Law of the Bad Premise---Second Hand News

DECEMBER 13, 2008

There is a Global Warming Conference in Poland going on. Eminent scientists, Al Gore and John Kerry, among others, have spoken there. The Science section of the NY Times covers the event. On Thursday, the US Senate Environment Minority report was released. (report released today). Could not find any mention of it. 650 scientists who do not believe the "science is settled" lend their name to this document. More to the point, many studies are referenced disputing claims of the Global Warming crowd. This issue will take on greater poltical importance in the months to come. As I have said frequently, this has the potential to be one of the biggest scams foisted upon the public in our history.

 

DECEMBER 10, 2008

In my continual hunting for examples of Virginia Postrel's "Depression Porn" (which was implicit in my 11/21 blog If I Go Crazy Will You Still Call Me Superman?) here is a great new example. The Tobin Q ratio is a pretty good indicator of equity values, although it is subject to potentially severe GIGO-- "garbage in and garbage out". It compares "replacement cost", broadly defined, with market value.  The construct is useful, which is why when I saw this headline I was concerned James Tobin's Q Ratio Indicates `Horrific' Stock-Market Bottom,. Of course when one reads the story, one encountered this statement "The Q has come down to its average, however it’s not always stopped at the average”. So the Q ratio is indicating fair value, but since it does not always "stop at its average" it indicates an "horrific" bottom. Only in a Depression Porn market can that headline be derived from those facts.

(posted at 11:41 am by Mike Rulle)

 

Episcopal Jon Meacham, editor-in-chief of Newsweek, says this regarding the magazine's cover story on its religious defense of gay marriage: “Given the history of the making of the Scriptures and the millennia of critical attention scholars and others have given to the stories and injunctions that come to us in the Hebrew Bible and the Christian New Testament, to argue that something is so because it is in the Bible is more than intellectually bankrupt — it is unserious, and unworthy of the great Judeo-Christian tradition.”Gay Marriage: Our Mutual Joy I would have thought that de-linking Christianity or Judaism from the Bible is not a good idea, considering there would be neither religion without it. His argument seems better served by using the Bible, not avoiding it.

(posted at 9:35 am by Mike Rulle)

 

As a general rule of thumb, I have always thought that if you can think of it (regardless of what "it" might be), eventually "it" happens. Here is one "it" that will certainly happen Science paves way for climate lawsuits.

(posted at 9:30 am by Mike Rulle)

Economist Arnold Kling Economics Liberty--Kling spoke at Congressional hearings into the problem with Fannie Mae and Freddie Mac. As I read his testimony, one realizes the complexity of the issues are above the Committee's comprehension level. It is always about votes, money and power. The Blagojevich scandal stands out merely because he is so stupid. Kling states: "I spoke out against loan modifications, but I'm sure that I am a voice in the wilderness. The more we try to do loan mods, the longer the crisis will last and the more it will cost taxpayers". It creates artificial price supports and prevents real buyers from entering the market.

(posted at 9:15 am by Mike Rulle)

 

Frankly, I don't think this is enough Colorado couple tries to go a year without buying anything new. We are told by the reporter that: "Dipping into the world of secondhand furniture and recycled clothes, they want to set a socially responsible example for their son". Still, I think they should be doing much much more. They should be trying this, although I still think it is over the top Everybody deserves a roof. "Depression Porn" rules!

(posted at 9:11 am by Mike Rulle)

What is this all about? Toxic air and America's schools. It is about the odious Brooklyn born California Senator's desire to be in the spotlight. The whole issue is ridiculous on its face. USA Today has this as its front and center story. Boxer needs attention, as her fellow Bay Area Democrat, Nancy Pelosi, gets all the headlines. USA Today is very helpful---you can even look up your own school. I looked up the school in my rural town, more than 35 miles from any thing approaching manufacturing. We are in the bottom quartile.

(posted at 8:44 am by Mike Rulle)

 

Al Gore is easy to parody. He shows up at Global Warmimg conferences where there is record cold weather. Yesterday, he meets with Obama, but the meeting is overshadowed by the Blagojevich scandal. Unfortunately, however, he cannot be ignored. Carol Browner, a Gore protege of sorts, has just been named Obama's Energy "Czar", a new post. Browner to Take Energy and Environment Job. The EPA Secretary probably has more unchecked power than any other cabinet post. Not good. I assume Browner will have similar powers as the Executive Branch continues its march to unchecked power.

