If you haven't read the Jackson Hole speech, you can do so here.
Saturday, August 27, 2011
Bernanke: "It may take some time"
The past few statements by Fed Chairman Bernanke have included slight undertones of defeat. They've also been heavier on the temporal language. The road to recovery will be long, but we will get there one of these decades.
If you haven't read the Jackson Hole speech, you can do so here.
If you haven't read the Jackson Hole speech, you can do so here.
Thursday, August 25, 2011
Real Fixes for the Broken US Economy
Ben, Treasury, Obama...lend me your ears:
You want to fix the broken, stimulus-addicted US economy? Get started with these issues:
1. Encourage savings as opposed to encouraging frivolous spending on discretionary items. Really. Create a national initiative that will encourage non-speculative savings (a.k.a. "401K savings"). The power of money saved is not to be underestimated. If all of the Gucci outlets fail due to a lack of frivolous US spending...so be it. The long-term outcome will be much better. Bring back the piggy bank.
2. Discourage revolving consumer credit. If I saved $1 today, but added $1 of consumer debt (with a 20% APR), I really dissaved $0.20. I really simplified the last assumption, but it's appropriate. Reserve most credit consumer credit for non-revolving issues, i.e., home purchases, auto purchases, and fixed investment.
3. Stabilize the dollar. Allow savers to experience the joy of a stable or appreciating currency. Your mismanagement of the reserve currency will get us into very big trouble one day.
4. Educate young Americans about personal financial issues. It is insanity to think that we teach American 5th graders how to put on condoms in sex education programs, yet we don't teach our students about personal finance. The banking cartel loves for Americans to be barefoot and pregnant - intellectually speaking - as Americans are far likelier to line up on the other side of the banks' asymmetric deals. Teach American high school seniors how to avoid "raw deals" before they go out into the world. Teach them about Libor, mortgage payment calculations, and the powerful effects of compound interest.
5. Regulate the Federal Reserve. Regulate this juggernaut, lest you wake up one day and find yourself regulated by it. There are far too many conflicts of interest that exist within the walls of this bank and its shareholding member banks.
You want to fix the broken, stimulus-addicted US economy? Get started with these issues:
1. Encourage savings as opposed to encouraging frivolous spending on discretionary items. Really. Create a national initiative that will encourage non-speculative savings (a.k.a. "401K savings"). The power of money saved is not to be underestimated. If all of the Gucci outlets fail due to a lack of frivolous US spending...so be it. The long-term outcome will be much better. Bring back the piggy bank.
2. Discourage revolving consumer credit. If I saved $1 today, but added $1 of consumer debt (with a 20% APR), I really dissaved $0.20. I really simplified the last assumption, but it's appropriate. Reserve most credit consumer credit for non-revolving issues, i.e., home purchases, auto purchases, and fixed investment.
3. Stabilize the dollar. Allow savers to experience the joy of a stable or appreciating currency. Your mismanagement of the reserve currency will get us into very big trouble one day.
4. Educate young Americans about personal financial issues. It is insanity to think that we teach American 5th graders how to put on condoms in sex education programs, yet we don't teach our students about personal finance. The banking cartel loves for Americans to be barefoot and pregnant - intellectually speaking - as Americans are far likelier to line up on the other side of the banks' asymmetric deals. Teach American high school seniors how to avoid "raw deals" before they go out into the world. Teach them about Libor, mortgage payment calculations, and the powerful effects of compound interest.
5. Regulate the Federal Reserve. Regulate this juggernaut, lest you wake up one day and find yourself regulated by it. There are far too many conflicts of interest that exist within the walls of this bank and its shareholding member banks.
Tuesday, August 23, 2011
That Wasn't An Earthquake on the Eastern Seabord...
...that was Dominique Strauss Kahn getting his charges dropped.
Badda-Bing!
Badda-Bing!
Sunday, August 21, 2011
Roman Go(l)d Worship
Serious students of economic history know that banking got its start inside the temple. Some say it has yet to leave.
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| Seriously fellas, JC doesn't care about your gold. |
Long Bond: Fuel Almost Spent (Near Term)
So far, the 30-year U.S. Treasury has been mounting a magnificent rally. As Templeton might say: this rally has been "fueled by skepticism." I'm no skeptic of the long bond, and some of you know that it was one of my long themes for 2011. The long bond's secular rally is very much in tact (which is starting to really creep me out - in economic terms), but the short term behavior of the 30-year is starting to resemble the final nights of John Belushi.
