Thursday, April 29, 2010

Failborger, Failborger, Chit,Chit, No bailout? Choke.

'You're out of order! You're out of order! The whole trial is out of order! They're out of order! It's just a show! It's a show! It's "Let's Make A Deal"! "Let's Make A Deal"!'
-Arthur Kirkland

Since the players are looking to beat the casino, the dealers are watching the players. The box men are watching the dealers. The floor men are watching the box men. The pit bosses are watching the floor men. The shift bosses are watching the pit bosses. The casino manager is watching the shift bosses. I'm watching the casino manager. And the eye-in-the-sky is watching us all. Back home, they would have put me in jail for what I'm doing. Here, they're giving me awards.
-Ace Rothstein

'Well I am certainly wiser than this man. It is only too likely that neither of us has any knowledge to boast of; but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance. At any rate it seems that I am wiser than he is to this small extent, that I do not think that I know what I do not know.'

'Instead of rating the man by his performances, we rate too frequently the performances by the man.'
-Samuel Johnson

New York Post via The King Report
By Paul Tharp

'A 90-percent tax on all bonuses in banking and financial services to a quadrupling of dividend taxes on portfolios, to 40 percent...a bedroom in the country's fabled seaside villas will get hit with a 20 percent surcharge -- on top of property taxes that will triple...The new laws forbid cash transactions above $2,000 at businesses, requiring they be paid with checks or credit cards under the threat of seizing shops for violations. Athens also will start paying whistle-blowers a 10-percent bounty on all cash recovered from tax cheats and clawbacks from secret banks breaks are being abolished...the self- employed who'll have to forfeit their long-held income tax rates of as low as 5 percent. They'll now have to pay 40 percent on incomes above about $52,000. ...Any household making more than $82,500 will pay a 40-percent tax, and those with income over $130,000 will pay a new top rate of 45 percent, each amounting to a 5-percent jump. Only those making $15,600 and under will escape the tax ax.'

The above is a description of the reasonable austerity measures that Greece will be expected to implement.

Good luck with that. What is Greek for 'Bazooka meet doom-cycle?'.

Dance recital for a young-un this morning so watching the baby until the sitter arrives...this disclosure for purposes of explaining why your humble blogger had Hee-Haw on without the sound muted.

Anywho caught some kommentator clutching a venti and asking a union leader that was organizing a demonstration outside Wall Street why he was being so... gosh golly... negative?

Can't we all just get along?

I mean, golly gee, the aphorism 'Failure to liquidate the insolvent banksters has led to the liquidation of a large part of the productive economy. A taxpayer financed bailout of rich folks' bad speculative bets has resulted in zombie banks and zombie customers... a fiscal tide that lifts no boats' is! The banks need our support brother cause the demand restoration project ain't workin' yet!

On March 30th your humble blogger posted: 'Soon the debate will fall on the continuum of a double-dip caused by the counterproductive populism of bankster bashing versus the political palliative of misdirection through scapegoating.'

Cue Goldie Scoldie Show Trial puh-lease.

Heard about Ritholz's commentary on Goldie through Honest Abe in Barron's...

He makes 1 point, 'The claim Paulson & Co. were long $200 million dollars when they were actually short is a material misrepresentation — that’s Rule 10b-5, and its a no brainer. The rest is gravy.'

My understanding was that the equity tranche was not part of the final deal, so not sure what the point is. The reference to Paulson being long was conditional, in some initial memo. Yes? Was it in the final structure? Don't think so. That's damn weak stuff. Folks didn't read the final deal? Seriously?

The late great Mark Pittman once wryly noted that almost no one in the media knew what yield was. What do you think the odds are that these same folks have any clue as to how a structured offering is circled?

What other point does Ritholz make?

'What you don’t see are all the emails, depositions, interrogations, phone taps, etc. that the prosecutors know about and GS does not'. Uh.. well neither does Ritholz, so again, what is the point?

For folks that have never participated in a structured bond offering, who never saw the gurus whip up iterations on the back of napkins, who never witnessed slivers of equity being presented as burnt offerings to the rating agency Gods, the current pablum narrative would appear to be unassailable.

Now I wasn't privy to this deal getting circled but will hazard a guess as to what the equity tranche (Paulson going long in the intial) was all about...

Paulson was more than willing to put down a sliver of equity in order to secure the AAA, but once it was confirmed that the rating agencies would give the pixie dust lipstick without it, it went buh-bye...

The ratings agencies are the enemies of the people, the rest was 'enabled' noise.

The 'selection' process on almost any comparable structured product was a reverse engineering of the rating agencies 'models' that had been tinkered over time in collusion with their fee-paying clients for the end goal of getting the AAA on the selected pig.

Will Goldie be found greedy before guilty by an impartial jury? That first assumes you can get an impartial jury, but yeh sure why not? The whole system was guilty of this. This was the game.

However if every other bankster is not brought up on similar charges than this episode is nothing more than a political diversion, the political palliative of misdirection through scapegoating in order to quell the 'counterproductive' populism of bankster bashing.

'Nuff said

Isn't it curious though that the MSM is highlighting emails of 'French to English' translated puns while giving short shrift to the rating agencies' billowing inferno of melting, not smoking, guns?

S&P employee (2006): “Rating agencies continue to create an even bigger monster — the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.”

S&P employee(2006): “We rate every deal. It could be structured by cows and we would rate it.”

Moody employee(2006): “I am getting serious pushback from Goldman on a deal that they want to go to market with today."

Moody employee(2006): "They’ve become so beholden to their top issuers for revenue they have all developed a kind of Stockholm syndrome which they mistakenly tag as Customer Value creation."

Oh and get this, as the FT reports today: 'The terms of the CDO contracts highlight how lucrative these instruments were for the agencies, with annual pay-outs of up to $50,000 made to track deals. Ratings surveillance fees are still being paid on CDOs that have suffered "an event of default" ...even toxic CDOs can continue to exist for many years.'

Seriously you can't make this stuff up! These folks are like arsonists who push for the bomb-making material and then, after planting the bombs and lighting the fuses, extort the firemen and get a tax on the water.

Isn't it curious that the accepted 'political' dimension of the SEC's motivations on Goldie was to strengthen financial reform and not obfuscate the hand-slapping being enacted upon the rating agencies on the Hill? A financial reform bill that says nothing, sees nothing, and does nothing about the rating agencies? Yes, I know you're shocked by that.

Isn't it curious that the Grecian, Spanish and Portuguese downgrades were coincident with the purported cessation of our debt monetization? Now that's a real strong dollar policy folks.

As once posted way back when in December 2008 : 'If we can accomplish the Houidini-esque stunt of funding this debt at manageable levels it will only be by literally defining AAA as anything American (i.e. if America becomes AA then literally AA is the new AAA, with the assumption that the reasons for our 'downgrade' would serve as deleterious to all others, except maybe Mr. Gold.)

I believe this vision is playing out. We are the last canary, and the biggest domino. But given the magic of our reserve currency, our 'downgrade' will only occur within the context of the world being downgraded first.'

That is the magic of our reserve currency and the elixir of the rating agencies, ensconced safely on our shores, a fact that is truly in the national security interest of the United States.

At no time do their hands leave their arms.

Wednesday, April 28, 2010

Trojan Hoaxin', show-trial boastin , and Nancy Capitalist roastin'... don't be the sucker.

It does not and should not matter whether ACA was aware of who was going short or who was going long. Applying fiduciary standards to market-makers doesn't fly either. Parsing how 'sophisticated' a sophisticated investor really is ... holds no water.

Sole authority versus designing/selecting, sophisticated versus 'less-sophisticated', losing money versus couldn't dump the 's&*t', ...ah the stuff with which show trials are made.

The metaphorical perp walk and the enabling pablum narrative solvent of cleansing with the, of course, obligatory turning of the page.

Consider if you will, Deutsche 's proclamation that they have nothing to fear (never a good sign) : 'Both the long and short investors were given the opportunity to select the specific collateral to which they were seeking exposure and mutually agreed on the CDO portfolio.{The bank} said it did not use third-party collateral managers, which eliminated the potential for deception with respect to the role of such a manager.'

And compare this to a 'salient' point from the FT: 'When Mr. Levin asked whether an internal memo saying the CDO's composition had been agreed by ACA and Goldman was accurate, Mr. Tourre said, It's not very accurate...It could have been more accurate. He admitted he should have added that Paulson & Co. and IKB, a German bank that invested in the deal , had also participated in the CDO's creation - a crucial point in the regulators' complaints.'

Well, your humble blogger doesn't think the SEC is complaining that Goldie didn't disclose that IKB participated in the CDO creation for the SEC is rewriting its' mandate to protect what is allegedly an un-sophisticated sophisticated investor, but it is interesting that this representation of a finely parsed point that could help the SEC with a - harumphh- impartial jury is basically representing Deutsche's defense less the 'objective' third party 'deception-enablin' collateral manager.


In my limited dealings with Goldie and the like the principal question to ask was always, 'Where am I getting screwed?'. Because I hate to break it to you folks... that is the essence of capitalism. Screw or be screwed. Personal disclaimer: this fella chose quality over quantity, a process initiated when Morgan tried to backstab my sponsor by replacing him with me - and I walked much to utter astonishment and chagrin of my bond team - but the aphorism that if you can't find the sucker at the table, its' the bedrock of our economic system.

