many of the things that tend to make us happy.

So what is the answer. Stiglitz and company did not say. Some, however, think the Danish might have the answer - taxes!

Yes, them Danes have one of the highest tax rates in the world, yet by pretty much all measuring sticks it is a highly prosperous country and a great place to live. I am not saying I would increase taxes tomorrow to 49% and make everyone happy, but certainly what the Danes are doing is worth some logical analysis. At least the country, taxes aside, seems to be focusing on some of the quality of life aspects to living that GDP growth ignores - or perhaps we just all feel we will feel better if we only have more to spend (based on debt or otherwise).

http://suddendebt.blogspot.com/2009/09/more-taxes-enyone.html

I don't have the answer, but I agree the single-minded focus on GDP is not it.

Disclosures: None

Go Paul Go!!!

This post is about two Pauls.

I remember being greatly heartened before the election when I heard that Paul Volcker would be part of the Obama financial team. I was equally disheartened later to learn that he was given second tier status to the likes of Geithner, Summers, Bernanke and others. Well, I think Paul is a bit tired of the Administration not hearing his voice, so he is letting the public hear it.

If you are unfamiliar with Volcker, he saved this country's collect arse from financial ruin in the 1980s by being willing to tell people where to stick it and being willing to have faith in his policies against the head winds of political pundits looking to do whatever is popular at the moment. He raised interest rates to outrageous levels and controlled runaway inflation. He is now largely being ignored despite his fancy title. And I suspect he does not like it one bit.

http://online.wsj.com/article/SB125313031639216991.html

You go Paul.!!!

Hitting the Nail on the Head!!

I have said many times how outraged I am at the money going to the banks that got us into this mess and how fueling more debt is not the best way to end a debt created crisis. This linked piece puts the point much more eloquently than I can. It points out the fatal flaw in the neoclassical economists, you know like Summers, approach to the situation, which unfortunately is the exact approach we have taken. As the link very aptly points out the best way to deal with a debt driven recession is to funnel the money to the debtors so they can pay down their debt and not give it to the lenders so they can create even more debt.

http://www.nakedcapitalism.com/2009/09/guest-post-steve-keen-out-thinks-larry-summers.html

The link points out a speech by Obama wherein he noted that giving the money to banks has a multiplier effect as they lend to others. The problem being it multiplies debt, not equity. We are a nation of debtors that need less credit not more. We need debt reduction, less spending and a renewed sense of fiscal conservatism. We are getting there but no thank to the Administration's approach, which if it worked would only build a new and bigger bubble. This is what keeps me up at nights.

It is About Time!

Congress created a commission to study our current financial crisis. They cleverly call it the Financial Crisis Inquiry Committee. Gee, wish I had thought of that. What strikes me is that we are at least two years into this crisis and the committee is just getting started. Perhaps that is a hint on how this all happened. Hmm?

http://www.calculatedriskblog.com/2009/09/ny-times-financial-crisis-inquiry.html

Quack, Quack!! (Another Paul)

And now the second Paul. My parents are in town to meet their new grandson. It was a truly wonderful weekend in New Hampshire. Dad was pretty sick a couple years back but finally got an accurate diagnosis and seems to be doing much better. Mentally he was on his game cutting jokes and showing the wit I love. My daughter and son were both pretty good with minimal fighting and tantrums. Mom is doing great and the weather was simply perfect. And today we drove into Boston and took the Duck Boat tours, which involved a WWII converted amphibious vehicle converted into a tourist bus that drives all around the historical sites in Boston before launching into the Charles River and continuing the tour by sea. Our guide, Paul from Revere, was excellent and I learned a good deal about Boston and U.S. history in 80 minutes. I highly recommend it. Every time Paul would call out "One if by land and two if by sea" we would all shout out "quack, quack!" All that is except my two year old son who slept through nearly the entire tour.

Quack, Quack everyone!

Disclosures: none.