The cold months won't be kind to the long bond bulls...but the secular rally is NOT OVER, folks.
My opinion: Let the thing succumb to the forces of gravity, then...accumulate. Give the correction at least 4-6 months before you start nibbling.
The cold months won't be kind to the long bond bulls...but the secular rally is NOT OVER, folks.
My opinion: Let the thing succumb to the forces of gravity, then...accumulate. Give the correction at least 4-6 months before you start nibbling.
 |
| 30-Year UST |
A Secular Natural Gas Bull Catalyst
From WaPo:
Getting ready for a wave of coal-plant shutdowns
(JOHN GILES/ASSOCIATED PRESS) Over the next 18 months, the Environmental Protection Agency will finalize a flurry of new rules to curb pollution from coal-fired power plants. Mercury, smog, ozone, greenhouse gases, water intake, coal ash—it’s all getting regulated. And, not surprisingly, some lawmakers are grumbling.Industry groups such the Edison Electric Institute, which represents investor-owned utilities, and the American Legislative Exchange Council have dubbed the coming rules “EPA’s Regulatory Train Wreck.” The regulations, they say, will cost utilities up to $129 billion and force them to retire one-fifth of coal capacity. Given that coal provides 45 percent of the country’s power, that means higher electric bills, more blackouts and fewer jobs. The doomsday scenario has alarmed Republicans in the House, who have been scrambling to block the measures. Environmental groups retort that the rules will bring sizeable public health benefits, and that industry groups have been exaggerating the costs of environmental regulations since they were first created.
So, who’s right? This month, the nonpartisan Congressional Research Service, which conducts policy research for members of Congress, has been circulating a paper that tries to calmly sort through the shouting match. Thanks to The Hill’s Andrew Restuccia, it’s now available (PDF) for all to read. And the upshot is that CRS is awfully skeptical of the “train wreck” predictions.
First, the report agrees that the new rules will likely force the closure of many coal plants between now and 2017, although it’s difficult to know precisely how many. For green groups, that’s a feature, not a bug: Many of these will be the oldest and dirtiest plants around. About 110 gigawatts, or one-third of all coal capacity in the United States, came online between 1940 and 1969. Many of these plants were grandfathered in under the Clean Air Act, and about two-thirds of them don’t have scrubbers:
(FGD = Flue Gas Desulfurization, SCR = Selective Catalytic Reduction)
CRS notes that many of the plants most affected by the new EPA rules were facing extinction anyway: “Many of these plants are inefficient and are being replaced by more efficient combined cycle natural gas plants, a development likely to be encouraged if the price of competing fuel—natural gas—continues to be low, almost regardless of EPA rules.”
Still, that’s a lot of plants. Won’t this wreak havoc on the grid? Not necessarily, the CRS report says, although the transition won’t be simple. For one, most of these plants don’t provide as much baseload power as it appears on first glance—pre-1970 coal plants operating without emissions controls are in use, on average, only about 41 percent of the time. Second, the report notes that “there is a substantial amount of excess generation capacity at present,” caused by the recession and the boom in natural gas plants. Many of those plants can pitch in to satisfy peak demand. Third, electric utilities can add capacity fairly quickly if needed — from 2000 to 2003, utilities added more than 200 gigawatts of new capacity, far, far more than the amount that will be lost between now and 2017.
Granted, those upgrades and changes won’t be free. The CRS report doesn’t try to independently evaluate the costs of the new rules, noting that they will depend on site-specific factors and will vary by utility and state. (Matthew Wald recently wrote a helpful piece in The New York Times looking at how utilities might cope.) But, the report says, industry group estimates are almost certainly overstated. For one, they were analyzing early EPA draft proposals, and in many cases, the agency has tweaked its rules to allay industry concerns. And many of the EPA’s rules are almost certain to get bogged down in court or delayed for years, which means that utilities will have more time to adapt than they fear.
The CRS report also agrees with green groups that the benefits of these new rules shouldn’t be downplayed. Those can be tricky to quantify, however. In one example, the EPA estimates that an air-transport rule to clamp down on smog-causing sulfur dioxide and nitrogen dioxide would help prevent 21,000 cases of bronchitis and 23,000 heart attacks, and save 36,000 lives. That’s, at the high end, $290 billion in health benefits, compared with $2.8 billion per year in costs (according to the EPA) by 2014. “In most cases,” CRS concludes, “the benefits are larger.”