If the case against Goldie is not a 'sad joke' as suggested in a previous post, then every other big bankster on the planet should be brought up on similar charges. Full stop.

In truth, the sucker here is apparent, and that sucker would be you gentle reader.

If Goldie was the pit boss, the accuser of same, the pontificating politico and her cohorts, was in fact the House. The fraudulent conveyan' , Nancy Capitalist enablin', Federales, abetted and abided the 'everything must go' free-market fire sale that spawned a multitude of pit bosses that were hell bent to seek rent.

Without prudent regulation, Marx, not Groucho was right.

Well we could always reinstate Glass-Steagal Mr. Levin... oh that's right, you voted to repeal that in '99 didn't you?

The magician's ability to get folks to ask the wrong questions belies the need for coherent answers, and we are fast approaching magic hour in the Bananarama Republic.

Financial reform derailed because Buffet is calling on his ~$50,000 investment in Ben Nelson to obviate the ~8 billion in collateral he would need to put up for the ~5 billion dollar premium he pocketed?

Rend it like Buffet!

A Grecian downgrade right after the enemies of the people, the rating agencies, got wrist-slapped on the hill and curiously timed with the purported cessation of our debt monetization?

News breaks with the cycles and the cynics...

I've always held firm to the thesis that deflation is the midwife to hyperinflation. A real deflation, not just disinflation, requires liquidity evaporation due to multiple sovereign crises, where the backstop is called into question.

Deflation is the dollar bid, hyper-inflation is the downgrade of America's citizenry commensurate with a currency devaluation.

Would suggest that the quantity of liquidity evaporation will very much define the quality of any hyper-inflation.

We have a free skate while there are troubles in Euroland (should stretch over months not weeks) and then we'll find out just how thin our ice really is.

Don't let the sucker at the ice-skate stand be you.

Saturday, April 24, 2010

Soapbox : Those that fail to stand for something will fall for anything

Is this soapbox steady?.... harumph....

Ideology is the devil and ego is the enabler.

When folks don't let facts get in the way of a good argument, they are not making an argument they are proselytizing.

If the right can rally around a flip-flopper from Massachusetts (Romney) given that they questioned the patriotism of a war hero (Kerry) and applied the same appellation, then they can also fall for the next American demagogue, the Manchurian Mountain Mama.

If the elected left (Barry Dunham) can effectuate an insurance friendly health 'reform' and support an ubiquitous bankster friendly bailout than they deserve to be painted with the same corporatocracy brush that they purportedly have spent their careers 'fighting'.

If folks that trumpeted the merits of a free market can just as thunderously trumpet the merits of its' demise (Nancy Capitalists) than they most certainly will insure that the blessings of liberty and her entrepreneurial spoils will neither be afforded to them nor their forebears.

The strength of our democracy is the rule of law and the equality of all men and women under it. The strength of our financial system is prudent regulation and a free market that rewards winners and pins losers. The strength of our state is to promote domestic tranquility and the general welfare by assisting the disadvantaged so that they may have the opportunity to secure blessings for themselves and their posterity.

Greedy before guilty does not protect the innocent and it does not promote the chaste.

Those that fail to stand for something will fall for anything.

Thursday, April 22, 2010

Money is not Speech, Corporations are not People, and Fee Speech is not Free Speech

'Hold everybody accountable? Ridiculous!'
- W. Edwards Deming

'I repeat... that all power is a trust; that we are accountable for its exercise; that from the people and for the people all springs, and all must exist.'
- Benjamin Disraeli

'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

'The Financial Crisis Inquiry Commission, the body set up by Congress to examine the cause of the system-wide credit crunch, said yesterday that it would use its legal powers for the first time to force Moody's, the credit rating agency, to produce documents.'
-FT 04/22/2010

'If they can get you asking the wrong questions, they don't have to worry about the answers.'
- Thomas Pynchon

'The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first.'
-Thomas Jefferson

The rating agencies are the enemies of the people.

Once upon a time I sat down in front of the agencies. Had an exclusive to place a'third'a billion face of a rather unique asset class. In order to get the buy side to bite, of course, we needed a rating.

It is not in any way embellishment to state that the work done by the agencies on this deal was so amateurish, so ephemeral, that a high school student with the toolkit of 'opposable thumbs and frontal lobes' could have coaxed Senor Google into producing a superior report.

Ultimately the squints created a white paper and slicks in my biz waved it around industry conferences as if it were gospel.

Of course the gospel was built on the bell curve and the curve was based on assumptions.

While seers like Taleb and Mandelbrot have shown that it is the flight of an arrow and that reality is the tail risk, the coin flippers have heretofore admitted no more than hey... it's a modified coin flip and our assumptions, which we provided to you in the King's English, why they're free speech babe!

But verily, Money is not Speech, Corporations are not People,and Fee Speech is not Free Speech.

Shame that there isn't a smoking gun.

Waitaminnit ...

by Jesse Eisinger Oct 15 2008
Portfolio Magazine

In December 1997, J.p. Morgan closed on its first big credit-derivatives deal, the Broad Indexed Secured Trust Offering, or Bistro for short. Insurance companies and banks, the initial customers, were enthusiastic, snapping it up in just two weeks. The deal was enormous for the time, off-loading more than $9.7 billion of J.P. Morgan’s exposure. Morgan had succeeded in reducing its balance-sheet risk and was able to free up capital to buy its stock back.

J.P. Morgan would go on to launch a credit- derivatives assembly line, becoming the Henry Ford of the new financial market.

Bistro “was the most sublime piece of financial engineering that was ever developed. It was breathtaking in terms of beauty and elegance,” says Satyajit Das, a risk consultant and the author of Traders, Guns, and Money, a financial history. But “in many ways,” Das adds, “J.P. Morgan created Frankenstein’s monster.”

For J.P. Morgan, Bistro worked wonderfully. But even in that first deal, the weaknesses in structured finance and credit derivatives that would come to the fore in the 2007 credit-market crash were already there.

Despite its blue-chip assets, Bistro didn’t perform pristinely. The initial slice, the equity layer that Morgan retained as a cushion against trouble, was so thin that it couldn’t weather even one default from one of the bigger companies in the bundle. That ultimately happened, wiping the slice out entirely. The investors who were one notch up, in what’s called the mezzanine layer, lost money as well. Even the buyers of the top-rated tranches, which were thought to be rock solid, had to endure bumpy periods before they got their money back.

During that first major deal, the credit-rating agencies, which were supposed to be impartial, were already deeply enmeshed in the give-and-take of the process.

A former Morgan banker who helped create Bistro recalls that Standard & Poor’s was giving the bank a tough time. The rating firm would run the deal through its models, and “each time, it came up with disastrous results. We did some tinkering and all of a sudden, it could rate the deal,” the banker says.

AM Here: Tinkering!

What an innocuous word for fraud.

Move along nothing to see here.

Wednesday, April 21, 2010

In defense of the Banksters(?), incensed by the pranksters ... where the hell is the Hankster?

'The SEC didn't have ... the mindset to be a prudential regulator.'
-Mary Schapiro, Chairman of the SEC

'To me the SEC is utterly irrelevant. It is the federal fig leaf over the securities market. Bring back Joe Kennedy ... bring back free markets ... get rid of these people.'
- James Grant

'The new normal is not sub par economic growth. The new normal is the roll back of free markets.'
-Russell Napier

'The examination staff at the SEC's district office in Fort Worth, Texas reviewed the Stanford Group's operations in 1997, concluded that its sale of certificates of deposit likely constituted a Ponzi scheme, and referred the matter to SEC enforcement staff. Mr. Stanford kept on selling his seemingly too-good-to-be-true CDs, so SEC examiners investigated again in 1998, 2002 and 2004. Each time, they concluded that the Stanford operation was a probable Ponzi scheme and urged SEC action. Each time, the enforcement staff failed to act…'

'I have spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers told me that Bernie Madoff was a fraud. Of course no one wants undue career risk by sticking their head up and saying that the emperor isn't wearing any clothes. As a result of this case several careers on Wall Street and in Europe will be ruined. Therefore, I have not signed nor put my name on this report. I am worried about the personal safety of myself and my family.'
-Harry Markopolos in 2005.

'Obviously, first of all, this conversation never took place … OK? You know, you don’t have to be too brilliant with these guys, because you don’t have to be. The guys … ask a zillion different questions and we look at them sometimes and we laugh, and we say are you guys writing a book? These guys they work for five years at the commission then they become a compliance manager at a hedge fund now'.
-Madoff on a 2005 conference call telling colleagues how to dodge the SEC.

'This s%*t would be really interesting if we weren't in the middle of it.'
—Barack Obama

At first blush the SEC's civil case against Goldie looked like an institutional he-said, she-said.

A second read concludes it is a joke.

Either the folks at the SEC are stupidly criminal or criminally stupid ... a more appropriate servin' would be to charge themselves as well as their co-conspirators in silence and blindness... the fraudulent conveyan' , Nancy Capitalist enablin', Federales that are exhuming the epigram that without prudent regulation Marx, not Groucho, was right.

