Monday, November 30, 2009

Punish the sober, exalt the drunk, the Oracle at Eccles has junk in the trunk

'And you always think
Always speak cryptically
I should know
that you're no good for me
-Katy Perry

'Oh what a tangled web we weave, When first we practice to deceive'
- Sir Walter Scott

'Stand and deliver
your money or your life!
And even though
you fool your souls
Your conscience will be mine
all mine.
-Adam and the Ants

The Oracle at Eccles stating that we can't handle the truth is the fiscal equivalent of Stockholm's Syndrome.

But you already knew that.

The strong dollar policy is facetiously olfactorius ; the chimera of currency debasement masquerading as America's wealth exporting machine that is regularly promulgated by our leaders as an exceptional example of America's resiliency.

But you already knew that.

Employment, inflation, productivity, GDP, and other sundry stats are massaged into irrelevance and yet are perennially market-moving.

But you already knew that.

The markets are rigged.

But you already knew that.

As a corollary, spooks align with certain hedgies towards mischievous ends...

Did I get you on that one? Well, if so, tis only 'cause one of them confided in me.

Please don't knock on my door Mr. Hand, I have no specifics.

Fooled by randomness? Or tooled by randomness?

From troubles to bubbles and back again?

Or has the Great Moderation morphed into the Great Modification?

If the intelligentsia of finance are squared off between deflation and hyperinflation, is the true Black Swan one of these two likely scenarios not occurring?

To paraphrase Winnie, it is a riddle, wrapped in a mystery, inside an enigma; but there is a key. That key is the Amerikantura's (copyright applied for) interest.

The new marketplace of ideas.

Down is up, up is down.

Punish the sober.

Exalt the drunk.

And we all know that the Oracle at Eccles

has junk in the trunk.

After the locusts comes the famine

'Well I don't care about history
'Cause that's not where I wanna be
Don't wanna be taught to be no fool

'Just a spoonful of sugar helps the medicine go down
In a most delightful way
The job's a game
-Mary Poppins

'Plenty of sunshine headin' my way
Zip-a-dee-doo-dah, zip-a-dee-ay
Mister Bluebird's on my shoulder
-Uncle Remus

Do you remember the first of December?

S&P down 8.93% on 12/01/08. The worst one day performance in December for the S&P 500 was -5.41% in 1929. The worst first day of the month ever for the S&P 500 was -4.76% in June 1931.

In 2008, Black Friday sales measured by ShopperTrak rose 3 percent compared to the prior year's Black Friday.

TNS Retail Forward senior economist(December 5, 2008): "The good news is that shoppers are not further tightening their spending plans."

(December 7, 2008) :More than 172 million shoppers throughout the United States visited stores or Web sites during Black Friday weekend, according to the National Retail Federation in Washington, D.C. That represented a 17.7 percent increase compared with 2007. "There was a lot of demand out there, and there were discounts that people couldn't pass up," said Federation spokesman Scott Krugman.

(December 7, 2008) :Richard Giss, a retail analyst with the Los Angeles office of Deloitte LLP,said most retailers probably will be satisfied to match their 2007 sales figures or maybe record a slight year-to-year increase.

Sound familiar? Vuja de non!

Last year's entire holiday season marked the worst performance in nearly 40 years.

Here's a thought experiment:

Door #1: More Shoppers, average spending up; Bubblevision Headline: Thanksgiving Sales Rise signalling recovery

Door #2: Less Shoppers, average spending up; Bubblevision Headline: Thanksgiving Sales signal pent-up demand

Door #3: More shoppers, average spending down; Bubblevision Headline: Thanksgiving Sales rise as expected

Door #4: Less shoppers, average spending down; Bubblevision Headline: Thanksgiving Sales suggest shoppers waiting for bargains, forecast of increasing traffic

If quantum theory is correct there exists a reality where Bubblevision focuses on the fact that this year's reporting is eerily similar to 2008 Black Friday's commentary and that since there is one more shopping day this holiday season, if we're flat year over year we are actually down.

Or in other words, after the locusts comes the famine.

Saturday, November 28, 2009

Adam Smith's hair is on fire, The Hand puts its mouth where the money is

'Do you know where you're going to?
Do you like the things that life is showing you
Where are you going to?
Do you know...?
-Diana Ross
But we don't know where we've been
And we know what we're knowin'
But we can't say what we've seen
And we're not little children
And we know what we want
And the future is certain
Give us time to work it out

We're on a road to nowhere'

-Talking Heads

'Say your prayers little one
We're off to never never-land

'Honey, they don't call it a job for nothin'
-Samantha Jones

Never have so many been so confident of so little done with so much.

'Tis fiscal and financial pornography, Adventures of the Fed Volume 1 : Gangbanging a string; or as the venerable Todd Harrison has so adroitly observed, the government is all in.

The dividing lines have been drawn, on one side are the Naysaying Nabobs of Nancy Capitalism that, with beige books extended, are unwavering in their dogma that Chairman Ben will perpetually liquefy their chalice of confidence, and on the other side are the few the proud, the misfits... the Atticus Finchs that believe that reality is the tail risk. With arms extended they proclaim : We are not idealists to believe firmly in the integrity of our economic system. That’s no ideal to us. That is a living, working reality! Now we are confident that you Mr. Market will review without passion the evidence that you have heard, come to a decision, and will uh, uh, well, uh ...

Then they stop and scratch their head and say ... the government is all in isn't it?

Yet the game is not over, the chips are up for grabs. Reality is raising, can we cover? Sam says he might not be able to cover, opponents eye his watch, 'Is that gold?' He hands it over. Still not enough. Sam's lady is eyed. 'What's her name?'

'Liberty. But she ain't for sale.'

A chuckle is returned,'Everything has a price Mr. Bond.'

Everything it would seem except legacy grrr I mean troubled grrr I mean toxic grrr I mean bad speculative bets where taxpayers have socialized the downside and banksters have piratized the upside.

By Aline Van Duyn
November 28 2009 02:00
Financial Times

'There are two strands to working out how much these securities are worth. The first is the shifting macroeconomic environment that affects values. Take mortgages: in spite of the improvement in house prices in recent months, whether another drop will follow is far from clear. This makes it difficult to be sure what the foreclosure rates will be, for example, and the values of bonds backed by such mortgages.

Second, the value of many of these securities depends on what the rights are of different owners of different tranches and how these rights are enforced. "Tranche warfare" is an apt name for it - getting your money often involves an active battle with other investors. This means other investors can take actions that may hurt the tranche you own. This is one strong reason that more banks are trying to devise ways of putting these assets into "bad bank"-type structures. The skills needed to deal with distressed structured bonds are not the same as handling more traditional debt problems.'


Here's a thought experiment. Put the banksters in a room. Tell 'em that in 5 days they have to come up with a 8&1/2 by 11 showing the current market value of every asset on and off their books or else they will be wiped out and forced to work at minimum wage for the rest of their natural lives.

How fast would they come back with a number?

Faster than Mack the Knife could tell Geithner to get f@#&*d.

Friday, November 27, 2009

Turkey day in Dubai at a Greek restaurant with Vietnamese spring rolls and Austrian garnish

'Consider a turkey that is fed every day. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. The same hand that feeds you can be the one that wrings your neck. The Black Swan is a sucker's problem.'
-Nassim Taleb

New York Times
May 18th, 1931

The Vienna Stock exchange remained fairly calm this week in the face of the news regarding the Kreditanstalt. The comment, is made, however, that the existing valuation of most shares almost excludes further depreciation. The Vienna money market continues easy, with offers of short-term foreign credits from America at 3 and one-half per cent, but with little demand for them.

The troubles of the Kreditanstalt are quite unanimously ascribed here to the unsound policy pursued in 1929, when the crippled Bodenkreditanstalt was attached to the larger concern. But the aggravated crisis in Austrian industry has necessarily also had its influence. As a result of the peculiar development of Austrian bank affairs, both of these leading banks had well-nigh become owners of a large portion of Austrian industry.

Losses in such industries as metals, textiles, and petroleum, with many others, thus became the immediate losses of the Kreditanstalt. That institution had not suffered loss through use of its funds in speculation, but the heavy fall in prices for immense parcels of Austrian industrial shares held by it have reacted on the balance sheet, thus impairing the bank's capital.

Under the ordinary operation of Austrian law the bad showing of the statement on which Baron Rothschild, president of the Kreditansalt, insisted, would have made the winding-up of the bank inevitable. Through this process all actual liabilities would have been covered, but on the other hand nearly three-quarters of Austrian industry would have been brought to a standstill.