(posted at 8:25 am by Mike Rulle)

When one reads something like this, "In a television interview last month, David Axelrod, a longtime Chicago political consultant who served as Obama's campaign strategist and will accompany him to the White House, said Obama had spoken to the governor about the Senate vacancy. But yesterday Axelrod issued a statement saying he had been "mistaken."" it doesn't look so good (Obama Tries to Stay Out of Blagojevich Fray)

(posted at 8:00 am by Mike Rulle)

DECEMBER 9, 2008

Of all the things that Obama is likely to do, this worries me most. I don't care as much about the subsidization of green industries, as ultimately the economic damage would be limiting. What would be potentially disasterous is bringing back the cap and trade proposals on carbon emissions. What was proposed last summer would make all this bailout stuff seem like free markets by comparison. As I have mentioned before, it would be the biggest Government cost imposed on the United States since the income tax itself. I hope Obama will pull a fast one here just as he seems he might be doing on everything else he promised the far left. Frankly, if you are a Republican, you probably want them to pass this---we will see a 1994 repeat if they do Obama's Grand Experiment: Global Warming Cap-and-Trade Policy .

(posted at 6:15 pm by Mike Rulle) 

Seriously, this is border line evil. Screw the poor. The higher spirit and religious righteousness of protecting mother earth from "global warming" trumps all Poor countries 'need carbon cuts'

(posted at 5:55 pm by Mike Rulle)

In my last essay, The End of Financial Armageddon?, I included a section on stock prices and unemployment. The latter peaks well after the former bottoms. Doug Short at www.dshort.com provides a great visual on this dating back to 1948. He notes that the pattern may be happening again now. Rare is anything I think of that has not already been thought of by someone else. What is interesting here is that he posted his on Friday and I did mine on Saturday. The reason this happens is when thousands of people are reading the same data and articles, you will always find someone looking at the same stuff as you. 

(posted at 5:05 pm by Mike Rulle)

I missed this ---gee I wonder why? Because it does not fit the "Depression Porn" or "Financial Armageddon" narrative? Yes. Normally, if you type in the exact headline of a story into Google you will find it in many different locations. I tried doing that with St Louis Fed Chairman Bullard's commentary on the St. Louis Fed sight and got nothing. From the SLF website: "Asked whether he stood by an earlier prediction that the U.S. economy might get by with a less severe 1990-91 style recession rather than a 1981-82 style recession, Bullard said he thought this outlook was still sound, even in light of recent economic data. “Right now, we’re looking for a pretty sharp decline in the fourth quarter, little less sharp in the first quarter, and then, hopefully, things will improve after that,” he said, adding that this scenario would be similar to 1990-91. “I don’t see a prolonged outcome materializing." (Watch the video on Bloomberg's YouTube channel.)"

(posted at 4:49 pm by Mike Rulle)

  

Former American Express Chairman, Harvey Golub, sounds absolutely Palinesque when he says that ultimately "we must get back to our historic reliance on personal responsibility and market forces, and get government out of economic management. It doesn't do a good job, as the current economic mess amply proves" Getting Out of the Credit Mess . Amen to that. How is this not the dominant financial theme repeated again and again by our "leaders"?

(posted at 4:11 pm by Mike Rulle)

 

Today's opinion piece by David Brooks Obama Stimulus Plan Lacks Creativity highlights one of the intrinsic problems with any stimulus package. Given the dead head psychology of today's markets, anything which inspires real investment by real investors can be viewed positively. If building "shovel-ready" projects gets that done, then so be it. Keynes would even have had people "bury money in bottles and dig it up again" if somehow that got the animal spirits going in the real world. The problem is twofold. There is no agreement whatsoever among the "Economics scientific community" that stimulus spending even is effective on its own terms. Secondly, inevitably it becomes a vehicle for the party in power's favorite constituency or pet project. Brooks, of Bobos in Paradise fame, would spend on "creative" things like "suburban town squares", while he thinks Obama's plan is "this old house". This is what we have devolved to in the new Obama world, town squares or highways. This is the least efficient method of investing conceivable, justifiable only under the assumption that it is truly "the demand of last resort". Just as long as its "shovel ready".

