More of the Same - But Perhaps Some Are Listening?!

Finally, an honest banker among the big boys. Okay, he is retired, but that makes him a tad less biased, and as a former Chairman of Citigroup, the guy has major street cred and mojo, whatever that means. In any event, he agrees with Volcker - something I have been recommending for many months - that there needs to be a division between traditional banking and those that deal primarily with capital markets. And he agrees that more demanding capital requirements would help. Go figure?
http://www.nytimes.com/2009/10/23/opinion/l23volcker.html?_r=2

Hang Him High

If you ask me Stephen Friedman, who benefited by millions off taxpayers through what appears to be conflict of interest should repay it all. And the company for which he is a director should give us back around $14 billion. See, it turns out that Goldman made about $14 billion off of AIG's demise and that money came from the folks on the street - as in us taxpayers. Now they probably would have done okay without us, but that does not change the fact that they did even better with our money, just in time to start paying record bonuses again. Disgusted, I am, and I hope the prosecutors figure out a way to get the bucks back from Goldman one way or another. Friedman, on he other hand, deserves to be in jail in my opinion. He was playing both sides of the fence - director for the Fed of NY who approved AIG payments to Goldman and also director for Goldman - and to add insult to injury added his own multi-million dollar investment in Goldman before the Fed payment was announced to make sure he made out personally. I am ill again. Then again, I have been ill a lot lately. He claims he is being falsely portrayed, which is easy for someone with many millions of new found dollars to say.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a7T5HaOgYHpE

Must Read of the Month

And here is the must read of the day, week and month. I have mentioned before Jeremy Grantham of GMO. He is one advisor who understands what is going on. He is now out with his latest quarterly report. It is a long read - 14 pages - but do not skip to the ending. The tale is best read from cover to cover. Well worth the read and I highly recommend it.

http://www.gmo.com/websitecontent/JGLetter_ALL_3Q09.pdf

Disclosures: None.

Survey says . . .

The consumer confidence numbers came out this morning and they unexpectedly (depending on your expectation) dropped. Indeed, not one economist, of the 79 surveyed, was as pessimistic as the actual result - not one.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_xPp7Pzgs5E

I noted earlier this month how not one out of 80 economists surveyed was right or pessimistic enough on the jobs report on October 2 - not one.

http://www.google.com/hostednews/afp/article/ALeqM5jNat8FSYDU-6wVcrkdfTsuIylT4g

How is it we keep listening to these people? Very few of these "experts" forecast our current situation, yet we still like to survey them and some seem willing to believe them. Face it folks, the job market is in shambles, debt is off the charts (both public and private) and the current stimulus is running out of steam. What is there to be confident about? I am confident we are in for more pain, I just do not know when the markets will wake up to this fact and react.

Disclosures: None.

Are You Outraged Yet? You Should Be!!

A couple of days ago the market dropped due to an analyst downgrading Wells Fargo to sell from hold. Part of the reasoning was that the Wells Fargo profit was tied to mortgage servicing, which is not an income stream that is sustainable in the long run. As it turns out, however, the companies making the most from loan servicing include Bank of America, Citigroup and JPMogan Chase; go figure.

http://online.wsj.com/article/BT-CO-20091022-708579.html

So hey, you say, what does it matter where their profit comes from. Well, if you understand the situation, you are going to be just a little bit pissed off. Let's start with the fact the these financial institutions brought us the financial meltdown of the past year or two by playing a lot of financial games. We are talking derivatives and high leverage games that led to serious problems from which the entire planet is suffering. Next we move to the fact that we the people bailed out their collective arses at great cost. Our government debt is at record levels and our children and grandchildren will pay the price. Then we move on to how these too big to fail idiots continued providing big bonuses to themselves and dividends to their stockholders with our money. Upset yet? You will be. Now many of these companies are returning to profitability despite record numbers of Americans losing their homes due in no small part to the policies of the financial institutions. What do I mean by that?

Well, most banks securitized their mortgage portfolios and sold them off to investors. The loans were sliced and diced ad infinitum. Yet they remained the servicers on the loans, extracting fees for collecting payments and foreclosing on homes. As it turns out, many of the financial institutions that created the current mess are making loads of money off of the misery of those facing foreclosure. They are profiting from our pain and they are avoiding loan modifications because they can make more money through the foreclosure route. Are you outraged yet?

http://www.creditwritedowns.com/2009/10/why-mortgages-arent-modified-and-what-a-ruling-stopping-foreclosures-means.html

Disclosures: None.

I am Totally Doubting My Vote.

I voted for Obama. I have for years liked McCain but during the election he caved too much to the far right and made some rather radical statements, and then he had Governor Palin as VP and I had no choice. Not that I was adverse to Obama, but I was not totally sold on him and among Republicans McCain was one I felt I could support. I am still not saying I would vote for McCain, especially with his inexperienced Alaskan sidekick (not saying here that I like Biden, but he has some experience), but I would have many more reservations about Obama if I knew then what I know now. I did not vote for him in the primary and now I believe I was right.