The contract with the governement, however, as already passed by Parliment, provides that the State together with the national bank will cover 69,000,000 schillings of losses "à fond perdu," (translation : without any chance of getting back -AM) while 31,000,000 will be made up through reduction of the present share capital and use of 40,000,000 schillings from the reserve fund. In all, the State bank and the Rothschilds together acquire 83,000,000 schillings of the new shares. Thus, after covering losses, the share capital will amount to over 170,000,000 schillings, of which the State and national bank will own 47 percent.

Since the Rothschilds and the chief shareholders this time had required that the worst should be shown by the balance sheet drawn up, it is not thought that further losses will become evident in the near future. The fact which will cause difficulty is that the Socialists welcome the compulsory of State capitalism, with control of almost all production by the government, and wish to maintain it, whereas the "bourgeois" parties and financial circles desire the speediest possible sale of the credit shares held by the State to an outside syndicate.

(Oh come on admit it, the last paragraph had to make you chuckle, if not wince ... -AM)

Published: November 26 2009 20:12
FT editorial

Of all the glitzy emirates on the western shore of the Gulf, Dubai is easily the brashest. With the grenade it has just lobbed into the capital markets by calling for a six-month creditor standstill for its flagship Dubai World holding company, it is effortlessly living down to that reputation.

Dubai’s action looks like either a serious misjudgment or, more likely, a breathtaking cock-up.

Dubai had borrowed heavily to build up a non-oil economy based on property, trade and tourism, building up a stock of debt estimated at $80bn, comfortably in excess of national income – although neither its total liabilities nor gross domestic product are known for sure.

The sheer size and exuberance of its property boom was always unsustainable. Dubai doubled in size and house prices almost quadrupled in 2002-07, since when property prices have halved.

Why Dubai World felt the need to defer repayment of a $3.5bn Islamic bond of its Nakheel property subsidiary is a puzzle.

Abu Dhabi stumped up $10bn in February; two of its banks bought $5bn in Dubai paper on Wednesday; a $1.9bn bond issue was three times subscribed three weeks ago; and Dubai is planning to return to the market next month for a further $1.25bn.

It has the money to meet its obligations – unless its debts are significantly greater than stated.

Until now, moreover, there has never been any doubt that Abu Dhabi – senior partner and censorious older brother in the federal United Arab Emirates, owner of the largest sovereign wealth fund in the world (worth perhaps $900bn), and sitting on one tenth of the world’s oil deposits – would stand behind Dubai. Dubai World’s biggest creditors, furthermore, are down the road in Abu Dhabi.

Yet, the Abu Dhabi authorities appear to have had no inkling Dubai was going to spring this surprise.

Something here does not add up. Why would Dubai risk such damage to its reputation when the recovery of its still viable entrepôt model depends on the confidence of the capital markets?

Wednesday, November 25, 2009

Happy Thanksgiving!

The revolution will be plagiarized : Alpha Males and Omega Zen

'Nothing you can know that isn't known.
Nothing you can see that isn't shown.
Nothing you can do but you can learn how to be you in time.
It's easy.'

-The Beatles

'Ask yourself whether the dream of heaven and greatness should be waiting for us in our graves - or whether it should be ours here and now and on this earth.'
-Ayn Rand

'There's a hole in the sky
We'll all take turns
I'll get mine, too
If man is 5
Then the devil is 6
And if the devil is 6
Then God is 7
This monkey's gone to heaven
-The Pixies

Faber is one of my favorites. OK, mayhaps he comes off as a bit eccentric when he says buy a farm and a shotgun because things will get bad or buy some farmland as a hedge for when the bombs start falling; continuing that strand he said overnight in Singapore 'in order to distract the attention of the people, governments will go to war.'

Not exactly a news flash for skeptics. Tenuous premises that are heralded as truths and upon which conflict erupts are not beholden to any one country or culture. America certainly has had her share from this chalice. The Mexican-American War was initiated with President Polk stating, 'Mexico has passed the boundary of the United States, has invaded our territory and shed American blood upon American soil.' In fact the claim of American soil was falsely predicated on documents that were neither considered to be treaties nor ratified as such between Mexico and her breakaway Republic of Texas. But hey, we coveted the land. In Vietnam, covert operations moved to open involvement due to the Gulf of Tonkin incident. President Johnson told the American people on August 2, 1964 that the North Vietnamese had launched an attack on the USS Maddox. He requested authority to attack. After a second attack on American forces was reported two days later, air strikes commenced. In fact the second attack was a complete fabrication, and the first attack, as relayed to me by an elder who was an intelligence officer on the USS Maddox on that day, was deliberately provoked. Flash forward to operation 'Get a Load of Us' in Iraq, with Colin shakin' that thang (anthrax) at the UN, unmanned planes with WMD ready to hit the West Coast, and 9/11 as the casus belli - we should of attacked Hamburg on that basis- all so we could save a country best described as 'Tribes with Flags within a square drawn in the sand', where if you put a flagstaff down hard oil would bubble up. Rhyming, the Vulcans proclaimed a Democracy Domino theory ... how did that one work out?

Faber is articulating war as the 'circuses' component of Juvenal's famous quote. But hey Marc, there's a plenty going on under the big tent already. The manufacture of consent and content may not tip J6P to contempt.

And ain't no doubt that there is plenty of bread flying around.

In social animals, the alpha is the individual that ranks the highest. A beta animal will act as a new alpha animal upon the latter's death. The omega is the lowest caste of the hierarchical society, and they are usually the last that is allowed to eat.

Will our Alpha Males be able to maintain Omega Zen?

Regardless any 'revolution' that might occur will most probably be plagiarized.

That is, if it ain't vaporized first.

On a brighter note, have you caught the new 'Prisoner' on AMC? Très cool.

Tuesday, November 24, 2009

OUR TOP STORY TONIGHT : Yippee-ki-yay Mr. Bankfiend, the 2% solution

'Money, it's a gas
Grab that cash with both hands
And make a stash

Money, it's a hit
Don't give me that
Do goody good bullshit

Money, it's a crime
Share it fairly
But don't take a slice of my pie
-Pink Floyd

'There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences.'
- P.J. O'Rourke

'Paranoia is knowing all the facts.'
- Woody Allen

'The secret is there are no secrets.'
- Unknown

'You can't handle the truth.'
-Colonel Nathan Jessup

I hereby proclaim my intention to seek a constitutional convention whereby we the people will move to implement the Garrett Morris amendment.

This amendment will seek to codify the following:

All terrestrial broadcasts of Bubblevision and Hee Haw will hereby include captioning for the learning impaired.

In accordance with this act all references, including but not limited to, the terms delineated below, will be accompanied by the italicized caption:

GDP, percentage organic and percentage synthetic as well as comparative GNP and GDI metrics

U3 unemployment , SGS Alternate Unemployment Rate

BLS Benchmark revision , cumulative
job discrepancy relative to ADP on a 1yr, 5yr and 10 yr basis

In addition all government statistics will include a cumulative revision total on a 1-yr, 5-yr and 10-yr aggregate basis showing past month revisions.

Seasonal adjustments on all reported statistics will be announced separately from the raw data.

Whenever a government official states that we have a strong dollar policy a Family Feud style X will appear over their face.

OER, Birth-Death Model, hedonic regression and imputation will be stricken from all official records.

'I'm a risk manager and I've been that for a long time, a lot longer than I've been CEO. I live 98 percent of my time in the 2 per cent probabilities. I live always in the worst case.'
-Lloyd Bankfiend

'When Goldie took Trader Hank aside during one long weekend to inform him that AIG was systemic, it was clear that a tough hard decision had to be made to liquidate in order to forgive past debts ... unfortunately it turned out to be a bankster jubilee.'
-Anonymous Monetarist

The Garrett Morris amendment would gapfill about half of Bankfiend's '2%' fat tail.

The other half seems to be rising of its' own volition.

When Timmy G recently mumbled that CDS was not the raison d'etre for the AIG bailout and 'Mad Dog' Feinberg said 'I'm looking at you Goldie' even the most anesthetized folks got their pencils out.

Coincidentally, Jaime (shine on you crazy) Dimon was immediately wheeled out as a possible successor given Geithner's opprobrium, proclaiming that he would love to serve his country beyond taking out the Spooz offer.