Ms. Schapiro when a progressive bankster-baitin' anonymous ranconteur takes Goldie's side against your pablum narrative 'bringin' them to justice' you know that we've jumped the capitalist shark and are rappelling our way right down the sovereign democratic rabbithole.

Mary, Mary, to be contrary, how does your mandate go?
For public secs and retail vests?
Or institutions too stupid for d'oh?

Failure to liquidate the insolvent banksters has led to the liquidation of a large part of the productive economy.A taxpayer financed bailout of rich folks' bad speculative bets has resulted in zombie banks and zombie customers... a fiscal tide that lifts no boats.(AM Rule #7)

The stress tests which were truly an I.Q. test, and squeezing the squints, set the stage for a generational workout.

Now extend and pretend is the proposed means to mend.

Why audit the Fed, or question the strong dollar policy which is a chimera of wealth transfer, or consider that in the land of the brave we've honed off the free?

Let's pick the winners and stick the sinners, after all the man on the street needs that metaphorical perp walk so we can turn the page and start afresh.

The magician's ability to get folks to ask the wrong questions belies the need for coherent answers.

In defense of the Banksters(?), incensed by the pranksters ... where the hell is the Hankster?

Can't wait to see Hanky Panky get on the stand and do an Admiral Poindexter.

This s%*t would be really interesting if we weren't in the middle of it.

Sunday, April 18, 2010

Kenneth, what is the frequency? The randomwalkers are underestimating the gravity of our situation.

'Let's now examine the more conceptually difficult case of the Tacoma Narrows Bridge. The surprise here is that the wind was steady. If the wind was blowing at constant velocity, why did it shake the bridge back and forth? The answer is a little complicated. Based on film footage and after-the-fact wind tunnel experiments, it appears that two different mechanisms were involved.

The first mechanism was the one responsible for the initial, relatively weak vibrations, and it involved resonance. As the wind moved over the bridge, it began acting like a kite or an airplane wing. It established swirling patterns of air flow around itself, of the kind that you can see in a moving cloud of smoke. As one of these swirls moved off of the bridge, there was an abrupt change in air pressure, which resulted in an up or down force on the bridge. We see something similar when a flag flaps in the wind, except that the flag's surface is usually vertical. This back-and-forth sequence of forces is exactly the kind of periodic driving force that would excite a resonance. The faster the wind, the more quickly the swirls would get across the bridge, and the higher the frequency of the driving force would be. At just the right velocity, the frequency would be the right one to excite the resonance. The wind-tunnel models, however, show that the pattern of vibration of the bridge excited by this mechanism would have been a different one than the one that finally destroyed the bridge.

The bridge was probably destroyed by a different mechanism, in which its vibrations at its own natural frequency of 0.2 Hz set up an alternating pattern of wind gusts in the air immediately around it, which then increased the amplitude of the bridge's vibrations. This vicious cycle fed upon itself, increasing the amplitude of the vibrations until the bridge finally collapsed

Wiki: ' On October 4, 1986, as Dan Rather was walking along Park Avenue in Manhattan to his apartment, he was attacked and punched from behind by a man who demanded to know, "Kenneth, what is the frequency?", while a second assailant also chased and beat him. As the assailant pummeled and kicked Rather, he kept repeating the question over and over again.The incident and Rather's account led some to doubt the veracity of Rather's story, although the doorman and building supervisor who rescued Rather fully confirmed his version of events. '

'Waves are a way in which energy is transferred from place to place without the transfer of matter. The energy is carried from place to place in the form of a disturbance. Waves, which move through matter, are called mechanical waves. They require an elastic material medium through which to pass. Examples of matter waves are water waves at the beach and sound waves moving through the air. Waves, which do not require a material medium, are called electromagnetic waves. Examples of electromagnetic waves are light and radio waves. The wave-like behavior exhibited under certain conditions by particles like electrons are called matter waves.'

'The tides are caused by the gravitational forces on Earth exerted by the moon and sun. These “tidal forces” are not the total gravitational forces exerted by the sun and moon on Earth, but the difference between these gravitational forces over the surface of the planet. It may seem counterintuitive, but the gravitational forces of the moon and sun tug at the oceans primarily on the horizontal tangent and not the vertical plane to the Earth’s surface. This is partly why the high tide lags — also referred to as the lunitidal interval. This tugging produces a tidal “bulge” or area of higher sea level on the ocean’s surface. As Earth rotates eastward on its axis, water moves into this bulge, which produces a flood tide, and eventually a high tide. As Earth continues to rotate, we move into an area of below-normal sea level or nodes, which produce an ebb tide, eventually reaching low tide. The slack tide is when the tide is not coming in or going out. During a full as well as new moon, the sun and moon are aligned, producing strong tidal forces on the Earth. This is also referred to as spring tide, even though it doesn’t have anything to do with the spring season. These are the highest and lowest tides of the month. During the moon’s quarter phases, the gravitational forces of the moon and the sun are perpendicular to each other. Nearly canceling each other’s tidal forces out, the result is smaller high and low tides. This is referred to as neap tide. Earth’s orbit around the sun is really an ellipse, a shape that can be thought of as a “stretched out” circle or an oval. Tides are enhanced when Earth is at perihelion, when the whole planet comes closest to the sun. When we look at the tide tables, you should remember that these are only predicted values utilizing gravitational forces. During El Niño events, actual tides can be up to one foot higher due to thermal expansion of the water column. Storms can also affect sea level. Low atmospheric pressure associated with storms can allow ocean waters to expand, resulting in a temporary increase in sea level. Strong winds can cause additional elevation of sea level due to storm surges. Water is about 800 times denser than air. Waves and tides contain a great deal more potential kinetic energy than the winds for the same area or footprint.'
-John Lindsey

'How much energy do you think it takes to move the oceans? And what do you think it effects when it passes onto land?'
-John Needham (paraphrased)

'Research carried out by William Schulz of the United States Geological Survey in Denver, Colorado, and colleagues, {has concluded} that atmospheric tides are responsible for causing landslides...They discovered that the movements of the rubble were in sync with ‘atmospheric tides’ - daily highs and lows in atmospheric pressure that are excited by changing exposure to the Sun’s rays and by the Moon’s gravitational pull.'
-Nature News

'The two days on either side of the new lunar month represent most of the positive returns on equity markets for the next four weeks.'
- Macquarie Securities

'We find strong empirical support in favor of a geomagnetic–storm effect in stock returns after controlling for market seasonals and other environmental and behavioral factors. Unusually high levels of geomagnetic activity have a negative, statistically and economically significant effect on the following week’s stock returns for all US stock market indices. {There is} evidence of substantially higher returns around the world during periods of quiet geomagnetic activity.'
-Federal Reserve Bank of Atlanta

'The year ahead appears to us to contain the most powerful planetary alignments in centuries, not just decades.At the recent NCGR conference in Cambridge, Mass., an astrologer said they checked back for sky patterns a thousand years and another piped up that they had looked back Ten Thousand years and neither had seen this one’s match! It would be considered a ‘done deal’ or a high probability that World Markets will Crash again during 2010. We will do everything but guarantee you that stocks will crash worldwide within three months of August first (that is between May 1 and November 1.'
-Arch Crawford

Well the Goldie imbroglio looks interesting, an institutional he-said she-said with ACA, but it would seem to this humble blogger that the folks not on trial are the ones that created the environment where the yield pigs were voraciously sniffing any and all troughs, namely the Federal Reserve and their low interest rate, Nancy Capitalist enablin', 'everything must go' free-market fire sale.

But examining causes and actions and connecting dots to consequences is just too complex. 'Tis much easier to obviate the Casus Foederis for a Casus Belli, allowing our blessed leaders to initiate metaphorical perp walks and enabling the pablum narrative solvent of cleansing and the, of course, obligatory turning of the page ....

One upside is that this does weaken the efficient market theory, that is, solons able to efficiently rig most any market to their benefit. Not that efficient market theory and its sauntering corollary random-walk needed much debunking, a trip to that antiquated warehouse, the library, or its' 21st century equivalent, Senor Google, offer ample empirical evidence that such foolish notions belong in the dustbin , not the acknowledged tome, of history.

What were the odds that the SEC would charge Goldie, not work out an 'agreement' a priori, and goodness me not at least give a courtesy call so Goldie could short themselves? Considerable no doubt.

But no more considerable than the odds of a Gaussian distribution explaining market movements. Of bubbles in your soda diagnosing bubbles in your portfolio. Of dice playing describing the nature of the dice itself much less the gamblers with same.

The progenitors of alternate theories have been largely ignored; the adherents to the ex-theory randomly maintaining that paradigms cannot be abandoned no matter how shaky, unsatisfactory models cannot be discontinued no matter how broken.

The logical progression of thought that adhering to a broken thesis in part precludes one from considering alternative schemas is a self-reinforcing loop of delusion.

But it did not have to be so...

There was a brief moment, of a few months, half a century ago, where an economic Einstein named Benoit Mandelbrot proved that discontinous market movements, allowable under random-walk to the probabilistic tune of a gazillion-squared, can be scientifically explained ... albeit in non-Gaussian terms.

This breakthrough however proved not only market movements but also that it was too difficult for folks to accept that which leaned into the wind of their strongly held self-perceptions.