(posted at 4:00 pm by Mike Rulle)

 

There must have been a secret law written. It is impossible to read even a mildly positive article that does not include the following statement."The collapse of the U.S. housing market has unleashed the worst financial crisis since the Great Depression" October pending home sales slip 0.7 percent. In science and statistics there is something called "operational definition". An operational definition of a phenomenon is a detailed outline of that data which is going to be measured in the course of a scientific experiment when testing a hypothesis. What measureable data, or operational definition, do we have which can test the hypothesis that this is "the worst financial crisis since the Great Depression"? This is rhetorical.

(posted at 2:00 pm by Mike Rulle)

 

What happened to looking toward the future?  As mentioned recently, the public imagery of today is a backward looking surplus of what Virginia Postrel calls Depression Porn Dynamist Blog: Depression Lust, and Depression Porn. It is depressing enough that the highlight of the day is Obama proposing 1930s style "public works", but then the language has to compound the negative imagery by referencing "shovel-ready" projects; as if we do not have high technology Deere and Caterpillar machinery. Instead of high tech visions of sleek new tunnels, trains and bridges, we instead imagine gloomy WPA workers on the side of the road wearing prison like denim garb leaning on their "shovels". Obama comes in as the so called agent of change and he somehow is leading us backward in time. The 1930s was actually a great time of hope---for the global Socialist movement. The NY Times was winning awards extolling the virtues of Stalin and the intelligentsia was enamored with every experimental idea that could be thought of. It was all a pathetic failure. Obama goes on Brokaw and talks about light bulbs and "weatherizing" our houses and Nancy Pelosi drones on using "non-sequiturian" new speak in her role as head "barber". What kind of absurd garbage is this? There is no doubt we are going to have to slug through this, but at some point we are all going to get pretty tired of it. I am not sure what happens, but this cannot continue. Obama is not even president yet and I am already sick of him, Pelosi, Reid, Frank and the whole lot of them.

(posted at 8:45 am by Mike Rulle)

This really makes me feel better. We will soon have a "fully functioning TARP organization in place" Treasury Weighs Steps to Track TARP Goals. For a while, I was getting worried. These people are beyond ridiculous. They poured accelerant on the flames and 2 months later they drone on about bureaucratic nonsense.

(posted at 7:52 am by Mike Rulle)

Merger volume is down only 28%? That is unbelievable. These guys must be doing more than just "watch CNBC all day and surf the Web". Our Wall Street Journal intrepid reporter seems a little too gleeful "that an overleveraged world created an excess of bankers". Not that he has anything to worry about Tribune Co. files for Chapter 11.

(posted at 7:38 am by Mike Rulle)

  

Pretty soon they will be designing the color of the packages Dems back ad limits for meds.There are two big themes happening in the economy. The first is the fear and angst at the prospect of taking any risk. This is the dominant theme. The second theme, however, is the increasing power Government is asserting over our lives. The first theme is so powerful, that as risk taking re-emerges, the economy will benefit. But the second theme will limit growth significantly.

(posted at 7:27 am by Mike Rulle)

Maybe I have this wrong, but I thought the reason this was happening Gun owners stock up was not fear of Obama outlawing guns, but that people were logically extracting this future from the headlines.

(posted at 7:19 am by Mike Rulle)

People like Pelosi are in 7th heaven. Professional politicians who have zero understanding of business sit around a committee and dole out money 'We call this the barbershop' In addition to it being unnecessary, it is visually and aesthetically distasteful. How did a country like ours get in the situation where its future is being determined by people like this?

(posted at 7:08 am by Mike Rulle)

DECEMBER 8, 2008

Oh no. I have read the term "shovel ready" several times today. This could be one of those memes that puts me over the top. And, of course, the country's mayors are leading the march on Washington, assuring us they want a "build-out, not a "bailout" Mayors Say They Want 'Build-Out,' Not Bailout. Can we please bring back the decade of greed?  This imagery is unbearable.