One fellow with yellow Number 2 extended , via NakedCapitalism blog, is Thomas Adams, at Paykin Kreig and Adams LLP, a former managing director at Ambac and FGIC.

He states:

'The business that caused AIG to blow up was the same that caused the bond insurers to blow up – collateralized debt obligations backed by sub-prime mortgage bonds (ABS CDOs). This was actually one of the few business that AIG Financial Products had in common with the monolines. AIG didn’t participate in municipal insurance, MBS or other ABS deals, which were all important for the monolines.

Certainly, AIG was larger than any of the bond insurers, but in aggregate, the bond insurers had a tremendous amount of ABS CDO exposure, which at the peak was probably over $300 billion. Despite AIG’s claims to have withdrawn from subprime at the end of 2005, we have identified particular 2006 deals with substantial subprime content that AIG most assuredly did guarantee.

In addition, the monolines had exposure to many other assets classes that AIG did not which created chaos for the holders of those bonds when the monolines were downgraded. The chain reaction risk of the bond insurers was arguably greater, when you throw in the damage to the aucton rate securities market, which was rooted in the muni market. In 2007, MBIA had over $650 billion of par insured, Ambac had about $500 billion, FSA had about $380 billion and FGIC had about $300 billion. Throwing in CIFG and XLCA, the total insured par of the monolines was about $2 trillion – this amount certainly would qualify as large enough to be “systemic risk” if the insurers were allowed to fail.

In contrast, while AIG’s aggregate insured par was greater, the only portion that really presented a systemic risk exposure was the CDS and structured finance exposures, which had an aggregate par exposure of about $400-500 billion. a persuasive argument could be made that the monolines were just as intertwined in the financial system as AIG and, thanks to their municipal exposure, presented as great or greater a systemic risk to the financial markets and the economy.

Yet AIG was bailed out and the monolines were not.

So what happened? How did the monolines get dropped and AIG get rescued? The popular reason given has been that AIG was so big that they affected all segments of the economy, whereas the monolines were only midsized and not critical to the economy. I believe that SIGTARP repeated this version of events last week. I understand that Treasury Secretary Geithner last week repeated this notion and added new information – that he was concerned about the cascading risk of AIG’s non CDS exposure.

While this produces a bigger par exposure for AIG, these other areas did not have the huge risks of loss, have largely remained functional, and did not have the issue of collateral posting. The risk were at the parent level, at AIG FP; the bulk of AIG’s business was written by regulated subsidiaries whose claims-paying ability would not be impaired by an AIG FP failure. So, in my view, this is a fairly weak, after the fact argument. A more plausible case might be made that AIG also had a securities lending business that had sprung a $20 billion leak, but that wee problem hasn’t gotten much mention in the official defenses.

I have a different interpretation. I should note that I am a former employee of a bond insurer, so I admit to a bias. However, my general perspective had been, until recently, that neither AIG or the bond insurers should have been rescued.

When I was at FGIC, Deutsche Bank, Lehman, Bear and UBS were all over my company with sales coverage for CDO deals. But we never heard much from Goldman. I was actually surprised to see that they were so big with John Paulson’s CDO adventures (as recently disclosed in “The Best Trade Ever”), because I never thought they were that big in the CDO market.

One big reason I didn’t know Goldman was so big in CDOs – they didn’t work with the monolines.

Goldman wanted their counterparties to post collateral so they would have protection against corporate downgrades. The monolines refused to have collateral posting requirements in their CDS contracts. The rating agencies supported them in this position on the argument that maintaining their AAA rating was “fundamental to their business”.

AIG, on the other hand, agreed to collateral posting requirements. in fact, they used this as a competitive advantage – they got more business because of it and marketed their flexibility on this issue to the banks.

There were two key distinctions between the monolines and AIG – first, AIG had other businesses, whose losses could threaten AIG’s financial guarantee business while monolines promised to pay claims first, to protect investors.

(More on that below. -AM)

Second, AIG had a history of negotiating before they paid claims (there is an interesting history with a ABS film receivables deal where AIG refused to pay, while the monolines covered similar deals and did not have the same “out” in their policies. This deal did serious damage to AIG’s reputation in the ABS market and shut them out of many deals). So despite their AAA rating, AIG was not as trusted by the structured finance and CDS market – there was a fear that AIG would wiggle out of their obligations in a way that the monolines would not.

All of the other banks got comfortable with the monolines not having to post collateral for CDS trades because of their AAA ratings. Goldman never did.

Of course, Goldman was one of the few banks that clearly set out to profit from shorting CDOs. They obviously realized that if their CDS counterparty was on the hook for a lot of ABS CDOs that were going to blow up, the insurance provider would likely get downgraded. If the downgrade of the insurer was very likely, the only way the short-CDO strategy worked was if the insurer would post collateral.

So Goldman only used AIG, who would provide protection against their downgrade, which Goldman knew would happen because they were stuffing AIG with toxic ABS CDOs.

The banks that used the monolines for their ABS CDOs were making a major error by taking on the monoline downgrade risk without protection, especially if they knew that the ABS CDOs were toxic. So I suspect that most of the banks did not really know that the ABS CDOs would be as toxic as they turned out to be.

This is, of course, what happened. The ABS CDOs blew up, the bond insurers got downgraded, the banks that used them got crushed because their hedges against their CDO risks were now in jeopardy. A death spiral between the monolines and the banks ensued (the ARS meltdown added to the troubles).

Goldman didn’t care, because they had collateral posted by AIG once AIG got downgraded..

All of the banks who faced the monolines had to start considering commutation deals with the monolines because it was obvious the monolines did not have enough capital to cover all of the CDO losses. In these commutations, the banks accepted payments as low as 40 cents on the dollar.

Most of the monoline ratings troubles had unfolded earlier in 2008 – many of them had been downgraded, several commutations had already occurred by the time of the AIG bailout.

AIG managed to put off the threat of serious downgrade for a long time, despite the junk in their portfolio (as 2008 progressed, it was a mystery to me and many others why the monolines were being downgraded but AIG was not). While AIG had been downgraded to AA some time earlier, this hadn’t caused much of a disruption because the real trigger for collateral posting was if they went below AA. For a variety of reasons, this wasn’t a threat until September of 2008.

I hate to get sucked into the vampire squid line of thinking about Goldman, but the only explanation I can think of for why AIG got rescued and the monolines did not is because Goldman had significant exposure to AIG and did not have exposure to the monolines.

(Welcome to the party Mr. Adams. Yippee-ki-yay Mr. Bankfiend. -AM)

When it became clear that AIG could face bankruptcy, Goldman’s plan to profit by shorting ABS CDOs was threatened. While they had the collateral posted, thanks to the downgrades, this collateral could be tied up or lost if AIG went bankrupt. This was a real crisis for Goldman – they thought they had outsmarted the subprime market with their ABS CDOs and outsmarted all of the other banks by getting collateral posting from AIG when they got downgraded.

But if AIG went away, this strategy would have blown up and cost Goldman billions.

All of this is essentially factual and based, for the most part, on public information.

This leads me to conclude that the bailout was prompted by fear mongering and deliberate strategies and manipulation on the part of Goldman and a few select others, to make sure that AIG would be bailed out to protect their trades in shorting ABS CDOs.

AIG, Goldman and ABS CDOs were tied together at the center of the crisis. From Goldman’s perspective, all of the other participants were secondary – they had no exposure to the monolines and they were probably hedged against the other banks. The only loose end was the collateral posted by AIG.

(Hence the doublemint bailout, Hoocoodanode? -AM)

The final question that this raises for me: would it have been cheaper for the government and the taxpayer to have bailed out the bond insurers instead of AIG? The total amount of CDOs and credit default swaps that would have needed to be guaranteed would have been smaller and the number of investors across the market that would have benefited would probably have been larger. The auction rate securities market, the muni market, the investors that held bond insurer exposure to MBS and ABS would have all benefited. None of these markets were aided by AIG’s bailout.

But a bond insurer bailout would not have helped Goldman much and the AIG bailout did.'

AM here :Have had the pleasure(?) of sitting in front of squints at a rating agency concerning a'third'a billion securitization, being pitched a sovereign risk CDS for an energy project and having Morgan once backstab my sponsor with an offer I couldn't refuse but did. Within that context was once regaled with a story about the monolines that highlights the fear that should cause Goldie insomnia.

Mr. Google couldn't come up with a corroborating hit so will present it as told to me.