Granted, few would expect this report to change many minds in Congress. Just 10 days ago, Michele Bachmann was on the campaign trail promising that if she becomes president, “I guarantee you the EPA will have doors locked and lights turned off, and they will only be about conservation.” That doesn’t sound like someone who’s waiting for a little more data before assessing the impact of the new regulations.
There Be No Stockpicking Here
 |
| Source: Birinyin & Associates |
The S&P 500 realized correlation is very high.
Implications:
1) Idiosyncratic features shouldn't currently be the driver of your equity selections - you might as well index.
2) Equity market is at heightened risk for an across-the-board tail event...be it the positive or the negative tail.
3) Equity long-short strategies (executed on S&P 500 names) will have convergence troubles. If you are going to insist on directionless strategies, do it through options and earn some vega points.
4) Dispersion traders should be eating well.
5) The risk-on/risk-off/risk-on/risk-off saga continues...
Is This a Bear Market in...Oxytocin?
I have an obsession, I'll admit. I have an obsession with learning and information acquisition. Everything is fair game to me (intellectually), and I often like to learn about seemingly unrelated things - only to later marvel at the relationships that exist between them...or so I think.
It was about two months ago that I noticed a startling trend: baby deer being abandoned by their mothers. Why is this startling, you ask? Maternal instinct is one of the strongest primal forces, period. That's why. Widespread instance of maternal instinct breakdown among a very sensitive animal - the deer - is worth noticing. Within one week's time, I heard of three different instances of fawn abandonment from people that I knew (they all found an abandoned fawn). All three of these people did not live near one another, so it wasn't an isolated case that was experienced by three people. I decided to do a little digging, and found many recent articles about the widespread abandonment of newborn animals by their mothers.
Fawn abandonment article.
Many of these articles blamed the historic drought that is currently entrenched in the southern U.S. as the causal factor. This all sounded like a "good enough" explanation at the time, and I was partially satisfied with this explanation. I still couldn't totally understand the logic of the abandonment, as children are almost never economically-rational decisions. Having children is an almost guarantee that there will be instant competition for the resources that you own. If mothers are rational economic actors, then all mothers should abandon all children, unless the happiness/utility that the child brings outweighs the sadness/dis-utility that the child's competition for the mother's resources brings. I guess these new mother deer didn't see much utility in their fawns - and with the coldness/detachment of a rational-economic-algorithmic-logic machine - they left their cute, new competitors to die. I'm convinced there is a lurking variable...
The Payoff:
This morning, I was reading a piece about a neuroeconomist (yes, I know what you're thinking) who is an expert on the hormone oxytocin. Oxytocin is a hormone that - among other things - is a driver of levels of trust and love. The higher a person's oxytocin levels, the more they're likely to be a trusting, loving person. I've heard all of this before, and have found it fascinating. What I found most interesting - and keeping things in the context of the tome I just wrote up to this point - were the comments about how low levels of oxytocin can lead to 1) difficulty with a mother's milk production, and 2) maternal neglect.
Excerpts from oxytocin article:
"...Dale later discovered that oxytocin stimulated the release, or let-down, of mother's milk by contracting the smooth-muscle cells around the mammary glands..."
"...In addition, oxytocin has been shown to facilitate nurturing behaviour in mice and rats: when oxytocin was blocked, the rodents stopped caring for their young and displayed signs of 'social amnesia'..."
Recalling an excerpt from the fawn abandonment article:
"...Other does are abandoning their newborns because drought-induced malnutrition has robbed them of their ability to produce milk..."
I don't have the resources to spot-check the basal oxytocin levels of Whitetail deer - but if I did - I might find unusually low levels of the hormone. The lingering questions I have are: 1) is this (presumed) bear market in deer oxytocin also being experienced by man(?), and 2) what is causing this bear market in the trust/love hormone?
It was about two months ago that I noticed a startling trend: baby deer being abandoned by their mothers. Why is this startling, you ask? Maternal instinct is one of the strongest primal forces, period. That's why. Widespread instance of maternal instinct breakdown among a very sensitive animal - the deer - is worth noticing. Within one week's time, I heard of three different instances of fawn abandonment from people that I knew (they all found an abandoned fawn). All three of these people did not live near one another, so it wasn't an isolated case that was experienced by three people. I decided to do a little digging, and found many recent articles about the widespread abandonment of newborn animals by their mothers.