So the fractal basis of market movements was relegated to an interesting thesis and its' proponents forced into the corner of proving a negative, rather than affirming a negative.

The debate continues today, folks that search for the underlying fractal pattern being asked if they are going to 'hang it up' if the market doesn't do this or that....

Never though will the naysayers put their theories under the empirical microscope to consider the odds, to fathom the impossibility, of random walk theory within the context of market movements of the last century or even the last few decades.

Consider, gentle reader, the premise from a different direction. If the markets are the data-set of humanity, if the markets are in effect expressing the nature of man, then does it not seem reasonable that the natural law, oft-repeated by traders of old, in fact both guides the nature of man and markets?

Is it snips and snails, and puppy dogs tails or for the gentler side, sugar and spice and all things nice?

As likely a random collection as anything else...

No, we, that is you and I, are made up of energy, energy that is described by its wave-particle duality. We vibrate and as such have a frequency, a wavelength, a harmonic, an energy signature...Seriously, you can look it up!

Now undoubtedly there is randomness on a micro scale, you are for example choosing to read this, but on a macro scale there are cycles, interactions if you will, between other waves, harmonics, energy sigs etc...

In fact I might, controversially , advance that you are reading this entry because mayhaps we both vibrate in a similar fashion!

That is where the substance of the Macquarie Securities quote and the Federal Reserve Bank of Atlanta quote at the top of this post find its' origins...

That is why fellas like Arch Crawford have such an amazing record in sleuthing out turning points, almost always nailing the inflection, and usually nailing the direction.

The wave-particle duality inherent within the natural law has a fractal basis. This is expressed for linear systems, as but one example, by the superposition principle, the net response at a given place and time caused by two or more stimuli is the sum of the responses which would have been caused by each stimulus individually. It is further expressed, by Mandelbrot's assertion, that fractals are objects or quantities that display self-similarity on all scales. It is confusingly expressed in truly gobbledygook form with convoluted sentences like, 'The complex spaciotemporal patterns of atmospheric flows that result from the cooperative existence of fluctuations ranging in size from millimetres to thousands of kilometres are found to exhibit long-range spacial and temporal correlations. These correlations are manifested as the self-similar fractal geometry of the global cloud cover pattern and the inverse power-law form for the atmospheric eddy energy spectrum'.

Clearly the last fella is too advanced for our language.

What is not however too terribly advanced is that Mandelbrot discovered that power laws, a relationship between two quantities where the number or frequency of an object or event varies as a power of some attribute of that object, squares the broken circle of random-walk theory. It explains the heretofore unexplainable market movements of recent vintage. He was able to show that discontinuous market movements exhibited scalability, i.e., fractal behavior, when plotted on engineering graph paper - the kind with logarithmic scales in both directions. This was prima facie evidence of a power law behavior within markets. Power law merely describes the nature of a logarithm. The logarithm of a number to a given base {base 10 describes of course what most of us are familiar with)is the power or exponent to which the base must be raised in order to produce the number.

Power laws exist in nature, for example, gravity weakens by the inverse power of two with distance. Power laws describe the distribution of income in the upper reaches of society. Power laws also apply to the price movements of many financial instruments. Power law distributions allow for many more price swings than would the bell curve and this 'new paradigm' fits the data for many price series.

Power laws relate planetary structures to harmonic constructs ... in Kepler's harmonic mode of thought, the temporal primal intervals of the orbital periods must be raised to the second intervallic power, and the spatial primal intervals of the major axes must be raised to the third intervallic power. This means a power ratio of 2 : 3, i.e. the fifth, the most important interval after the octave.

As further advanced by Hartmut Warm, the order and movement of the planets in our solar system corresponds very accurately to simple geometrical figures and musical intervals, although in a different way than assumed in conventional concepts. One of the keys for an explanation is to be found in the analysis of the harmonical arrangement in the semiminor axes of the elliptical orbits, whereas earlier models and calculations were based on the semimajor axes. He concludes that, thus the ancient notion of a “harmony of the spheres” and especially the fundamental ideas of Johannes Kepler have been confirmed for the first time, and this in a manner that can principally be verified by everyone.

These harmonical arrangements are fractals of the Danielcode ratios, advanced by John Needham, who has an empirically exact method to trade the fractals discussed by Mandelbrot and that are the basis of natural law.

For your humble blogger, this preponderance of evidence, especially, in the canucklehead vernacular of Bubblevision, the 'actionable' dimension of John Needham's DanielCode, lends disturbing credence to Archie Crawford's prognostications and the potential Tacoma Bridge run-on effects of the waves coming to a planet near you.

Earthquakes, volcanoes and ? Oh my!

Clearly, the randomwalkers are underestimating the gravity of our situation.

Kenneth, what is the frequency?

Or more soberly,

Kenny? OMG!

Got fractals?

Thursday, April 15, 2010

Hemlock as libation in Reflation Nation . The Reimagining of Capitalism

'I've abandoned free-market principles to save the free-market system ... I am sorry we're having to do it'
-George W. Bush, December 16, 2008

'The new normal is not sub par economic growth. The new normal is the roll back of free markets.'
-Russell Napier, yesterday

'Nothing that says' FED couldn't buy more MBS. FED won't 'monetize debt'.
- Ben Bernanke, yesterday

'They have spoken words, swearing falsely in making a covenant: thus judgment springeth up as hemlock in the furrows of the field.'
- Hosea 10:4

Above the fold, today's WSJ : 'Evidence Mounts of Strong Recovery.'

The evidence?

First, retail sales.

But pay no attention to the little tidbit that the Commerce Department put out in their Dec. 11 release: "Special Notice -- The advance estimates in this report are the first estimates from a new sample. The new sample for the Advance Monthly Retail Trade Survey is selected about once every two and a half years."

What a shock that retail sales have been trumpeted ever since this 'new sample' has been implemented.

And what was the new sample?

Out of 5,300 retailers and restaurants sampled, only half of those in November were also sampled in October. The other half were brand new to the survey!

Might one suppose that a number of companies that weren't questioned were ex-companies?

Might one suppose that the brand new spankin' companies to this survey were chosen with some purpose in mind?

Ya think?

It's like diagnosing the health of a fish whilst only observing the severed head.

The article goes on though to highlight one glorious example of the evidenced strong recovery:

'The rebound is benefiting Robert Mayfield, owner of five Dairy Queen restaurants around Austin, Texas, where he recently launched a new five-dollar deal including a quarter pound burger, fries, a drink and a small Blizzard dessert. The response was tremendous, said Robert.'

Seriously WSJ? How could you not comment on the land rush to get the Jalapeño triple stacked at Whataburger? And what about Daisy Mae trumpeting that the very berry pancakes at IHOP are going like .. er hotcakes! Its' a V-creped recovery!

That's a round mound of reboundin' recovery in the service sector eh?

Of course the WSJ also cites the rising financial markets as prima facie not to mention the new efforts to forgive mortgage debts....

Every day and in every way this s%&t is starting to resemble a bad science fiction movie from the 70s.

And segueing from fiction and dead fish we have Jaime 'Whine on you Crazy' Dimon seeing not a wolf at the door but a big bad recovery. Considered by many as a good bankster (oxymoronic?) his endless opprobrium to any and all (perceived) anti-bankster slash populist slash counter-productive initiatives on the Hill is only matched by his delirium in staying in front of the currently dyked creative destruction wave that would too expose his grand enterprise as being too bankrupt to go broke...

Mr. Dimon's rising optimism, states the WSJ in the top of the fold headline Section C, 'The Day the Banks Turned the Corner', is triggered partly by a show of hands in meetings where he asks how many of youze entrepreneurial guys plan to hire more?

"20%, 30%, 40% raise their hands" Jamie D gushes. And then to fun-house mirror the quixotic anecdote referenced in the Page 1 article above, the WSJ goes on to highlight one of the (presumed) hand raisers:

'John Sang Wilbur organizes summertime ski, snowboard and Spanish-language instruction trips to Argentina {and} expects business to increase 35% ... Mr. Wilbur scrambled to get a new business credit card last year when the issuer of his old card stopped extending credit. He found a new issuer but soon plans to switch to a cheaper card from J.P. Morgan's Chase unit.'

Viva la recovery!

Pay no attention folks to the facts that J.P. Morgan's loan levels are stagnant, retail banking has swung to a net loss and mortgage default rates are rising.

Oh and please completely ignore the off-balance crap like QSPEs and VIEs. If the QSPEs alone ($574,000,000,000 on 06/30/09) are valued in aggregate at less than 77% of par then Jaime's Tier One is Tier None.

And my oh my just don't think about the fact that if junior-lien home mortgages were fairly valued J.P Morgan would have to be 'forced' to take money from a TARP 2.0 that 'it didn't need.'

Instead, gentle reader, please concentrate on the plum that is the 55% surge in quarterly profit which had 75% of its' origin in the investment banking operation- home of the bankster's 'potemkin solvency trifecta' :a 79 trillion derivatives book (mark to necessity), the MSR bucketshop (mark to farce), and the avalanching yield curve (mark it zero).

Hemlock as libation in Reflation Nation .

The Reimagining of Capitalism.