Lloyd's of London insured the British version of 'Who Wants to be a Millionaire' prior to the franchise's global expansion. It was sufficiently profitable for Lloyd's, so when the show went to the United States they continued the coverage. In the UK when a contestant won the audience wasn't necessarily pleased. Brits understand that they live in a class society and often winners were met with derision.

In the United States of course winners are celebrated because for the most part folks all believe that some day they too could be rich.

So wouldn't you know it, the US show had a lot more winners than its UK counterpart, so much so that Lloyd's refused to pay. As a result S&P came up with their FER rating, which I always considered to be the height of cynicism, namely that a monoline would pay first and sue later. (Reminds me of Chris Rock's routine albeit adjusted .. you are supposed to pay!)

The point being: the '2% probability' that should be of greatest concern to Goldie is if enough regular folks recognize that the Pareto curve applies to them also, that in fact we do live in a class system, that there are two Americas, and that they shouldn't support really rich folks policies unless of course they are really rich ... for if that tipping point were reached ... well then ...the 'jig would be up' Goldie.

They and their sycophantic enablers know it, future policy actions should be seen within that prism.

Monday, November 23, 2009

Cash for bunkers, Bunker-busting MOPS, the philosophy of sops

'Come on and ease on down, ease on down the road
Don't you carry nothing that might be a load
Cause there may be times
When you think you lost your mind
-The Wiz

'Advertising is the very essence of democracy.'
-Anton Checkov

As a pup, I was the manager of a 'pre-internet' weekly. We were free to the public and survived on advertising revenue. Had to hire dispatchers in order to run out and pick up checks in order for ad copy to make the deadline.

One of our dispatchers was from the Soviet Union. He was formerly the manager of a petrochemical factory and part of the nomenklatura. He only took the dispatch job because he 'needed time' to improve his English.

One evening, over a vodka hydration session, he regaled me with stories of how he and his buddies would party in undisclosed locations with Western goods - fancy TVs, drinks, food - espousing the commie ethic while reveling in the 'vida loca'.

Can hear his accented voice now as he offered ' You see in Soviet Union we were capitalists... we were always capitalists...we were just bad capitalists'.

Will our children someday listen to an enlightened past Master of the Universe intone in poor Mandarin: 'You see in America we were socialists...we were always socialists ... we were just bad socialists.'?

Today's FT : A survey by the BBC World Service found that 'in the US, one of four respondents thought that capitalism was working well. Pakistan was the only other country to get more than 20 percent on that score.'


As oft-stated on this blog , much like the aristocracy when the barbarians are at the gates… you save the silver (banks) first. They will destroy the village (dollar and markets) in order to save it.

Does anyone really doubt now that the response to the banksters being too bankrupt to go broke was 'cash for bunkers'? The money ain't for nothing and the chits are free.

Hunker down and let the steep curve avalanche solvency.

In 1907 a fellow by the name of Comte de Mandat-Grancey gave a speech at the Catholic Students' Club in Paris. As reported by the New York Times:'The millionaires who possess one-quarter of the national wealth of the United States constitute a real aristocracy which he defined as the class which establishes superiority for itself by its capacity for producing riches. He argued that the origin of the European aristocracy was due to a display of identically the same qualities. The solution of the present social problem in the United States, he thought, would be either Socialism or aristocratic domination by the very wealthy class of an even more definite character than that at present existing - preferably the latter.'

Six years later on a dark and lonely night at Jekyll Island he got his wish.

Comte de Mandat-Grancey argued against the Collectivist control of the sources of wealth production, over the last century his granted wish has morphed into his deepest fear.

Will readily admit that there was once a time that I thought Ron Paul was a nutjob. That time has long passed. The distinguished gentleman from Texas intends to vote against the reform package that will include his amendment to audit the Fed.

'That doesn't make any sense' whined a canucklehead on Hee-Haw.

Of course it does, I muttered as the mute was reapplied, it's called integrity.

What is this 'regulatory reform package' but a further move towards codifying a collectivist control of the sources of wealth production? Government backed debt for government anointed 'systemically important' firms? The bold pap of a road map for stealth bailouts ad infinitum.

Quis custodiet ipsos custodes? said the Roman poet Juvenal. Who will guard the guards themselves?

Why, pronounce our modern day guards, we will. Trust us but don't task us lest you see trust in us lost to your peril.

Juvenal also said 'Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses.'

Such thoughts in this our modern age are earnestly proclaimed to be a derivative of this ancient sage, namely ... juvenile.

Move along nothing to see here.

The truths you hold to be most dear are lies told to you by liars : credit-default swaps were the problem before they weren't the problem

'You're beautiful more beautiful than me
You're honorable more honorable than me
Loyal to the Bank of America

It's a sign of the times

Enemy sighted, enemy met, I'm addressing the realpolitik
Look who bought the myth

'Am I supposed to be a man, am I supposed to say, "It's OK, I don't mind, I don't mind"? Well, I mind! I mind big time!' -Wayne Campbell

'Did you ever see that "Twilight Zone" where the guy signed a contract and they cut out his tongue and put it in a jar and it wouldn't die, it just grew and pulsated and gave birth to baby tongues?' -Garth Alger

WSJ Editorial
November 20, 2009

TARP Inspector General Neil Barofsky keeps committing flagrant acts of political transparency, which if nothing else ought to inform the debate going forward over financial reform. In his latest bombshell, the IG discloses that the New York Federal Reserve did not believe that AIG's credit-default swap (CDS) counterparties posed a systemic financial risk.

(Ex-Squeeze me? -AM)

For the last year, the entire Beltway theory of the financial panic has been based on the claim that the "opaque," unregulated CDS market had forced the Fed to take over AIG and pay off its counterparties, lest the system collapse. Yet we now learn from Mr. Barofsky that saving the counterparties was not the reason for the bailout.

In the fall of 2008 the New York Fed drove a baby-soft bargain with AIG's credit-default-swap counterparties. The Fed's taxpayer-funded vehicle, Maiden Lane III, bought out the counterparties' mortgage-backed securities at 100 cents on the dollar, effectively canceling out the CDS contracts. This was miles above what those assets could have fetched in the market at that time, if they could have been sold at all.

The New York Fed president at the time was none other than Timothy Geithner, the current Treasury Secretary, and Mr. Geithner now tells Mr. Barofsky that in deciding to make the counterparties whole, "the financial condition of the counterparties was not a relevant factor."

(Baking Powder? -AM)

In April we noted in these columns that Goldman Sachs, a major AIG counterparty, would certainly have suffered from an AIG failure. And in his latest report, Mr. Barofsky comes to the same conclusion. But if Mr. Geithner now says the AIG bailout wasn't driven by a need to rescue CDS counterparties, then what was the point? Why pay Goldman and even foreign banks like Societe Generale billions of tax dollars to make them whole?

Both Treasury and the Fed say they think it would have been inappropriate for the government to muscle counterparties to accept haircuts, though the New York Fed tried to persuade them to accept less than par. Regulators say that having taxpayers buy out the counterparties improved AIG's liquidity position, but why was it important to keep AIG liquid if not to protect some class of creditors?

Yesterday, Mr. Geithner introduced a new explanation, which is that AIG might not have been able to pay claims to its insurance policy holders: "AIG was providing a range of insurance products to households across the country. And if AIG had defaulted, you would have seen a downgrade leading to the liquidation and failure of a set of insurance contracts that touched Americans across this country and, of course, savers around the world."

(Crickets chirping .-AM)

Yet, if there is one thing that all observers seemed to agree on last year, it was that AIG's money to pay policyholders was segregated and safe inside the regulated insurance subsidiaries. If the real systemic danger was the condition of these highly regulated subsidiaries—where there was no CDS trading—then the Beltway narrative implodes.

(I think I am going to hurl. -AM)

Interestingly, in Treasury's official response to the Barofsky report, Assistant Secretary Herbert Allison explains why the department acted to prevent an AIG bankruptcy. He mentions the "global scope of AIG, its importance to the American retirement system, and its presence in the commercial paper and other financial markets." He does not mention CDS.

'Well, you know what you can do with your show? You can take a flying...
[a passing jet liner mutes out most of what he says]
...till the handle breaks off and you have to get a doctor to pull it out again!
' -Garth Alger

Friday, November 20, 2009

Sigh ... are you ready for some football? ... Da Bears

(AP) – 41 minutes ago

GENEVA — The World Health Organization said Friday it is investigating samples of variant swine flu linked to two deaths and one severe case in Norway, but that so far the significance of the mutation is unclear.

