had to laugh at that one...excellent stuff, SOS
also, wanted to post the latest missive of Denninger, he's good when he's pissed
Tuesday, March 25, 2008
How You Totally Blow It As A Central Banker
First, you start pumping liquidity into a commodity boom.
Then, you insure that you have a bunch of financial institutions that are hiding losses. You facilitate this, so they don't have to take their marks and own up to who is and who is not solvent.
Then, when that's not enough, you start explicitly backstopping these institutions and setting up facilities of questionable legality, like LLCs to "manage" the debt of zombified institutions.
And finally, you engineer short-covering so your stock market goes up in price by continually "burning" short-sellers, so that people get euphoric - but, in fact, there are no assets behind any of the market gains any more, because earnings estimates are horribly overinflated and your market is trading at premiums to fair valuations of 30% or more.
What happens when you are enough of a retard as a Central Banker to do all of this?
"March 25 (Bloomberg) -- The dollar fell against the euro as a rally in Asian stocks encouraged investors to buy higher- yielding assets with loans in the U.S. currency."
Congratulations Ben, we just became a funding currency for carry trades, exactly like Japan.
I hope - rather, I pray - that the author of this article is wrong.
Because if he is not, we are on the precipice of a collapse in the Dollar.
See, The Carry is a particularly pernicious form of abusive trading in the world, in that the money borrowed doesn't go to any productive purpose in the nation where it is borrowed.
Instead, it is immediately removed and sent "somewhere else."
This creates incredible distortions in the nation who is subject to the "funding" dilemma, in that these "loans" are in fact a form of zombie finance. There is no productive purpose to the loan in the nation of origin, a tremendous distortion is put into the FX markets, and further instability is placed into the funding economy.
Japan suffered this in the 1990s and it continued up until just a short while ago, when their currency began to strengthen significantly. That placed incredible stress on their stock market during the unwind, and the paradox is that it did so on the way "in" to those trades too!
Now its our turn, it would appear, and this is very, very un-funny.
Might I remind people that the Nikkei has never been back where it was before their saga all began, nor is it likely to be any time soon. They have had an effective "Zero Interest Rate Policy" for years, yet have been unable to restart their economy, as their zombification of the banking system through refusal to force marks has institutionalized lack of trust, which then bled over into commerce. The rest has been the near-literal decapitation of what was once the world's growth engine, second only to the industrial revolution in the United States.
Despite rabid pumping of liquidity Japan has flirted between zero growth and outright deflation for more than a decade, putting the lie to Bernanke's thesis that "a determined central banker with a printing press can always prevent deflation."
Now it appears that our government, through raw mismanagement of the credit crisis that began last summer, is following in Japan's footsteps.
But unlike Japan we do not have strong personal balance sheets and savings with which to cushion the blow. No, our personal balance sheets are instead stuffed full of debt, with huge percentages of people literally in debt up to their eyeballs.
If Ben, Hank and the rest of the clowns do not immediately reverse course with the foolishness of the last months, including this insane bailout of Bear Steans, we are very likely to follow Japan right down that rabbit hole, just as we give the Japanese a way to climb out of the hole - by stomping on our heads.
What a tremendous ignobility it will be if we find ourselves in a situation where The United States is the one with a ZIRP and we take Japan's place. Our stock market will remain moribund for years, perhaps a decade, after grinding its way lower with a three-digit handle on the S&P 500 and a DOW deep into the mid-four-digits.
Say a prayer for a sudden burst of intelligence at The Federal Reserve, and a cessation of the foolishness in the immediate future.
This is a road we do not wish to walk as a nation.
I think I'm going to puke.
Economic news today:
ICSC Chain Store sales came in -0.4%; CNBC did not report it - not even a mention - at the time of the data release.
Freddie is taking more and more risk on its books as other lenders have gone "poof", and in my opinion the GSEs will be in serious trouble at best and are potential zeros, as I've said repeatedly for months (delinquency rate 71 bips in January .vs. 65 bips in December, up 9.2% in a single month. Oi!) The problem here is credit risk and balance sheet leverage; those who claim that "employment is the driver" behind foreclosures need to pull their head out of the ass as clearly that has had zero impact on delinquency thus far in this cycle. Instead, what's driving the foreclosure bandwagon is affordability and negative equity, neither of which is going to improve for at least the next year or two. Credit risk is the 900lb Gorilla that nobody wants to talk about and yet its the "real deal" when you're geared at 30, 40, 100 or 200:1 - the higher the gearing the more tightly-packed the china shop is, and the more likely the Gorilla starts knocking stuff over.
Thornburg appears to have "priced" their convert - with an 18% coupon - in a private placement. 18% eh? How do you make money when you pay 18% for your capital? Oh, preferred dividend suspended, detachable warrants exercisable at 1 cent are included, etc. Yikes. They'll be up big this morning at the open, but "big" is relative - from $1.25 an open around $1.50 is a big move percentage-wise, but I wouldn't touch this stock for love or money. No thanky.
Several regional banks reduced to sell this morning, including Capital One and Bank America (Hi Dick Bove, and no, that's not my call); Jason on CNBC also said he wouldn't be buying financials. (Neither would I, in fact, I think there are some pretty juicy short opportunities that are starting to ripen in that space, but with the vol, the risk is high. The easy money has been made here - now you're going to have to work for your bucks.)
Case-Schiller Home Price Index marked record declines, down 11.4%; anyone who thinks that yesterday's NAR-influenced pump job was reason to rejoice now has egg all over their faces. They mark home prices down 10.7% .vs. a year ago and down 2.4% in January alone. The 3-month rate-of-change numbers are frightening, -23% on the 20-city index compared with -10.7% annualized, indicating that we are accelerating down the slope, not near the end. While lower prices will eventually clear inventory the ugly is that huge percentages of the sales in the last month have in fact been foreclosures. This is a necessary process but the pain is NOT over folks, and those who are calling a bottom in the housing market will once again be proven wrong! Cramer, of course, is on CNBC this morning screaming that "the bottom is in". Yeah Cramer, and it was a great time to buy CROX, Apple was going to $300, and Google to $1,000, correct? None of those stocks was going to blow up in your face and take half your money or more, yes?
Google got whacked on price targets, revenue and margin estimates. (No, really? Late yet again Sir Analyst? This is one of those "duh!" deals guys - Google's largest advertising block has always been real estate and mortgage related; how well are those businesses doing nowdays?)
Consumer confidence plunged to the lowest level in thirty-five years; the March index came in at 64.5, a number matching the 1973 oil embargo! Small moves often mean little, but big changes like this, down 12 points with the expectations index down more than 10 points to 47 from 58, are STRONGLY correlated with consumer spending. In addition consumers are experiencing and expecting much higher price inflation while they are expecting their income to remain stagnant or fall. Oh, and CNBC's Liesman admitted that he was trying to get their interviewee from the Conference Board to say something positive (as opposed to simply reporting the news.) Thanks for admitting on national television that your job is to pump the financial markets instead of report Steve.
Oh, and today I was polled by the University of Florida on consumer confidence and expectations. I gave it to them straight, long and hard. |