(posted at 6:32 pm by Mike Rulle)

 

It seems pretty clear that subsidizing losses is not a good idea Homeowners who got a break often defaulted again  . As I have mentioned before, the foreclosure route is effiicent. When followed by a bank sale it gets a new buyer in the house with an acceptable credit. Why favor the defaulter over a worthy new buyer? To repeat, to have to rent is not a disaster, personal or otherwise.

(posted at 6:17 pm by Mike Rulle)

Barack Obama is getting closer to the present. First he was the "baby in the manger", then Lincoln, followed by Franklin Roosevelt. I am glad to see we are no longer in the Messianic, Civil War or WWII time zones. We have made it to the 50s Obama economic plan harkens to Eisenhower program . I call that progress.

(posted at 6:oo pm by Mike Rulle)

For some reason I find this soothing. It also seems plausible. Today I read a well written essay by Berkeley economist Brad Delong. When all was said and done, he could not, using economic principles, explain why the "risk premium" for credit has reached unprecedented highs. Risk premium is one of those scientific sounding words that can also mean "fear" Liquidity, Default, Risk. In Atlantic Monthly, Virginia Postrel describes experiments done in controlled settings where "traders" trade riskless instruments. Inevitably, traders veer from fundamentals and engage in competition Pop Psychology - The Atlantic (December 2008). What emerges are trends, bubbles and crashes, every time. Could this explain DeLong's conundrum?

(posted at 4:32 pm by Mike Rulle) 

This really does fit into my "theory" outlined in The End of Financial Armageddon?. The headline asks rhetorically, "how much worse can it get?". Everything we read is couched in the worst possible termsJobs Report: How Much Worse Can It Get?

(posted at 8:53 am by Mike Rulle)

   

The problem with hyperbole is that when things really go bad, you end up having little language left to describe it. One also risks the "chicken little" syndrome. Of course the economy is bad, but is losing 1.7 million jobs out of 139 million jobs so bad that it really is "indescribable" Economists React: Employment Report ‘Almost Indescribably Terrible.

(posted at 8:43 am by Mike Rulle)

  

Shouldn't one run run for office, even if its mayor of Wasilla, before asking to be appointed Senator? The Kennedy's sense of entitlement, even for someone as seemingly likable as Caroline, is ridiculous. This article is a "twofer" as it discusses Obama's "struggle" with smoking. You didn't think he stays that thin just from working out, did you? Obama Noncommittal on Caroline Kennedy, and Smoking

(posted at 8:39 am by Mike Rulle)

  

I was wondering where the "restructuring" debt investors were. I guess they have been there all along In Private Equity, the Limits of Apollo’s Power. Despite the negative tone to the headline, Leon Black says Apollo has just raised $20 billion in new money that he says will go, in part, toward buying cheap debt.“We’ve totally turned into a bond house,” he declares. The NY Times states "Black says the big money over the next few years will be made in vast restructurings — the financial, operational and structural changes that companies will need to make if they hope to survive the economic malaise".

(posted at 8:25 am by Mike Rulle)

The environmental movement is not a pragmatic one, but a spiritual one. In other words, even without external benefits those who are "green" enjoy it, in and of itself. As a believer in freedom, I have no quarrel with that, as far as it goes. The greens, however, cloak their philosophy in a veneer of science and pragmatism even as it is an end in itself Can green firms grow in today's downturn?

(posted 8:11 am by Mike Rulle)

It is different when you are in office versus running for office, but at least one guy is saying this is not the worst economy since the great depression. "“It’s important for us to remember that as tough as times are right now, they are nothing compared to what my grandparents went through or what the greatest generation went through,” he said.  “At this point you already had 25, 30 percent unemployment across the country and we didn’t have many of the social safety nets that emerged out of the New Deal" Obama: Economy is “going to get worse”.

(posted at 8:07 am by Mike Rulle)

Now we have a Chapter 11 lawyer in chief, or maybe a labor lawyer in chief, as the next president Barack Obama, others say Republic is an example of the nation's.