Norway's Institute of Public Health announced Friday that the mutation "could possibly...cause more severe disease" because it infects tissue deeper in the airway than usual.

The same mutation has been found in both fatal and mild cases elsewhere, including in Brazil, China, Japan, Mexico, Ukraine, and the United States, said WHO.

In addition, "worldwide, viruses from numerous fatal cases have not shown the mutation," the global body said. "The public health significance of this finding is thus unclear."

"Just to say that the mutated virus infects deeper tissue doesn't really tell us very much," WHO spokesman Thomas Abraham told The Associated Press. "What we really need is more clinical and epidemiological data."

WHO said the anti-viral drugs still appear to be effective against viruses with the mutation, and studies show that currently available pandemic vaccines confer protection against the variant strain.

Children of Ben, the Cross is Sold

'Mother should I trust the government?
Hush now baby, baby, dont you cry.
Mother's gonna make all your nightmares come true.'

-Pink Floyd

'A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world’s greatest civilizations from the beginning of history, has been about 200 years.'
-Alexander Tyler

'The nation is of age and it can do what it pleases; it can spurn the traditions of the past; it can repudiate the principles upon which the nation rests; it can employ force instead of reason; it can substitute might for right; it can conquer weaker people; it can exploit their lands, appropriate their property and kill their people; but it cannot repeal the moral law or escape the punishment decreed for the violation of human rights.'
-William Jennings Bryan

'We all want to believe that the key to making an impact on someone lies with the inherent quality of the ideas we present. The size of the crowd in the theater has a big effect on how good the movie seems.'
-Malcolm Gladwell

'Some people without brains do an awful lot of talking.' -The Scarecrow

Imagine Dorothy as the beguiled American public, the scarecrow as representing indebted consumers, the tin man symbolizing industrial workers, the cowardly lion as the Masters of the Universe and the Wizard as the Oracle at Eccles.

And the yellow brick road as the debasement of the sovereign scrip where Dorothy can return home to prosperity by following this path.

A rhyming version of what many folks think was a hidden message within the Wizard of Oz.

Back then, the United States was on the gold standard. When there was malinvestment causing overproduction, prices fell.

William Jennings Bryan, represented by Baum as the cowardly lion, argued for the right to coin money and issue money as a function of government. He contrasted his platform of legislating to make the masses prosperous whereby their prosperity would find its way up and through every class that rested upon them with his opponents' platform that Bryan derisively opined held fast that if you just legislate to make the well-to-do prosperous, their prosperity would leak through on those below. His opponents argued for sound money.

Today's cowardly lions ,or Nancy Capitalists, are the Masters of the Universe that have literally been given the right to coin money (saved by zero, money for nothing) and issue money (FDIC guaranteed debt, the chits are free.)

Today's Wizard of Oz, the Oracle at Eccles, argues for sound money. Hiding behind the 'I Can't Beleive it is not Capitalism' curtain, he too has been shown as a fraud.

Today's malinvestment cannot and will not result in prices falling, says the Wizard.

Pay no attention to the marks behind the curtain. The operating levers secretly lubricated by the debasement of the scrip cannot be disturbed, discussed or disclosed lest the Emerald City be laid to waste.

Bryan said 'You shall not crucify mankind upon a cross of gold.'

Sorry Bill, the cross has been sold, leveraged, rehypothecated, and is being leveraged again. Sound money is now found money. For the masses? The Dark Side of the Rainbow.

Oh, and in L. Frank Baum's original novels, Aunt Em and Uncle Henry find a refuge in Oz when they are unable to pay their mortgage on the new house that was built after the old one was carried away by the tornado.

'Nuff said.

Thursday, November 19, 2009

Repost : The Demand Restoration Project

'When the day is long and the night, the night is
yours alone, when you're sure you've had enough of
this life, well hang on.
Everybody hurts.
Don't throw your hand'

'If you are going through hell, keep going.' -Winston Churchill

'I've failed over and over and over again in my life and that is why I succeed.'
-Micheal Jordan

'Almost every wise saying has an opposite one, no less wise, to balance it.'
-George Santayana

'The secret of my success? I know I am the luckiest of fools. Whenever I feel good about myself I tell myself to go f@&# myself.' -Anonymous Monetarist

The Demand Restoration Project, 12/19/08;

David Bowman: 'You see something's going to happen. You must leave.'

Dr. Heywood Floyd: 'What? What's going to happen?'

David Bowman: 'Something wonderful.'

Dr. Heywood Floyd: 'What?'

David Bowman: 'I understand how you feel. You see ... it's all very clear to me now. The whole thing. It's wonderful.'


Hal 9000: 'What's going to happen Dave?'

David Bowman: 'Something wonderful.'

Hal 9000: 'I'm afraid.'

David Bowman: 'Don't be.'

First a personal disclaimer, I am a deflationary force. No mortgage, no debt, all sovereign powder with a splash of yen. (Add-on, sold all the yen on the unwind.) For years, I've felt a bit out of sync, standing in a store waiting in a mind-boggling line, fighting to get in the parking lot, fighting to get out ... watching the McMansions go up, watching the markets fly... it just seemed to be unreal. I couldn't believe it. I wouldn't believe it. I opted out.

Mrs. Monetarist was a bit annoyed by it, dinner conversations had to be be tamped down.. I wanted to jump on the table and scream ' Don't all of you know what is going to happen?'

The recurring thesis of this blog is optimism/patriotism/outrage. Losing confidence and losing innocence will be the themes for 2009 and regaining naivety and chutzpah will be the tide that raises all boats.

Let's face it, as Americans we collectively think history does not apply to us or at least we have mastered it- we have grown up as the dominant power, we have basked in the fruits of that glory.

As such we, the citizenry, although troubled still ache to believe that this is temporary, a transient blip, happy days soon will be here again...policies flowing from on high will mimic that optimism and in doing so will underestimate (at least 'officially') the dilemma and prolong the process.

Simply put we went bust... but the banksters are too bankrupt to 'go broke.'

When change is afoot you have two choices, you can either grab the surfboard and ride the wave or you can let it crash over you.

Do not count on government to save you, look in the mirror for your salvation.

There is one blessing fostered upon Americans that can't be denied. We can reinvent ourselves. We are not beholden to anything other than our imagination, we can make out of clay what our minds and our hands desire.

I assure you that the majority of citizens on this planet do not have such an advantage.

As horrible as this will feel, in hindsight something wonderful is about to happen.

Don't be afraid.

Give that man a Pabst Blue Ribbon

Chart from

Where's the taxypayer? Blown up sir!

No we're not the same
Cause we don't know the game
What we need is awareness, we can't get careless
You say what is this?
My beloved lets get down to business
Fight the Power.

-Public Enemy

'In the past, the perceived state of randomness was thought to be due to chance. However given the strangeness of math we can show that chaos affects any system that has some sort of sensitive dependence on an initial condition. Any small change or uncertainty in conditions at a starting point will eventually make predictions about the system and its behavior extremely difficult if not impossible.'
-Dimitris N.Chorafas

'The derivatives group received its marching orders from the firm's leader, John Mack. Following Mack's lead, my ingenious bosses became feral multimillionaires: half geek, half wolf. When they weren't performing complex computer calculations, they were screaming about how they were going to "rip someone's face off” or "blow someone up.”'
-Frank Partnoy

(Ripping the taxpayers' face off continues, first some oldies and then today's WSJ. -AM)

Pixie Dust , 11/25/08 :

It was always the same conversation. Create a synthetic that follows the yield curve but gives you some juice over treasuries. Create some sort of RAV (remote asset vehicle) and then get that AAA pixie dust sprinkled on top of it . Usually the person describing it was a current or past associate of a Master of the Universe.

Yield pigs would line up at the trough if it was as safe as treasuries but had some juice, they proclaimed.

Different than all the known exotics that we've heard of - they spoke about this new 'straw into gold' synthetic.

This synthetic could be applied to anything- hence the RAV- much like Palin's turkey chopper, a construct that would suck in any sizable asset and spit out the synthetic.

Having a Heston moment as I read the WSJ describe how the dirty apes:

'In effect are issuing(Goldman) synthetic Treasury bonds, at a much higher yield than straight Treasury bonds."

The article goes on to say: "Responding to banks' urging, the Treasury department agreed to guarantee the bonds, backing the "full faith and credit" of the U.S. government." "Citigroup, General Electric (as well as JP Morgan and Morgan Stanley named elsewhere) and other companies have signed up to sell bonds under the plan."