Tuesday, April 13, 2010

The windfall apples need be reserved for the more equal brainworkers.

Butch Cassidy: Do you believe I'm broke already?
Etta Place: Why is there never any money, Butch?
Butch Cassidy: Well, I swear, Etta, I don't know. I've been working like a dog all my life and I can't get a penny ahead.
Etta Place: Sundance says it's because you're a soft touch, and always taking expensive vacations, and buying drinks for everyone, and you're a rotten gambler.
Butch Cassidy: Well that might have something to do with it.

{There are two ways a man goes broke}, 'slowly,and then all at once'.
-Ernest Hemmingway

'There was a crime. There was a victim. And there is punishment.'
-Rusty Sabich

'There is no sadder sight than a young pessimist.'
-Mark Twain

"Comrades! You do not imagine, I hope, that we pigs are doing this in a spirit of selfishness and privilege? Many of us actually dislike milk and apples. I dislike them myself. Our sole object in taking these things is to preserve our health. Milk and apples (this has been proved by Science, comrades) contain substances absolutely necessary to the well-being of a pig. We pigs are brainworkers. The whole management and organization of this farm depend on us. Day and night we are watching over your welfare. It is for your sake that we drink that milk and eat those apples. Do not imagine, comrades, that leadership is a pleasure. On the contrary, it is a deep and heavy responsibility. No one believes more firmly than Comrade Napoleon that all animals are equal. He would be only too happy to let you make your decisions for yourselves. But sometimes you might make the wrong decisions, comrades, and then where should we be? The importance of keeping the pigs in good health was all too obvious. So it was agreed without further argument that the milk and the windfall apples (and also the main crop of apples when they ripened) should be reserved for the pigs alone."
-Squealer (Animal Farm)

APRIL 13, 2010, 7:31 AM ET

By Kathleen Madigan

Economists may be debating when the recession ended, but small business owners report little pick up in their sales or confidence in March, according to a report released Tuesday. The weak readings explain why small businesses remain reluctant to hire.

The Small Business Optimism Index lost 1.2 points to 86.8 in March, said the National Federation of Independent Business.

The NFIB noted that nine of the 10 components declined or failed to contribute to an increase in the top-line index. The lone improvement came in the subindex covering expected business conditions. It rose 1 percentage point to -8%.

The report said 34% of respondents said “weak sales” were their top business problem. The subindex on earnings trends fell 4 points to 43%, and sales expectations subindex dropped 3 points to -3% in March.

The drop in confidence among small business owners comes as economists are debating when the recession ended. The National Bureau of Economic Research said Monday it was still “premature” to set a date for the economy’s trough. The NFIB reports suggest that while the overall economy is growing, pockets of pessimism remain.

AM Here : Holding the comics up to the light tis clear that the NBER believes that 'Employment, inflation, productivity, GDP, and other sundry stats are massaged into irrelevance' (AM Rule #2), as evidenced by their commentary that 'in examining the behavior of domestic production, we consider not only the conventional product-side GDP estimates, but also the conceptually equivalent income-side GDI estimates.'

As previously mentioned on this blog :

(King Report)Per John Williams: Gross Domestic Income (GDI)" is the theoretical equivalent to the GDP, but it is not followed by the popular press. Where GDP reflects the consumption side of the economy, GDI reflects the offsetting income side. When the series estimates do not equal each other, which almost always is the case, the difference is added to or subtracted from the GDI as a "statistical discrepancy."

Although the BEA touts the GDP as the more accurate measure, the GDI is relatively free of the monthly political targeting the GDP goes through.

"Gross National Product (GNP)" is the broadest measure of the U.S. economy published by the BEA. Once the headline number, now it is rarely followed by the popular media. GDP is the GNP net of trade in factor income (interest and dividend payments).

GNP growth usually is weaker than GDP growth for net-debtor nations.

Games played with money flows between the United States and the rest of the world tends to mute that impact on the reporting of U.S. GDP growth.

The Street, US government and financial media reported and followed GNP until 1987 because at that time the US turned from a net creditor to a net debtor; and GNP sank on the outflows of cash.

GDI fell far more sharply in the teeth of the recession, dropping at a 7.3% annual rate in the fourth quarter of 2008, and 7.7% in the first quarter of 2009. GDP, in comparison, fell by 5.4% and 6.4%. Moreover, while GDP showed the economy began to grow in last year’s third quarter, GDI showed it continued to contract.

AM here:Or in other words: 'Mr. Hand's strong dollar policy is 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.' (AM Rule #5)

A rose by any other name doth smell less sweet. Rosy numbers and numbers rasa. GDI is an elephant in the womb. As is unemployment. Unemployment levels and changes thereof also play a major part in defining expansions and recessions. We all know that reported unemployment numbers are skewed but what is absolutely never reported in the MSM is that empirically employment levels are now WORSE than the WORSE levels of the Great Depression Volume 1.

During the First Great Depression the Unemployment Rate peaked at 23.53% in 1932, 24.75% in 1933 and 21.6% in 1934.( Source :U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1957)

Back in those days, before the Federales massaged the relevancy of statistics into the pablum narrative rabbithole it was pretty simple to calculate the unemployment rate.

In 1932 there were 12,060,000 unemployed out of a labor force of 51,250,000, returning 23.53%.

In 1933 there were 12,830,000 unemployed out of a labor force of 51,840,000, returning 24.75%.

In 1934 there were 11,340,000 unemployed out of a labor force of 53,140,000, returning 21.60%.

Of course back then the labor force grew, now we bid the unemployed adieu.

And back then the labor force was 'defined' a tad differently.

From the Congressional Research Service's : The Labor Market during the Great Depression and the Current Recession.

The 1940 census of the population was the first statistical undertaking to include questions on the labor force defined as persons who are employed or without jobs but actively seeking work within a prescribed period of time. Before then, the 1930 census of the population, the 1937 census of unemployment, and the occasional survey conducted in various states and cities utilized a very different concept—the “gainful worker”—that is, individuals who had at some time worked in an occupation in which they earned money or the equivalent, or in which they assisted in the production of marketable goods.

With passage of the Fair Labor Standards Act (FLSA) in 1938,the age limit for employment in manufacturing industries was raised to 16 years, which effectively reduced the number of job opportunities for young persons. This, in turn, might have prompted some teenagers to refrain from entering the workforce and instead, remain voluntarily in school after reaching age 14.

The increase in unemployment was greatest among young workers. The number of unemployed 14 to 24 year olds rose by 251% between 1930 and 1940. The Fair Labor Standards Act (which prohibited 14-and 15-year-olds from working for manufacturers) effectively limited the job options of the very youngest workers as well.

AM here : Was under the impression that in the First Great Depression the Unemployment Rate counted everyone over the age of 16 that did not have a job. In a previous entry had stated: In 1916 the Child Labor Act passed, setting a national minimum age of 14 in industries producing nonagricultural goods for interstate commerce or for export and the Keating-Owen Act passed, forbidding the transportation among states of products of factories, shops or canneries employing children under 14 years of age, of mines employing children under 16 years of age, and the products of any of these employing children under 16 who worked at night or more than eight hours a day.

It would appear though that prior to 1938, there were a lot of unemployed 14 and 15 year olds that were included in the unemployment rate.

That makes the following study even more frightening.

It speaks for itself: the first column represents 12/07 and the second column represents 12/09.

Center for Working-Class Studies at Youngstown State University


Officially Unemployed 4.9%, 10.0%
Marginally Attached .8%, 1.5%
Discouraged 02%, .05%
Underemployed 3.1%, 6.0%
Excess disability 6.0%, 6.0%
Government programs 4.0%, 4.0%
Subtotal 18.52%, 28.35%


Officially Unemployed- Persons who worked less than one hour during the nationally determined reference period (one week), looked for during this period, and were available for work during this period.

Latent Job Candidates

Marginally attached workers - Persons not in the labor force who want and are available for work and who have looked for a job sometime in prior 12 months (or since the end of their last job if they held one within the past 12 months), but were not counted as unemployed because they had not searched for work in the four weeks preceding the survey.

Discouraged workers - Persons not is labor force who want are available for a job and who have looked for work sometime in the past 12 months (or since the end of their last job if they held one within the past 12 months)
Underemployed -Persons who would like to work full-time but are not able to do so for economic reasons such as unavailability of full-time work or reduced demand for hours by current employer

Excess disability - Persons who are excluded from labor force because of sick leave or early retirement

Government Programs - Persons receiving government subsidized or government provided programs. For example, low wage workers receiving Earned Income Tax Credits

These estimates may be low given what has happened in the economy and the lack of current data. For example, individuals going to colleges and universities have increased dramatically during the current recession/regional depression but are not counted as part of labor market

AM here: Kids say the damnedest things don't they?

And its' the kids that we should be worried about, the nascent buster generation, the potential generation zero.

A German trading partner, who had recently returned from a trip to the Fatherland, told me that he has noticed several changes lately : 1) Not as many big cars on highways most new purchases seem to be for smaller and cheaper vehicles ; 2) Almost obsessive focus on economy and finance ... dominates small talk; 3) A general malaise on the big picture but satisfaction on ones' current situation with more focus on simple pleasures ... summarized by a 'could be worse' attitude... is that todays' optimism?