Fawn abandonment article.
Many of these articles blamed the historic drought that is currently entrenched in the southern U.S. as the causal factor. This all sounded like a "good enough" explanation at the time, and I was partially satisfied with this explanation. I still couldn't totally understand the logic of the abandonment, as children are almost never economically-rational decisions. Having children is an almost guarantee that there will be instant competition for the resources that you own. If mothers are rational economic actors, then all mothers should abandon all children, unless the happiness/utility that the child brings outweighs the sadness/dis-utility that the child's competition for the mother's resources brings. I guess these new mother deer didn't see much utility in their fawns - and with the coldness/detachment of a rational-economic-algorithmic-logic machine - they left their cute, new competitors to die. I'm convinced there is a lurking variable...
This morning, I was reading a piece about a neuroeconomist (yes, I know what you're thinking) who is an expert on the hormone oxytocin. Oxytocin is a hormone that - among other things - is a driver of levels of trust and love. The higher a person's oxytocin levels, the more they're likely to be a trusting, loving person. I've heard all of this before, and have found it fascinating. What I found most interesting - and keeping things in the context of the tome I just wrote up to this point - were the comments about how low levels of oxytocin can lead to 1) difficulty with a mother's milk production, and 2) maternal neglect.
Excerpts from oxytocin article:
"...Dale later discovered that oxytocin stimulated the release, or let-down, of mother's milk by contracting the smooth-muscle cells around the mammary glands..."
"...In addition, oxytocin has been shown to facilitate nurturing behaviour in mice and rats: when oxytocin was blocked, the rodents stopped caring for their young and displayed signs of 'social amnesia'..."
Recalling an excerpt from the fawn abandonment article:
"...Other does are abandoning their newborns because drought-induced malnutrition has robbed them of their ability to produce milk..."
I don't have the resources to spot-check the basal oxytocin levels of Whitetail deer - but if I did - I might find unusually low levels of the hormone. The lingering questions I have are: 1) is this (presumed) bear market in deer oxytocin also being experienced by man(?), and 2) what is causing this bear market in the trust/love hormone?
Wednesday, August 17, 2011
South-of-the-Border Skew
Risk.net reports that Mexico Carlos Slim has been a dominant driver of Brent crude's recent put skew. After the recent global equity market schism, reports surfaced that Carlso Slim had shaved over $5B in personal wealth from his portfolio.
Let's rethink this for a moment, or - at least - sharpen the loss figure a bit.
Slim's loss funtion: min{-max(K-BrentPRICE, 0) + ~$5B, ~$5B}
Let's rethink this for a moment, or - at least - sharpen the loss figure a bit.
Slim's loss funtion: min{-max(K-BrentPRICE, 0) + ~$5B, ~$5B}
"Hedges?!?! No necemos 'stinkin hedges'!!"
Tuesday, August 9, 2011
Ben to Liquidity: "Gotcha!!"
Ben finally trapped his nemesis, Mr. Louis Liquidity. Everyone can rest now that this dangerous hooligan is off the streets.
Sunday, August 7, 2011
Maestro: "We print, therefore, we are."
..."The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press....
http://www.cnbc.com/id/44051683
What!?!? The Fed prints money to help the US pay for stuff that it can't afford? No! Say it ain't so, Maestro!!
http://www.cnbc.com/id/44051683
What!?!? The Fed prints money to help the US pay for stuff that it can't afford? No! Say it ain't so, Maestro!!
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| What reserve currency mismanagement/abuse/debasement looks like - US dollar monthly chart. |
Will S&P Retract the US Downgrade?
Thinking out loud to self:
What are the odds of the US government threatening (behind the scenes, of course) to absolutely destroy the lives of the people that were in charge of making the downgrade call at S&P UNLESS S&P retracts the downgrade "based on a calculation flaw?" They're probably just a little bit greater than one might think.
What are the odds of the US government threatening (behind the scenes, of course) to absolutely destroy the lives of the people that were in charge of making the downgrade call at S&P UNLESS S&P retracts the downgrade "based on a calculation flaw?" They're probably just a little bit greater than one might think.