You had to go and do it didn't you? You had to go and blow it all up...

Calling All Meatballs, 11/26/08 :

Our new monetary industrial policy i.e., synthetic Treausries where the RAV is the issuing company, is fraught with peril. Building a federally mandated sausage factory for the Masters of the Universe will end up making sovereign and private risk ubiquitous and to the detriment of the sovereign.

We are all derivatives now, 11/29/08 :

The Masters of the Universe turned themselves into the RAV, got the AAA pixie dust and put themselves to market. It is not too often where, we the people, get to witness and insure the birth of a new asset class.I'm glad that it is only a liquidity problem and not a solvency problem ...

Goldie and the girls just got the keys to the safety deposit box.

Third a trillion meatballs so far, 8/11/09 ;

The Temporary Liquidity Guarantee Program has spewed out about a third of a trillion of these 'industrial' treasuries and maintained that level for the last four months.

Although originally envisioned as short-term - as of June 30, 2009 terms at issuance of over 2 but less than 3 years totaled 23.6%, and terms over 3 years totaled 38.4%.

I expect we'll break the cap, which is twice this level, and extend it several times.

Today's WSJ :


Congress should be doing all it can to remove moral hazard from the financial system. Instead, it is in danger of increasing it.

Following the credit crunch, lawmakers need to ensure banks can't borrow at below-market rates because of perceived government backing. After all, banks' access to cheap funding helped inflate the credit bubble.

Instead, Congress is heading in the opposite direction. Legislation being considered already contained features that could end up being used to provide taxpayer backing to bank creditors. But Wednesday the House Financial Services Committee went even further by approving a measure that would allow banks to issue government-backed debt in difficult periods.

It could effectively enshrine a recently expired program that helped banks sell more than $600 billion of subsidized debt during the crisis.

(Nancy Capitalists in a Sovereign Democracy that are hell bent to seek rent. -AM)

Granted, this temporary measure helped prevent a liquidity crisis.

(Liquidity crisis? Hit me! -AM)

But making it permanent could dissuade banks from ensuring their balance sheets are more resistant to funding pressures, and bank creditors from doing proper analysis.

(Going, going gone. -AM)

Proponents of the measure say there are plenty of other things in the legislation aimed at reducing risk in the banking sector, like tougher capital requirements. But those things don't need debt guarantees to work. If Washington wants bank creditors to do their homework, it needs to leave some uncertainty in the system.

(Damn dirty apes. Its' a madhouse! -AM)

Wednesday, November 18, 2009

CIT at the Goldie Drive-thru

Bloomberg: 'Goldman said yesterday it’s setting up a “10,000 Small Businesses Initiative.” It will shell out $200 million to educational institutions to help guide business owners, with a further $300 million invested for lending and philanthropy aimed at community development groups.'

The MSM is comparing this amount to the billions in bankster bonuses that Goldie is bunkering.

Wrong angle folks.

From a fungible perspective, CIT is providing the seed money for Goldie's noblesse oblige.

How so?

After CIT was decimated by loading up with junk to compete with the likes of Goldie, they were made an offer that they could not refuse.

Goldie gave CIT a $3 billion loan at a 2.85% rate (later reduced to 2.13 billion) which paid Goldie a $285 million penalty if CIT went bankrupt along with an additional $250 million in collateral and pays Goldie an additional $715 million if CIT liquidates ... a distinct possibility.

Goldie also bought a bunch of CDS on CIT ... to prudently protect their collateral ...but yet they refuse to reveal the total amount of CDS that they took out.

Might they be refusing because the great unwashed would conclude that they had an interest in CIT claiming bankruptcy?

Just askin'.

So Goldie factors the factor, has a facility that paid when CIT claimed bankruptcy, CDS that paid when CIT claimed bankruptcy, and if CIT liquidates, is paid yet again.

Gosh do you think Goldie got around the 500 million that they are now, in doing the Lord's work, using to finance this new initiative?

Just askin'.

Oh and might you suppose that when they factored the factor, CIT probably put up their customer list, a list that Goldie, in the case of a CIT liquidation could use to cherrypick out clients if they are so predisposed...

The 21st century equivalent of paying the executioner...

The unknown cause that causes because ...

'To say of what is that is not, or of what is not that it is, is false; while to say of what is that it is, and of what is not that is not, is true.' -Aristotle

'The greatest part of mankind have no other reason for their opinions than that they are in fashion.' -Samuel Johnson

"A man can get to love shit if his livelihood depends on it, if his happiness is involved." -Henry Miller

'Free your mind.' -Morpheus

Pop-quiz hotshot,

a)Scientists can teleport atoms across a room.

b)Scientists have developed a plasma window.

c)Scientists theorize that a supercharged plasma window combined with a laser curtain and a carbon nanotube screen and an advanced form of photochromatics will create an impenetrable force field.

d)Scientists have created a high-temperature superconductor utilizing a substance called mercury thallium barium calcium copper oxide, which becomes superconducting at 138K (-135C). (Add-on, told we're up to -35C. Cool, I want my levitation belt. -AM)

e)Scientists theorize that if room-temperature superconductors can be found we'll have flying cars and trains.

f) Securities such as collaterized debt obligations, pools of fixed-income securities that require complex computer modeling to design and understand are hard if not impossible to value.

Question : Which of the above is science fiction?

Answer : You know the answer.

Although this blogger has a bunch of respect for Taleb I still read the WSJ and Financial Times every day although admittedly only the first and last paragraph of many articles.

Heck I'll even turn the sound on for CNBC between 715 and 815 CST but usually only for Santelli and Cashin.

In Taleb's tome, 'Fooled by Randomness' he describes a mechanism called Wittgenstein's ruler : Unless you have confidence in the ruler's reliability, if you use a ruler to measure a table you may also be using the table to measure the ruler. The less you trust the ruler's reliability (in probability called the prior), the more information you are getting about the ruler and the less about the table.

Substitute ruler for dollar and table for markets and the shadow of the form of the now in vogue, hoocoodanode?,dollar carry trade narrative becomes clearer.

Further substitute confidence for dollar and future for markets and our dilemna is clearer still. To wit : Unless you have confidence in your confidence's reliability, if you use your confidence to measure the future you may also be using the future to measure your confidence. The less you trust your confidence's reliability, the more information you are getting about your confidence and the less about the future.

Although one might suppose the future as being unknown, today's market is predicated on confidence that 'free and easy money and models showing 100% success' are a known unknown.

Bernanke has promised to monetize cows to increase the price of milk; asset classes are moving based on the confidence of how sour that future glass might be.

But there are also unknown unknowns. These are things we do not know we don’t know.

What we do not know we don't know is what the long finger of instability from the Hand will ultimately do to the markets and the economy that are still the home of the brave but alas are now a different land.

What we do not know that we don't know is how the continuing liquidation of Main Street and bifurcation of America will interact with the bankrupt ideology of the rich that had greatly succeeded in drafting the inner monologue of regular folks so that they would vote against their self interests and are trying to do it again.

'In argument, answer your opponent's earnest with a jest and his jest with earnest.' - Leonitus Gorgias

My jest to the Federales' earnestness in defending their strong dollar policy -

Pomp and Happenstance : Can you spot the Nancy Capitalist?
They are killin' Sam.I know it was you Timmy. You broke my heart.
The Oracle at Eccles: At Rally's End or the new Fickle-Down Economy? Though we walk through the Valley of Debt we fear 'No Easing'.
Nancy Capitalists in a Sovereign Democracy that are Hell Bent to seek Rent.
The insouciance of elites and the Antoinette economy ... exhibit thyself to a public that may hiss thee.
The manufacture of contempt : it is only a Great Depression if they say it is.

My earnestness to the Federales' jest of a strong dollar policy -


Tuesday, November 17, 2009

Pump and Happenstance : Can you spot the Nancy Capitalist?