(posted at 7:53 am by Mike Rulle)

When the president-elect tells an industry what it must do, or it does not get funded, that is identical to Socialism full stop. I prefer the auto industry simply enter Chapter 11 Obama cautions auto industry. There is a "profound" difference between a Palin and an Obama. The former thinks self reliance first, the latter thinks Government first. There are implications for both personal freedom and economic well being between the 2 perspectives.

(posted at 7:40 am by Mike Rulle)

DECEMBER 7, 2008   

Instapundit links to the "History Matters" website on this day "which will live in infamy"“A DATE WHICH WILL LIVE IN INFAMY.”. Listen to the interviews with the so called man in the street. They have 2 in this link. One of the men is a self described immigrant and the other is a black man. The intensity of their patriotic "pro-America" expressions is almost startling. The complete lack of political correctness and a common sense understanding of the nature of enemies is also striking. The black man says that the "Negro" people just want a chance to prove they can and should fight in the war. That is beyond amazing. Here is a true repressed minority seeking to be given the chance to risk life for his country, and in doing so become accepted and free. Compare that courage and goodness to that of some faux victim groups of today. Remarkable.

(posted at 10:40 pm by Mike Rulle)

 

It is peculiar that serious intelligent people actually spend time defining what a "depression" is Defining Depression . There is nothing objective about the term, yet here we have 3 economists give their opinions. It is being stated that we are in the worst economic situation since the 1930s. This is simply not true. Perhaps we will be, but we are not yet. Even the NBER agency does not give a definition of a recession per se.. GDP is up over the last 4 quarters ending September 30, so how can this be the worst since the 30s? We have had many worst periods than this, including the early 90s and 80s as well as the 70s. Can't we just wait for the evidence to be fully in before we make such assertions?

 

(posted at 10:34 pm by Mike Rulle)

 

 

In addition to causing general investor confusion, the proliferation of bold and fresh ideas to keep lenders from foreclosing is creating an excess of unintended consequences. Economist Casey Mulligan demonstrates that the new Fed sponsored program to lower payments by borrowers is equivalent to an increase in marginal tax rates and a welfare program to boot. University of Chicago economist Casey Mulligan is worried about the incentives that the Treasury and Fed are creating.

 

(posted at 10:15 pm by Mike Rulle)

 

 

Virginia Postrel discusses the media's obsession with what she calls "depression lust" and "depression porn". I couldn't agree more. It all began with the Time Magazine cover of Barack Obama morphing into FDR. There is definitely something crazy about all of this. Dynamist Blog: Depression Lust, and Depression Porn

 

(posted at 10:00 pm by Mike Rulle)

 

 

Reason magazine's Michael Flynn in Anatomy of a Breakdown states  "No market is truly illiquid. Last summer, Merrill Lynch unloaded a bunch of bad debt at 22 cents on the dollar. There are likely plenty of buyers for the banks' toxic debt, just not at the price the banks would prefer. Enter the government, which clearly intended to purchase mortgage-backed securities at some premium above the market price. We don't know yet what the premium will be nor how it will be determined. Well, in a sense we do. It will mostly be determined by politics, not economics. This is the foundational flaw in the Treasury Department plan."  As I keep saying, look to the west. The real estate market that got us into this is showing part of the way out. It is doing this by lowering home prices to where real buyers will buy, not where the Government wishes they would buy. A bigger recession now is a better outcome than what the Government keeps proposing which are effectively Nixonian price controls. That failed.

 

(posted at 9:45 pm by Mike Rulle)
 

 

 

DECEMBER 5, 2008

For all the financial Armagedon folks out there, Henry Blodgett, of Amazon huckster fame, just tells everyone to be patient because during the Great Depression Unemployment Didn't Hit 25 Percent Overnight. So we have plenty of time to get there. Actually, we have been enjoying a bull market in employment too. But from an economy stand point this seems more like the early 90s than the 30s. From a stock market perspective it is closer to the 30s. Still, the S&P 500 dropped 20% by October of 1990 and unemployment had risen from 5.2% to 5.9% (on the way to 7.8% in 20 months). The stock market bottomed well before unemployment topped at 7.8%. We would take a redux of 1990-1992 I think.