The truth sublime Mr. Twain, for your humble blogger hears the same pessimism among the youth here.

The Anglo version of Donaudampfschiffahrtsgesellschaftskapitän preparing for River Styx?

There was a crime (banksters too bankrupt to go broke), there is a victim (those not members of the Nancy Capitalist Club) and there is punishment (a DeadHead Economy as we navigate the black diamond demographic slope on the backside of Sugar Mountain).

There is no serotonin boost to being pessimistic, would much rather trumpet hope and short despair. But dismissing realities and ignoring history does not elicit an empirical conclusion that we'll avoid repeating what looks to be a quantum can of whoop ass reversion to the MEAN.

The importance of keeping the pigs in good health was all too obvious to our top-down strategerizin' Federales.

So it was agreed without further argument that the milk and the windfall apples (and also the main crop of apples when they ripened) should be reserved for the pigs alone.

But the band of The Hand can only conjure a Potemkin demand. Organic wage growth, absent for the last decade, comes from ... wait for it ... the productive allocation of capital when a free market pins winners and chooses losers.

That's why small business are crying give me customers or give me debt. But, no debt for you! the windfall apples need be reserved for the more equal brainworkers!

Phat, Plummed and Cupid is no way to go through strife Mr. Hand.

The insouciance of elites and the Antoinette economy...

This ends in tears or (hopefully not) fireworks.

Monday, April 12, 2010

News flash: the noblesse oblige have determined that unspecified mistakes were made. Alfred Bernhard Nobel is convulsing in his tomb.

"For unto whomsoever much is given, of him shall be much required: and to whom men have committed much, of him they will ask the more."
-Luke 12:48

"To be sure, if noblesse oblige, royalty must do so still more".
- F.A. Kemble

'The price of greatness is responsibility.'
-Winston Churchill

'With great power, comes great responsibility'
-Spider Man's uncle

The fella was insufferable.

A PHD who spent the majority of his time either tomcattin' or moaning about his latest pending grant application while sponging and/or co-opting funds from relatives. Always bemoaning his lot, he would in haughty fashion continually proclaim to those who might indulge him that he was too ADVANCED to take a job that might horror upon horrors, pay the rent for his family.

The best I could tell, his only contribution to society was intermittent book reports on groundbreaking fare such as 'smoking is bad for you.'

What made it worse was that he was my sister-in-law's husband.

So at family gatherings inevitably would get sucked into a conversation with him where your humble blogger would carefully parse out my conversation in exchange for his long-winded and often logically incoherent responses that would inevitably end in his metaphorically patting me on the head and acknowledging that I was kind of clever given that I 'only had a bachelor's degree.'


He's long gone now, thank goodness, exposed for his imbroglios, but at least one smile-inducing memory remains.

At one family soirée as the assembled gathered for a group photo he took the reins to organize folks for the shot and as all watched struggled mightily to figure out how to operate the Kodak.

In a loud voice, I cracked, 'Looks like you're too ADVANCED for that camera eh?'

The unbridled howls from the clan almost mitigated the aggregated unbearableness of past interactions.

Thought of the poor sop as I caught the brief article on page 2 of the Weekend FT on the inaugural meeting of the Institute for New Economic Thinking.

Organized by Soros, it included five Nobel prizewinners, and its' landmark conclusion was that the financial and economic crisis had exposed fatal flaws in the subject of economics and that ideas were urgently needed to keep economics relevant.

Raheally??? Go on....

The conference participants could neither agree on the cause of the crisis nor the necessary remedies....


News flash: the noblesse oblige have determined that unspecified mistakes were made.

Alfred Bernhard Nobel is convulsing in his tomb.

Our blessed intelligentsia are at a loss in attempting to provide a summation of our 'I Can't Believe It's not Capitalism' plan in response to the 'What just Happened' crisis?

They just can't noodle the fact that we are Paying it Backwards, the next generation paying us to paper over the inevitable creative destruction that must occur and that will occur, which will inevitably lead to a DeadHead Economy as we navigate the black diamond demographic slope on the backside of Sugar Mountain?

It escapes them that the cold hard fact of our age is that 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 is colliding head-on with a Mr. Market that is a bit pissed off that we've inflated it out of the business cycle for the last quarter century? (AM Rule #6)

They just can't fathom that after World War 2, our blessed leaders, impressed by German 'organizational' skills crafted a policy of manufacture of consent; over time these techniques moved to the economic realm in an attempt to manufacture content; and now the Federales risk the manufacture of contempt, for it is only a Great Depression if they say it is? (AM Rule #1)

They are oblivious to the calamity that Mr. Hand's strong dollar policy is in fact a 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?(AM Rule #5)

No epiphany about the bane articulated by 'Nancy Capitalists in a Sovereign Democracy that are Hell Bent to Seek Rent', no insight in reference to the scourge that 'although we walk through the Valley of Debt we fear No Easing', no commentary on the riff that 'Socialized Guts will lead to diminished glories'?

And not a peep on how a flat tax and an across the board 20% cut would balance our budget lest we be 'pushed' down the fiscal stairs?

Not a whisper about dipping the banks in the acid bath of price discovery so that the organic phoenix of creative destruction can lift all of us up to a brighter future thereby avoiding the likely trip down 'generation zero' gulch?

How about a hushed acknowledgement that removing the profit element from health care would, horror upon horrors, allow us to join the rest of the civilized world so we can bypass being eternally cajoled by the idiot box to 'ask our doctors'?

Methinks they are too ADVANCED for our dilemma.

But what do I know, I only have a bachelor's degree....

Friday, April 9, 2010

Be vewy vewy quiet or you'll be bupkes, ehehehehehehe

'I have spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers told me that Bernie Madoff was a fraud. Of course no one wants undue career risk by sticking their head up and saying that the emperor isn't wearing any clothes.'
-Harry Markopolos in 2005.

'As long as the music is playing, you've got to get up and dance.'
-Chuck Prince

'You know, Paul, Reagan proved deficits don't matter'
-Dick Cheney to Paul O'Neill (a month later Cheney told O'Neill he was fired)

'To the ordinary guy, all this is a bunch of gobbledygook. But out of the gobbledygook comes a very clear thing: You can't trust the government; you can't believe what they say; and you can't rely on their judgment; and the implicit infallibility of presidents, which has been an accepted thing in America, is badly hurt by this, because it shows that people do things the President wants to do even though it's wrong, and the President can be wrong.'
-Haldeman to Nixon on Daniel Ellsberg's release of classified documents concerning a Pentagon study of US government decision making about the Vietnam War that came to be known as the Pentagon Papers.

WIKI : Ellsberg later claimed that after his trial ended, Watergate prosecutor William H. Merrill informed him of an aborted plot by Liddy and the "plumbers" to have 12 Cuban-Americans who had previously worked for the CIA to "totally incapacitate" Ellsberg as he appeared at a public rally, though it is unclear whether that meant to assassinate Ellsberg or merely to hospitalize him.

'Well, I had been consulting for the government, and this is now ’64, for about six years at that point, since ’58, in particular since ’59: Eisenhower, Kennedy, and now Johnson. And I had seen a lot of classified material by this time—I mean, tens of thousands of pages—and had been in a position to compare it with what was being said to the public. The public is lied to every day by the President, by his spokespeople, by his officers. If you can’t handle the thought that the President lies to the public for all kinds of reasons, you couldn’t stay in the government at that level, or you’re made aware of it, a week. … The fact is Presidents rarely say the whole truth—essentially, never say the whole truth—of what they expect and what they’re doing and what they believe and why they’re doing it and rarely refrain from lying, actually, about these matters.'
-Daniel Ellsberg

WIKI: Sibel Deniz Edmonds is a Turkish-American former FBI translator and founder of the National Security Whistleblowers Coalition (NSWBC). Edmonds was fired from her position as a language specialist at the FBI's Washington Field Office in March, 2002, after she accused a colleague of covering up illicit activity involving foreign nationals, alleging serious acts of security breaches, cover-ups, and intentional blocking of intelligence which, she contended, presented a danger to the United States' security. Since that time, court proceedings on her whistleblower claims have been blocked by the assertion of State Secrets Privilege.

Regarding 9/11

She alleges that the FBI received information in April 2001, from Behrooz Sarshar, one of its Farsi translators, that Osama Bin Laden was planning attacks on 4-5 cities with planes, some of the people were already in the country and the attacks would happen in a few months.

Regarding nuclear proliferation and official corruption

She alleges that she found evidence that people in the FBI, the State Department, the RAND corporation, the Pentagon, and Congress were recruited by a Turkish and Israeli-run criminal intelligence network, with connections to Pakistan and Saudi Arabia, to steal nuclear weapons secrets.

She alleges that the FBI has a case file, 203A-WF-210023, detailing evidence of this.

She alleges that one high-ranking member of the State Department was selling classified information to Washington-based agents of the Republic of Turkey, who were in turn selling these secrets on the black market.