'The best approach here if at all possible make sure the system is resilient in case an asset-price bubble bursts.' Large price misalignments are 'not obvious to me.' -B.S. Bernanke, the Oracle of Eccles

'I’m scared and leaders should look out.' - Donald Tsang, chief executive of Hong Kong

Market is 'not massively overvalued.' - Janet Yellen, High Priestess

The American rate stance and falling dollar has led to 'massive' speculation. - Liu Mingkang, chairman of the China Banking Regulatory Commission

It's wise to beware of 'false positives' when assessing potential asset bubbles. - Donald Kohn, High Priest

'It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we’re just taking advantage of that. So we can’t lose.' -Lou Jiwei, the chairman of the CIC, China’s sovereign wealth fund

'How long can this go on?' - Lee Dorsey

'Keep on with the force don't stop.Don't stop 'til you get enough.' -Michael Jackson

'The truths you hold to be most dear are lies told to you by liars.' -Anonymous Monetarist

'Dude.' -Jeff Lebowski

'For 'tis the sport to have the enginer. Hoist with his own petar, an't shall go hard.' - William Shakespeare

'Frak the frakkin frakkers.' -Kara Thrace

Monday, November 16, 2009

A discontinuous post about nothing

Jerry: Ah, you're crazy.
Cosmo Kramer: Am I? Or am I so sane that you just blew your mind?
Jerry: It's impossible.
Cosmo Kramer: Is it? Or is it so possible that your head is spinning like a top?
Jerry: It can't be.
Cosmo Kramer: Can't it? Or is your entire world just crashing down all around you?
Jerry: All right, that's enough.


Unlike a well-defined, precise game like Russian roulette, ... multiplying and dividing by six, one does not observe the barrel of reality. -Nassim Taleb

On October 31, Kiev newspaper editors got dozens of calls about light planes doing aerosol spraying during the day. In refuting the claims, the district's Emergency Response office said "no permission had been granted for small aviation aircraft to fly within the city limits." Yet eye-witness accounts from Lviv, Ternopil, and other Ukraine cities said the same thing.
-Baltimore Chronicle

(666 years ago , according to the narrative of Gabriele de’ Mussi the medieval Black Death apparently got its start at the Black Sea Port of Kaffa, a Crimean trading post.. an area now located in modern day Ukraine. -AM)

Sunday November 15,2009
By Greg Miskiw

A deadly plague could sweep across Europe, doctors fear, after an outbreak of a virus in Ukraine plunged the country and its neighbours into a state of panic.

A cocktail of three flu viruses are reported to have mutated into a single pneumonic plague, which it is believed may be far more dangerous than swine flu. The death toll has reached 189 and more than 1 million people have been infected, most of them in the nine regions of Western Ukraine.

President of Ukraine Viktor Yushchenko has called in the World Health Organisation and a team of nine specialists are carrying out tests in Kiev and Lviv to identify the virus. Samples have been sent to London for analysis.

President Yushchenko said: “People are dying. The epidemic is killing doctors. This is absolutely inconceivable in the 21st Century.”

In a TV interview, the President added: “Unlike similar epidemics in other countries, three causes of serious viral infections came together simultaneously in Ukraine – two seasonal flus and the Californian flu

“Virologists conclude that this combination of infections may produce an even more aggressive new virus as a result of mutation.”

Prime Minister Yulia Tymoshenko: “We have sent the analyses to Kiev. We don’t believe it’s H1N1 swine flu. Neither do we know what kind of pneumonia it is.”

A spokesman for the World Health Organisation said: “We do not have a time scale for the results of the tests in London, although some preliminary results have been obtained. I cannot tell you what they are.We did not have enough of the virus samples so we will have to grow some more before we can come to a conclusive decision about its nature.”

Neighbouring Poland has called on the EU to take action, fearing the mystery virus may spread westwards.

Prime Minister Donald Tusk has written to European Commission President Jose Manuel Barroso and the Swedish Prime Minister, Fredrik Reinfeldt, who holds the EU presidency, saying: “The character of this threat demands that rapid action be undertaken at the European Union level.”

Russia, Slovakia, Poland, Hungary and Romania, countries that border Ukraine, have already launched health checks on Ukrainians entering their territory.

Slovakia has closed two of five border crossings.

A doctor in Western Ukraine who did not want to be named, said:” We have carried out post mortems on two victims and found their lungs are as black as charcoal.

“They look like they have been burned. It’s terrifying."

Hi my name is Rosie and I am a Skeptical Empiricist

(A 12 step plan to combat bullishtness. -AM)

Rosie via ZH

A comparison between the current environment and the last time we had a real bull market, not on the back of massive credit expansion: August 1982.

1. P/E Multiples were 8x, not 26x.
2. Dividend yields were 6%, not sub-2%.
3. The stock market was trading at a discount to book, not a 2x premium.
4. Monetary policy was aimed at reducing money growth and inflation rates,not creating both as is the case now.
5. Fiscal policy was aimed at reducing nondefense spending, not accelerating it.
6. Deficits were peaking and coming down, not surging to 10%+ relative to GDP.
7. Global trade barriers were being torn down; not erected.
8. Deregulation back then was in; today it is all about re-regulation and government ownership.
9. Union membership was on the way down; today it is back on the rise.
10. The dollar was entering a Plaza Accord bull market, not a mercantilist bear market.
11. Credit, household balance sheets and participation rates were expanding, not contracting.
12. Tax rates, income, capital gains and dividends, were declining then; rising now.

Bismillah! Moses set to fire up LIFE in 2012?

By Daniel Lyons | NEWSWEEK
Published Nov 14, 2009

It doesn't look like much from the outside—just a drab, 10-story building on the campus of Lawrence Livermore National Laboratory, about an hour's drive east of San Francisco. But as I'm walking across the parking lot on a sunny day in October I can't help thinking that someday I might be telling my grandchildren about the time I came to this lab and met Edward Moses and saw the technology that was about to change the world.

Maybe this means I'm an optimist. Or even a sucker; a fool. All I know is that when I meet Moses, the 60-year-old scientist who runs this place, and he shows me a tiny pellet, about the size of the multivitamin I take every morning, and swears it will provide an endless supply of safe, clean energy, I want to believe him. It seems so ridiculously simple, so utterly doable. The pellet Moses holds is a model, but the real version will contain a few milligrams of deuterium and tritium, isotopes of hydrogen that can be extracted from water. If you blast the pellet with a powerful laser, you can create a reaction like the one that takes place at the center of the sun. Harness that reaction, and you've created a star on earth, and with the heat from that star you can generate electricity without creating any pollution. Forget about nuke plants, coal, oil, or wind and solar.

"This is the real solar power," says Moses.

What Moses is talking about is controlled nuclear fusion—fusing nuclei rather than splitting a nucleus, as happens in ordinary nuclear-fission power plants. In a fission reaction, the nucleus of a uranium atom is split into two smaller atoms, releasing energy in the form of heat. The heat is used to make steam, which drives a turbine and generates electricity. In fusion energy, the second half of this process (heat makes steam makes electricity) remains the same. But instead of splitting the nucleus of an atom, you're trying to force a deuterium nucleus to merge, or fuse, with a tritium nucleus. When that happens, you produce helium and throw off energy.

Scientists have been trying to produce energy with fusion for decades. So far, they keep failing. It's not that fusion itself can't be achieved. Fusion takes place in every hydrogen-bomb explosion. The trick is controlling fusion so that instead of a one-time blast you get a series of tiny, controllable explosions. The joke is that fusion energy is only 40 years away, and will always be only 40 years away.

Moses believes, however, that his lab, which is called the National Ignition Facility, or NIF, has cracked the problem. The big challenge fusion has faced is lack of power. Even the biggest lasers in the world could not generate enough energy to smash nuclei together and make them stick. But the reason the building we're in is so huge—it covers the area of three football fields—is that it contains an enormous laser, or actually a system that combines 192 identical lasers and zaps them into a round chamber, about 30 feet in diameter, where the tiny pellet of fuel awaits the blast. NIF's laser, which took a decade to build and was completed earlier this year, can produce 60 times more energy than any other laser ever built. Right now it's still being tested. But next year Moses and his scientists will fire it up with a full load of deuterium-tritium fuel, and Moses feels confident it will achieve "ignition," meaning a controlled burn in which you get out more energy than you put in. Moses, an award-winning laser scientist with a wry sense of humor, explains the whole thing as he leads me on a tour through the NIF facility. It's a vast, beautiful, awe-inspiring machine, mind-blowing in its complexity, with miles of metal tubes—all part of a system that starts with a tiny pulse of light, channels that light through machines that amplify its intensity and rocket the beam along using specially grown crystals and thousands of lenses and mirrors, and finally focuses these beams down to hit a target that is the size of a peppercorn—all in one millionth of a second.

His boss, George Miller, the director of Lawrence Livermore, holds a doctorate in physics and is well aware of the difficulties Moses must overcome. "Nothing is a sure game until you've actually done it," he says. But he makes the case for trying. "You have to build NIF to find out whether or not this is going to work."