So why so down on Obama? Well, he is paying attention on the financial front to idiots. You know, like Geithner, Summers, Bernanke, Paulson and the like. Meanwhile he is ignoring tons of respected economists who say to nationalize and break up the too big to fail idiots that brought us her. He is ignoring his respected advisors. He is building a new bubble, inspiring people to spend when they need to save. Building new problems, I suspect for political banefits, not benefits to the country. I am truly disheartened by his financial performance to date and truly believe we are financially in a very, very precarious state at this moment.

One man I respect is Paul Volcker. One reason I voted for Obama is that he had Volcker on his staff of economic advisors. Now the elected idiot is ignoring (and has for some time) his most knowlegeable and least biased advisor. WAKE UP OBAMA AND LISTEN TO THIS MAN!! HE IS SAYING THINGS FOR THE NATIONAL GOOD, NOT THE WALL STREET GOOD!! If this jerk does not wake up soon I will actively campaign against him in three years, probably sooner.

http://business.theatlantic.com/2009/10/volckers_quest_to_reinstate_glass-steagall.php#

Disclosures: I am a life long Democrat and doing this post was totally against my grain but someone has to do it.

The End is Near - Or at Least a Lot Closer!!

I am squarely back in chicken little territory (like I ever left). Nonetheless, I have this really bad feeling. It could be the market reversal between March and now being the most extreme since the Great Depression (what was so "great" about it) or it could be that consumer debt versus income is still at record levels and climbing.

Either way, we are into the old bubble pop territory. Yep, I am not feeling at ease about this recovery. You judge for yourself.

Disclosures: None.

S&P P/E at 140!

According to the NY Fed, the S&P P/E hit 140 on October 7 and the market is up further since then.

http://www.newyorkfed.org/research/directors_charts/ipage20.pdf

Need I say more.

Disclosures: This is insane.

The Sky May Not Be Falling But The Ice Is Melting!

Here is a must read article about our current mess. Whether you understand the complete ramifications of the article is not the important point for my purposes. You will understand the incredible charts, which are self-explanatory. If you look at these charts and still say we are out of the woods, you are in need of therapy. And if you understand the article, you know the charts are not even half the bad news.

http://jessescrossroadscafe.blogspot.com/2009/10/speculative-bubble-in-equities-and-case.html

My favorite chart is this one:

https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg0tSSvJdVtfy1fsn-x1TMB2fb0SNC-VyAoLffeEOmcHlfBMWMlQw3XRTYYS5bMXmiFpNXrKpPuTSn1DlubBHbSSab6zbNV1R4AtVjru1o1iI4ZWJ8AbHKRuJguCiB00-vdqv20FXF8laM/s1600-h/peratio.jpg

Look at that link and tell me you are dying to buy into this bull market.

It's the Demographics!

There has been significant focus on a whole host of economic woes facing us in this recession. Not to depress you, but if we escape our current economic mess, predictions are that the demographics in the U.S. still doom us to an ultimate depression. In other words, our economy was already doomed, without the recent recession, as we have an aging population to support and no obvious means to do so. So what happens if the current crisis is still looming or our newly created bubble bursts when the demographic issues really start to set in? I am moving to Brazil and taking my family with me. That is what happens.

http://www.nakedcapitalism.com/2009/10/guest-post-the-other-economic-crisis.html

And it would appear that the poor economic conditions are leading to an acceleration of the aging baby boomer population electing to retire and take Social Security, which will tax the system earlier than demographic models have predicted. We unfortunately, demographically speaking, are coming upon a time when people should be working longer, yet the bad economic times are causing the opposite.

http://www.financialarmageddon.com/2009/10/not-so-negligible.html

And to add to our demographic woes, pensions far and near - especially government pensions - are being severely stressed in this recession. Some managers claim they will never recover and be able to pay full benefits. Worse yet, despite significant drops in values over the past two years, many are turning to or keeping with risky investments to boost returns. If you read the lead in link on this post above, you will see how truly foolish such a strategy is today. The stock market is up at an unbelievable level right now, so the pensions should be taking their profits and hunkering down for a while. Economist after economist is referring to the current market conditions as irrational. And yes, I know that Keynes said markets can stay irrational longer than I can stay solvent, but at some point gravity sets in big time and I do not see pension managers catching the turning point this time around if they did not last time around. There most certainly is no significant medium term gain from where we are now, but heck, what do I know.

http://globaleconomicanalysis.blogspot.com/2009/10/five-major-pension-problems-one-simple.html

It's the Climate!

Now that I have you really in a good mood, let me pop this tidbit upon you. New research says that prolonged CO2 levels slightly above current levels (where we are heading and expect to head) may be tied to ocean levels 100+ feet higher than where they are currently. The scientists cannot say with any certainty how long it would take at these levels of CO2 for this to happen or if exceeding these CO2 levels significantly - as expected in the medium term - might tip the scales toward a rapid acceleration, but it is certainly something to tell you children about when they ask for a scary story. So what happens if the oceans rise 100+ feet? My home in New Hampshire probably becomes beach front. But with the accompanying financial melt down, I will consider moving to the Himalayas.

http://news.bbc.co.uk/2/hi/science/nature/8299426.stm

Disclosures: none.