'The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class.'
-Rothschild Brothers of London, 1863

'I have never seen more Senators express discontent with their jobs....I think the major cause is that, deep down in our hearts, we have been accomplices in doing something terrible and unforgivable to our wonderful country. Deep down in our heart, we know that we have given our children a legacy of bankruptcy. We have defrauded our country to get ourselves elected.'
— John Danforth (R-Mo)

'It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.'
— Henry Ford

'By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.'
— John Maynard Keynes

'Give me control of a nation's money and I care not who makes it's laws'
—Mayer Amschel Bauer Rothschild

A long-held belief of your humble blogger when presented with, most often in the presence of alcohol, 'proof' of some conspiracy, is that at the end of the day all conspiracy falls under the same auspices.... the conspiracy of silence.

The secret is, at the end of the day, there are no secrets. Power and privilege afford a sensibility which typically involves keeping your neck in, your shoes polished, and your mouth shut.

Of course when someone violates the Federales Omertà, when someone dares to disregard the code of 'u è surdu, orbu e taci, campa cent'anni 'mpaci' ("He who is deaf, blind, and silent will live a hundred years in peace"), then of them an example must be made.

Even though hard and difficult truths can not be enunciated plainly that does not mean that the architects of the pablum narrative and the enablers thereof are totally unawares of their obfuscation and completely unsympathetic to the principals they espouse (but do not follow), and sometimes, much akin to the robber barons of old, they toss doubloons of disambiguation, from their carriages, to us humble folk.

But to get to these 'clues' sometimes you have to hold the MSM comics up to the light with magnifying glass and indignity extended.

To wit: Sycophantic Lawrence Summers stating,'There's a quiet depression in small business.'

And why?

Just connect the dots of the Federales having staff at each of the major banksters to monitor asset levels on a daily basis with the revelation? that the Mayan Long Count will probably expire before ZIRP does.

This Great Cycle of tight credit for homeowners and small businesses and the 'lingering' housing downturn keeps spinning chiefly because the asset levels being monitored and perpetually obfuscated by our blessed squints are sucking the capitalist 'love' right outta the middle class room.

But who in the MSM will beat the drum that the banskters are too bankrupt to go broke, and the consequences thereof?

Who will articulate again and again, who will pound the table, that the suffering and pain that is unfolding like a slow motion car crash is directly attributable to the ring-fencing of rich folks bad speculative bets? Who among the Amerikantura will call out the Nancy Capitalists as being antithetical to the American dream, as wholly unpatriotic, and dare one even suggest ... subversive? Socializing the downside and piratizing the upside is a national security threat and is for its' victims nothing short of domestic terrorism.

Can you imagine someone at Smells Fargo, a bankster coven heralded as one of the strongest that in reality is the granddaddy of insolvency, coming out and saying, 'We aren't just insolvent, we aren't just double secret insolvent we are cosmic s%*t sandwich insolvent..., hell we could gulp down another TARP whole and still be gurgling for oxygen. I mean seriously folks we got 1.7 trillion in QSPE and I'd be damned if I could find a handful of that crap that would realistically be 90% of par (maybe the quadruple A stuff) and brother the whole boatload would have to get to 94% to not wipe out in total our Tier One Kapital. We are Tier None. We've shuffled off the mortal coil, run down the curtain and joined the bleedin' choir invisible!! THIS IS AN EX-BANK!!'

No one wants to be Markopolis, Ellsberg or Edmonds. Everyone within the silent conspiracy knows that they must be vewy vewy quiet or they'll be bupkes, ehehehehehehe...

What we need is a hero, or it's generation zero.

Thursday, April 8, 2010

Patriot.Optimist.Outraged. Father.Skeptic.Survivor. Raconteur.

As your humble blogger hunkers down to give unto Caesar what is Caesar's, thought I would take a brief moment to share with y'all some thoughts about this blog and its' author's motivations.

The purpose is to create a scrapbook to organize both thoughts and to develop personal knowledge. Motivated by Faber when he wrote about how it was critical to create some type of organizational system since without it you would forget most of what you've read.

The term anonymous monetarist comes from pursuing money despite college-inculcated progressive leanings and well, it also rhymes!

There will never be advertising on this site, it will not be committed to any commercial purpose although some type of future philanthropy is quite possible, there will never be a 'book', and it will always be divorced from ego through anonymity although admittedly comments made usually provide some measure of serotonin boost.

For my entire life have always rallied against the tyranny of petty knowledge. Folks that wield their 'secrets' like a club have always generated intense vitriol from this fella. Knowledge is nothing more than an acquired thing. You can learn anything if you put your mind to it. How? Just do it. Why? Because you can.

Now, more than ever in my generation's lifetime, financial intelligence is critical. We have stuffed the pig on the scales of fate. Through our desire to be prophets we have ceased to be makers of our own fate.

Despite all the digital ink spent on the failings of America, especially in light of the ‘I Can’t Believe it’s not Capitalism’ Plan generated in response to the ‘What Just Happened Crisis’… hope is not dead, progress has not been outlawed, justice is not forbidden, and evolution is not off the table.

The fire of liberty exists, the embers of truth still glow. As long as one voice stands to speak truth to power, to speak in a fashion that even Mom can understand, the dream of this country lives and can be expressed by each and every one of us.

We are Americans damnit, and that word, yes, still has noble meaning.

We all share the ability to make from clay what our hearts and our minds desire. They can only take from us what we abrogate; they can only lie to us if we refuse to put in the work to know the truth.

Will fight to my last breath to defend this country I love, and the ideal it embodies, and will always support the patriots that get it, and say it, and repeat it.

It is not a question of being part of the solution or part of the problem. Change does not have to be consistent with someone else’s plan. Change comes from within. To make a difference outwardly one must first find that difference within.

Those that fail to stand for something will fall for anything.

Take a stand.

Free your mind.

Make proud those that gave their lives, defending the ideal that allows you to possess the opportunity to be free…

Wednesday, April 7, 2010

A generation busted by liquidity lusted, the foreshadowed truth? denouement of the trusted ...

'A senator asked then Treasury Secretary Henry Paulson whether the "well paid officials and directors of the mortgage companies" should be held accountable. Paulson replied," "I'm not looking for scapegoats."
- Grant's 04/02/10

'Spotted curbside in downtown Washington: Hank Paulson, tanned from a recent trip to Argentina, huddling over a BlackBerry he still is getting acquainted with. As Treasury secretary, he refused to use a BlackBerry, preferring phone calls to email, but he has now succumbed.'
- WSJ Heard on the Street 04/07/10

Paulson tells us in 'On the Brink' that he doesn’t write things down or use email, so the entire book was done from his “facility” for memory.

Folks that live in a world of plausible deniability never commit anything to writing.

Deceit and subterfuge are merely precautionary measures. No need to question whether anything said by a person is true or whether the speaker would ever need to stand behind it. The temptation to obtain stuff in writing or have conversations recorded for later use in proving the truth is obviated.

Emails are denounced as cold and impersonal. The conspiracy of silence is the lingua franca.

The Federales 'Wise Guys' realize that those that go 'oobatz get pinched', and that there is never a good time 'to eat alone' lest one becomes 'guests of the state'.

One can only imagine though what the emails of the bureaucratic 'cafones and poveretts' at BLS might one day reveal: they seem to have foregone even making a semblance of precautionary effort as they paint the Potemkin economic village with an 'ever diminishing' credible brush ..

To wit, as mentioned here on March 8th : "the Federales Household Survey showed that this month the category of 'Men 16 years and older' accounted for 297,000 of the 308,000 jobs gain and last month 'Women 20 years and older' produced 529,000 of the 541,000 jobs gain. Dude, stats happen! Don't blame the soothsaya."

And now as relayed by the venerable Bill King :'Once again we see chicanery in the March Employment because the Household Survey shows a gain of 264k jobs but ‘Men 20 years & over’ accounted for a 290k job gain. ‘Women 20 years & over’ lost 42k jobs. This is absurd!'

What will be the title of the April Household Survey? 'Stats from Mars, B$%#*&@t from Venus?'

Pay no attention folks to the fact that the Birth-Death added 81K while ADP subtracted 112K small-business positions. Pay no heed to Gallup reporting the underemployment rate is now over 20%.

Unemployment levels are empirically higher than they were during the worst years of the Great Depression (you can look it up!) but signs of recovery are all around us dontchaknow...

We've tossed trillion of meatballs on to the fire to fuel this V-shaped, scratch that, nascent, scratch that, 'seeds abounding' recovery and yet just a teensy-weensy rate increase might cause the markets to crash!

You, gentle reader, know your humble blogger's take as to the why and wherefores of our blessed custodes paranoia that there are deflationary 'elephants in the womb':'Failure to liquidate the insolvent banksters has led to the liquidation of a large part of the productive economy.A taxpayer financed bailout of rich folks' bad speculative bets has resulted in zombie banks and zombie customers... a fiscal tide that lifts no boats.' (AM Rule #7)

In today's WSJ, yet another example, a listing of the amount of level 3 assets at the major banksters:

J.P Morgan Chase : 130,400,000,000
Bank of America : 103,600,000,000
Citigroup: 96,900,000,000
Goldman Sachs : 46,500,000,000
Maorgan Stanley: 43,200,000,000

WSJ of course mistakes the trees for the forest, describing the toxicity of 'one part of bank balance sheets' while ignoring the fetid swamp that is the 'other part'- the part that if you imbibe of the pablum narrative swill has been Voldemorted out of existence... namely QSPEs and VIEs.