He's got a point. Big technological breakthroughs require taking big risks. They always seem hopeless and expensive—until they work. Sequencing the human genome seemed impossible until thousands of researchers around the world got it done—in 13 years, with $3 billion in government funding, plus investments by private companies. Like the genome project, fusion energy is something that requires a long-term sustained effort.

And if Moses is right, and NIF succeeds, well, the scientists at NIF will go down in history. That is why labs in Japan, France, the U.K., and China are all pursuing fusion energy too. For his part, Moses really seems not to harbor any doubt. Yes, there are lots of big technical challenges; but one by one, his team is ticking them down, he says. "If someone offered me the job to build a commercial prototype fusion plant and they said, 'You've only got 10 years,' I'd take that job," Moses says.

He and a colleague have already branded the product they're building—they call it Laser Inertial Fusion Energy, or LIFE, a name that at least indicates that some scientists also know a bit about marketing. Moses believes that by 2020 utility companies could be building prototype power plants called "LIFE engines." By 2030, he says, real fusion plants could be up and running, and by 2050 they could be common. By 2100, as many as 1,000 fusion reactors could be operating in the United States, if utilities embrace the technology and invest in it.

If Moses is right, this may be the biggest technological breakthrough of the century. Fusion would be a disruptive technology like the Internet, touching every part of the economy. In March of this year, when Moses and his team fired up the giant laser, they were able to produce more energy than anyone ever had before—just over a megajoule, which, Moses says, "was like breaking the four-minute mile." NIF fires the laser only a few times a day, and scientists are blasting capsules that contain just a tiny bit of deuterium and no tritium. The idea is to test the system and bring it up slowly. Moses says it's like getting behind a Ferrari for the first time; you go easy at first. In a few months NIF will move to a more potent fuel capsule that contains tritium and just a tiny bit of deuterium. By the fall of 2010 the team aims to start blasting capsules that contain the full dose of -deuterium-tritium fuel, and they will crank up the laser power to 1.4 megajoules.

If all goes well, by 2012 NIF will produce what Moses calls "a repeatable, re-liable platform."

(By the way, the Mayan calendar was designed to be cyclical, so the fact that the long count comes to an end in December 2012 ain't no big thing. Simply, it is the end of a great calendar cycle in Mayan society, no different than our Millenium. Thinking of planning an Armageddon Happy Hour on Friday, December 21st. If the world ends I'll pick up the tab for everyone.-AM)

Bear Essentials

By Jeff Cooper

Let’s take a look at the percentage advances following some of the greatest bear markets in history.

1) From a low on November 9th,1903 to a high on December 5th, 1904 a period of 1 year and 26 days the DJIA gained 73.7%. A similar move now would project to April 2nd, 2010 and 1158 S&P.

2) From a low on November 15th 1907 to a high on August 10th 1908, the DJIA moved up 61.1% in 8 months and 26 days. A similar move would project to November 30, 2009 and 1074 S&P.

3) From a low on August 24th, 1921, to October 14th 1922, the DJIA moved up 61.1% in 1 year, 1 month and 20 days. A similar move would project to April 26th, 2010 and 1079 S&P.

4) From a low on March 31st, 1938 to a high on November 9th, 1938, the S&P gained 62.2 % in 7 months and 9 days. A similar move would project to October 15th, 2009 and 1081 S&P.

(Point of order, Mr. Speaker. On a previous post I stated 'In 1938, over a 223 day span, there was a 63% rally on the Dow. On the 223rd day of this rally (Oct 19th) off the S&P low of 667, the S&P opened at 1088 which was, you guessed it, a 63% rally off the low.' I hereby yield my time and price to the distinguished gentleman. -AM)

5) From a low on October 3, 1974, the S&P advanced 53.5% to a high on July 15th, 1975, a period of 9 months and 12 days. A similar move would project to December 16th, 2009 and 1023 S&P.

6) From a low on October 10, 2002 the S&P advanced 50.9% to March 8, 2004, a period of 1 year, 4 months, 27days. A similar move would project to August 3rd,2010 and 1006 S&P.

7) From a low in July 1932, the S&P advanced 177% to July 18th 1933 (just over 1 year). A similar move would project to April 2010 and 1848 S&P.

Sunday, November 15, 2009

They are killin' Sam, I know it was you Timmy. You broke my heart.

Wiki : The Coppock curve or Coppock indicator is a technical analysis indicator for long-term stock market investors created by E.S.C. Coppock.

The indicator is designed for use on a monthly time scale. It's the sum of a 14-month rate of change and 11-month rate of change, smoothed by a 10-period weighted moving average.

Coppock was an economist who had been asked by the Episcopal Church to identify buying opportunities for long-term investors. He thought market downturns were like bereavements and required a period of mourning. He asked the church bishops how long that normally took for people, their answer was 11 to 14 months and so he used those periods in his calculation.

A buy signal is generated when the indicator is below zero and turns upwards from a trough. No sell signals are generated (that not being its design). The indicator is trend-following, and based on averages, so by its nature it doesn't pick a market bottom, but rather shows when a rally has become established.
Walter Murphy

The daily Coppock Curve still has a bullish bias for all 24 S&P industry groups.

Most of the Elliott Wave comments that we see totally ignore the fact that the 10-21-11/02 decline was a five-wave pattern.As such, that decline cannot be counted as either a fourth wave or a “B” wave.

Furthermore, since the S&P followed that decline with a rally to new recovery highs, we have little choice but to label the decline as the “C” wave of a larger ABC correction. Indeed, the bigger question has to do with where that ABC pattern began. The two best choices are the highs on September 23 or October 19; we prefer the former.

Why is that important? There are two reasons. First, not only did the rally from the November 2 low achieve new ytd highs, its structure is corrective. Second, that 9/23-11/2 ABC pattern has established a key double-bottom at 1029-1020.

The significance of that double bottom is that, if it is violated, it would lock in the post-July rally as a complete pattern (in the same way that June’s initial weakness reversed the rally from March’s low).

The corrective structure of the 11/2-11/11 rally means that we need to respect the possibility that it was a diagonal triangle. (We say “was” because Thursday’s sell-off locked in that rally as a complete pattern.) Diagonals are ending patterns so, if that “diagonal” count is correct, then the index could be on the verge of its largest correction since at least the July low. In prior posts, we have mentioned the intermediate negatives that bolster this correction possibility, so it seems clear that the post-July uptrend is skating on thin ice.

That said, the index could benefit from the fact that the daily Coppock Curve has the potential to remain constructive for another 6-8 trading days. Thus, the door is nominally still open for a challenge of 1121-1156. At the least this condition (plus an oversold 10-day CBOE put/call ratio) should provide an initial cushion.

Given the complete 11/2-11/11 pattern, a normal 38.2%-61.8% retracement would imply a move to the 1076-1058 area. A breach of that range would increase the risks for a test of the aforementioned 1029-1020 double-bottom.

Get shorty

By Jeff Macke

Shortin' ain't that easy and you are going to pay and pay big if you think it is.

Let's talk about the three main things you have to know if you are going to go out there short 'cause if you don't know these things frankly you are driving naked with the lights turned off in your car and going 110 miles an hour. Johnny Law is going to take you down and so is Mr. Market.

Rule #1: Eternal Vigilance is the Price of Shorting

If you think you are going to short as part of a long term idea you are going to lose. Its' just that simple. Mainline some coffee friends because you are going to be watching everything, the sharpest rallies come in bear markets. Bear markets are not just the opposite of being long. Bear markets are nasty, snarling, grizzly beasts.

Rule #2: Trade the Trend

You've gotta live in the now. Don't make short bets on 'what should be' or 'what makes sense to you' or 'what's wrong with the government' or 'why we are all falling into the abyss and no one seems to know it except you so you're short'. Not going to work friends you are going to lose all your money and no one is going to have sympathy for you because you were kind of a grouchy cynic all along and drove people frankly just a little bit nuts. You have got to wait for the breakdown to begin to happen. The first headline stock pick I ever made was shorting GM and I was right ... six years later. You're not going to want to hang out there forever and explain that you are still a patriot and yet you want to bet against GM because the company simply should not exist.

I was right, I was early, that makes me wrong.

(Roger that.-AM)

Shorting is cruel, vicious, mean and ugly and you better know it.

Rule #3 : Speed, speed, speed ... take your gains

Quickness is required to be short successfully. Pretty much the mantra of shorting is take your gains. Get out of there, get up, move along friends. You have to take your profits when you get them.