"So you're telling me there's a chance?"
Oh, and as for that Downgrade...
Quick thoughts:
1) Mega hurdle for Obama 2012 re-election bid. This can and will be used against him in every venue.
2) Geithner needs to go - for real.
3) Over 75% of the Congress and Senate should be furloughed, fired, or tried for dereliction of duty and/or reckless endangerment. Pink slips and/or judgments should be handed down by the people...for the people.
4) Fed will be expected to become the shock absorber, again.
5) Fed will ramp the debasement process, as a near-term "solution."
6) If there are no other big name downgrades for nations in similar fiscal situations (think: UK, France, Japan, etc.), we'll know that the wolves are circling the perimeter of the United States...and our independence will likely be challenged in the next decade(s).
Full Page Gold Worship Ad in WSJ
 |
CNBC ran this full page ad in this weekend's WSJ for their three (yes, three) part series about gold.
Quick Take on Gold Investment
Most think that gold is just a dirty inflation hedge. It's actually so much more than that. Gold - as an investment - performs tremendously well during times of sovereign stress as well as during epochs of social paranoia and mistrust. Many people are currently less trusting of their banks and governments than they were in 2006-2007, so this makes sense. The passions of man are never constant, and people will again (one day) lend their faith and trust to their governments and financial institutions. The want/need to hold gold will then diminish. We're currently experiencing a bear market in faith and trust, coupled with the dynamic duo of 1) fiat debasement and 2) sovereign stress.
At this moment, gold is still an appropriate holding. Caveat: please be aware that we are entering / have entered the final act of the gold boom. How long this act will last is hard to say, given recent events. The central bank gold scramble, the gold parties, the gold infomercials, the three-part series on gold, the unsustainable growth rate, etc., all are pointing to an infatuation saturation. When the passions change - and when we can put our feet back on sovereign ground (or when gold margins go sky high) - gold will begin its lumber to the downside.
To those who believe that a gold standard will be reinstated: that would create an instantaneously-deflationary shock so severe that 2008 would look like an appetizer. You had better hope that you don't get what you wish for in this case. A poly-metallic standard would be the only thing that could even be considered.
Wednesday, August 3, 2011
Cause(s) for Pause(s)
If you haven't yet noticed the spells of malaise and fatigue (economically speaking) that seem to occur near/shortly after the end of the Fed's quantitative easing programs...you probably should start to notice. There comes a point, and the BOJ can affirm this, when accomodative policy starts to become the cause of market weakness - as opposed to the antidote. The dynamics are deep...but this can happen. QE3 will bring a unique set of risks that may include unintended market havoc.
I leave you with two questions to quietly ponder:
Could it be possible that our economy cannotthrive function normally without support from the Federal Reserve?
If you can control the US economy, does that make you more powerful than the US lawmakers?
I leave you with two questions to quietly ponder:
Could it be possible that our economy cannot
If you can control the US economy, does that make you more powerful than the US lawmakers?
Monday, August 1, 2011
Steven Seagal on Being Immortal
The hair...the dog...the ears...the clothes...the night job...the supernatural running ability (here)....Steve, you're a vampire. See you in my nightmares.
On Debasement
I'll keep this brief, which isn't how I typically like to do things. The math says everthing you need to know. For those of you who have no idea what this may be about, please rapidly avert thine eyes to this place: http://www.tmz.com/
| No Debasement | ||
| 1285/1 | = | 1285 |
| 1285/1 | = | 1285 |
| 1285/1 | = | 1285 |
| 1285/1 | = | 1285 |
| 1285/1 | = | 1285 |
| 1285/1 | = | 1285 |
| 1285/1 | = | 1285 |
| 1285/1 | = | 1285 |
| Debasement | ||
| 1285/1 | = | 1285 |
| 1285/0.99 | = | 1297.98 |
| 1285/0.98 | = | 1311.22 |
| 1285/0.97 | = | 1324.74 |
| 1285/0.96 | = | 1338.54 |
| 1285/0.95 | = | 1352.63 |
| 1285/0.94 | = | 1367.02 |
| 1285/0.93 | = | 1381.72 |
Strategery!
Debt default averted. No tax hike, no static debt ceiling. You heard the outcome here first, comrades. Now let's get back to the ever-evolving Israel/Iran game set...or the BOJ unlimited Yen EVER!!! game set.
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