First though, noticed that Smells Fargo was not in the WSJ's top 5 (above)...

For a good laugh I jumped to their 2009 summary (are you ready for this?):

Smells Fargo Level 3 Assets:

Beginning balance at January 1, 2009 (securities owned) : 10,183,000!
Ending balance at December 1, 2009 : 2,068,000!

Oh my stars and quarters!

Un-fricking believable it is. No wonder Warren is cozy with them, truly they can 'bend it' like Buffett. Google(Advanced) search "level 3 assets" and you get 523,000 hits. Google(Advanced) search "QSPE" and you get 41,000 hits. Get folks to ask the wrong questions...

If Level 3 is the elephant in the womb, QSPEs (and VIEs) are truly the elephant in the tomb, a graveyard of lost generational growth, as we pay it backwards... the trillion or so of meatballs at the Reserve nothing more than DIP financing for a generational workout.

For your perusal, once again, a delineation as to the pervasiveness of the rot...

Smells Fargo

Total Qualifying Special Purpose Entities(09/30/09): $1,796,209,000,000


Total Qualifying Special Purpose Entities(06/30/09): $828,300,000,000

J.P. Morgan

Total Qualifying Special Purpose Entities(06/30/09): $574,000,000,000

After a cursory scrubbing of Bank of America and Goldie just couldn't come up with an accurate QSPE count. These numbers do not count the billions upon billions of VIEs.

If this generation was the boomer will the next be called the busted?

A generation busted by liquidity lusted, the foreshadowed truth? denouement of the trusted ...

Or to put it another way ..

After World War 2, our blessed leaders, impressed by German 'organizational' skills crafted a policy of manufacture of consent.Over time these techniques moved to the economic realm in an attempt to manufacture content.Federales now risk the manufacture of contempt, for it is only a Great Depression if they say it is. (AM Rule #1)

Thursday, April 1, 2010

Administrative note

Travelling again.

Off the grid until middle of next week.

Fare thee well.

Random Walk, R.I.P... Look, matey, I know a dead theory when I see one, and I'm looking at one right now.

'It's not pinin'! It's passed on! This theory is no more! It has ceased to be! It's expired and gone to meet 'is maker! 'It's a stiff! Bereft of life, it rests in peace! If you hadn't nailed it to the masses it'd be pushing up the daisies! It's metabolic processes are now 'istory! It's off the twig! It's kicked the bucket, it's shuffled off 'is mortal coil, run down the curtain and joined the bleedin' choir invisibile!! THIS IS AN EX-THEORY!!'

By Tony Jackson
March 29,2010

... markets are only efficient - if indeed they are - in respect of information held by outsiders. But fair value accounting changes the behaviour of insiders - those running the firms - who have different information. To that extent, fundamentals affect prices, but prices also affect fundamentals.

Such an argument might seem surprising from the bone-dry Chicago school, home of Eugene Fama, the father of the efficient market hypothesis. Indeed, Professor Haresh Sapra of Chicago's Booth School of Business is at pains to stress he is not claiming that anyone is acting irrationally here.

This should not surprise us. As Thomas Kuhn, the philosopher of science, showed 50 years ago, scientists will not abandon a paradigm, however shaky it is, until a satisfactory new one comes along. For to work outside the paradigm is to abandon science.

In the quasi-science of economics, or even accounting, something similar applies. However broken the model, it must be maintained until an economic Newton or Einstein invents a better. It could be a long wait.

AM here: No need to abandon science Tony, in fact all you need do is embrace it. For in fact the efficient market hypothesis anchored by random-walk has been debunked, disproved, and lampooned. It has run down the curtain and joined the bleedin' choir invisible.

The satisfactory new paradigm? Why that which has been advanced by Benoit Mandelbrot, the Fractal Man, Sterling Professor Emeritus of Mathematical Sciences at Yale University and a Fellow Emeritus at IBM's Thomas J. Watson University.

Seriously Tony, you can look it up!

And when you do implement that indispensable toolkit of opposable thumbs and frontal lobes in the service of Senor Google here, dear sir, is what you will find:

You will find that when examining price records, you will typically find a different distribution than the bell curve bandied about by the high priests of random walk.

You will find a power law relationship. Power laws exist in nature, for example, gravity weakens by the inverse power of two with distance. Power laws describe the distribution of income in the upper reaches of society. Power laws also apply to the price movements of many financial instruments. Power law distributions allow for many more price swings than would the bell curve and this 'new paradigm' fits the data for many price series.

Mandelbrot first provided evidence to this almost 50 years ago, in 1962, when he showed that a century's worth of cotton price movements did not fit the bell curve, there were too many large tails due too far too many big price swings, and these tails followed a power law.

In Mandelbrot's book, 'The Misbehavior of Markets : A Fractal View of Financial Turbulence' he references how Warren Buffet once jested that he would like to fund university chairs in the Efficient Market Hypothesis, so that the professors would train even more misguided financiers whose money he could win. He called the orthodox theory "foolish" and plain wrong. Yet none of its proponents "has ever said he was wrong, no matter how many thousands of students he sent forth misinstructed. Apparently, a reluctance to recant, and thereby to demystify the priesthood, is not limited to theologians."

Clearly reality is the tail risk.

The new paradigm Benjamin is fractals.

Natural law is based upon a "fractioning" of a larger structure into smaller structures that have not only the features of the larger structure but if scaled up will look identical to the larger structure. Mandelbrot showed this scalability by graphing long-term financial data that appeared to be discontinuous on logarithmic paper revealing a fractal relationship in markets.

Per Benoit: 'Price changes are not independent of each other.My heresy is a different, fractal kind of statistical relationship, a "long memory." Why this should be is not certain; but one can speculate. Whatever the explanation, we can confirm the phenomenon exists- and it contradicts the random-walk model. Contrary to orthodoxy, price changes are very far from following the bell curve. Such theory predicts that index swings of more than 7 percent should come once every 300,000 years; in fact, the twentieth century saw forty-eight such days. Truly, a calamitous era that insists on flaunting all predictions. Or perhaps, our assumptions are wrong.'

Mandelbrot discerned that markets exhibit a wild trait of abrupt change or discontinuity. This hierarchy of turbulence, a pattern that scales up and down with time, he describes as the Noah Effect - catastrophic, but transient. This Noah Effect is seen in the market's discontinuity : this is the pillar of fractal geometry.

The market's second wild trait - almost-cycles- he describes as prefigured in the story of the prophetic dreams of Joseph, a biblical tale of pattern recognition or long-term dependence. The Joseph effect is the influence of a long-term memory through which the past continues to influence the present.

Per Benoit: ' But how exactly do these two effects- Noah and Joseph, dependence and discontinuity - interact in markets? Answer: At least one market mechanism I identified naturally leads to the other. Suppose, for instance, that you have an "almost-trend" emerging in a stock price: a few weeks, say, in which a stock price rises seven days out of ten. The pattern must eventually break up, of course; otherwise, it would be a real trend that you could bet on continuing a few weeks, and hope to make some real money. But when the "almost-trend" finally does break, it can do so rapidly. A sudden lurch downward, perhaps. A discontinuity. Or, in the terms of the Biblical metaphor, a Noah Effect produced by Joseph-style dependence.

For some real-world examples, think about investment bubbles. They seem calamitous -but they happen all the time. Conventional economics tells us they are aberrations, "irrational" deviations from the norm, caused by a rapacious speculator, mass greed, or some other unpleasant factor. But under certain circumstances they can be entirely rational and flow from the entwined effects of long-term dependence and discontinuity.

The distribution of price changes in a financial market scales. Given that event X has happened, what are the odds that Y will happen next? With financial prices, scaling means that the odds of a massive price movement given a large one are akin to those of a large movement given a merely sizable one. Such is the confusion of scaling. It makes decisions difficult, prediction perilous, and bubbles a certainty.'

Ah but to channel a canucklehead on Bubblevision, 'Dear Anonymous Monetarist, is it actionable?'

The answer gentle reader is, Quite so! Although some methods are more equal than others.

If you were to venture into a non-descript office building and saunter into a non-descript office where the flickering tube lighting dimly illuminated the visage of the billionaire in a baseball cap with mismatched shirt and tie upon yonder bookcase you might spy some esoteric tomes laying out all manner of twists on the theme fractal...

Great coffee table fare, especially those without names on the binders, with authors such as Baumring, Lynch, Gregorius, Balliett, Johndro, Raphael, Councel, Whiteham, Foster and Bayer ... Novels usually obtained from dusty storefronts.

Bits and pieces are garnered and applied to some method usually resulting in vast longitudinal charts with squiggles and wiggles and a fair amount of confirmation bias.

One of the most advanced practitioners of these arts is the venerable Jeffery Cooper of Minyanville, a Gann student and Swing trader.

Gann is a launching point in consideration/confirmation that random walk is meant for history's dustbin, but he only scratched the surface.

Mandelbrot completely refuted random walk but it was too hard for folks to accept; hence Mr. Jackson's lament for a new paradigm.

But there is one fellow who can give you the tools to trade this half-century old theory of fractals.

His name is John Needham. The website is

Check it out and follow the trades posted the night before each trading day.

Believe what your eyes see.

Think outside the cave!