(posted at 3:30 pm by Mike Rulle)

   

From the Bureau of Economic Analysis we read the following about 3rd quarter earnings: "Domestic profits of financial corporations decreased $61.6 billion in the third quarter, compared with a decrease of $31.0 billion in the second. Domestic profits of nonfinancial corporations increased $47.9 billion in the third quarter, in contrast to a decrease of $4.2 billion in the second".  Pretty good for a recession. This is a financial industry storm. The financial industry is becoming commoditized. The Feds have been trying to prop up this bloated gangrene beast. Letting the Washington Mutuals of the world die using survival of the fittest methods is the way to go. The problem is they do not have the nerve to go all the way with this.

(posted at 1:35 pm by Mike Rulle)

  

It is difficult to find anyone who believes our economic situation will not get worse, a lot worse, before it gets better. Can this mean we really are approaching a bottom, under the premise that the maximum number of people are already at their maximum negative outlook? Of course I don't know, but hedge fund Seabreeze's Kass Favors U.S. Stocks Over Treasuries He had successfully shorted the market earlier. Maybe he can be right 2 times in a row.

(posted at 10:00 am by Mike Rulle)

    

My obsessiveness with this is extremely high, but I cannot imagine a more chaotic response to an economic situation than the actions of the Federal Reserve and the Treasury Department. This will be addressed more fully in one of my essays shortly. The latest dart at the wall idea is the Treasury Department's ridiculous scheme to subsidize housing costs MBS Markets Skeptical of Mortgage Plans. The markets are skeptical because of a "flurry" of proposals that come non-stop while never being implemented. The market nervously waits for these guys to go away.

(posted at 9:45 am by Mike Rulle)

It is fascinating to me that at the end of October more people were employed in the United States than anytime in our history prior to January 2007 Total nonfarm. Our economic anxiety, of course, primarily relates to the collapse of the stock market. The real estate decline is by far a distant second. The stock market has always been very volatile and most likely we have become too comfortable with the notion that it should always "go up". The history of our stock market shows that we have had many extended periods of 10 years and more when the market did not go up. A "stock" represents the residual value of an enterprise after all fixed costs, variable costs, interest costs, and taxes are paid. It is not surprising it should be so volatile. Also, think about how easily the Government can influence a "stock's" value by affecting the costs.

(posted at 9:03 am by Mike Rulle)

It is hard to imagine a movie that I am less interested in seeing than Frost/Nixon (2008) Nixon has been caricatured and stereotyped so often that he seems like a Marvel Comics villain. Add to that the absurd supposed link between Nixon and Bush (director Ron Howard claims to have been influenced by "Bush" in the Frost/Nixon movie) and you get another irritating propaganda film. When Hollywood makes a Marvel Comics weak villain movie on Jimmy Carter, I will go see it.

(posted at 8:30 am by Mike Rulle)

 

It surprises me that most voters don't seem to feel this way about Government California Focus: Political class looks out for No. 1. Perhaps people do, but we have been wealthy enough as a nation that it skips by as a mere annoyance. Unfortunately, the current economic crisis seems to be pointing toward even more involvement by Government in our lives. It is not just the direct costs, which are high enough. It is also the indirect costs through regulation. Just ask the auto industry about fuel standards.

(posted at 8:22 am by Mike Rulle)

DECEMBER 4, 2008

I have stated before that much of what the Government has done is tell us what they are going to do without actually doing anything. As an example of what I mean, one can compare the December 4, 2008  Federal Reserve Balances with the October 30, 2008 balances. Basically the difference is $225 billion of commercial paper. Add this to about the $290 billion of preferred purchased by the Treasury and somehow the headlines say $8 trillion of bailouts. I exaggerate but not by much. This is just further evidence of their noisy incompetence. Today we have yet another pronouncement by the Fed. Bernanke now wants to prevent foreclosures. These guys are like stream of consciousness obsessives. We waited on pins and needles every time Greenspan was going to speak. Bernanke, on the other hand, cannot keep his mouth closed.

(posted at 5:55 pm by Mike Rulle)

Citadel Funds Said to Lose 13% in November, Bringing Year's Decline to 47%  Citadel claims that losses came from corporate loans and bonds hedged with credit default swaps. This too is remarkable. We do not know what the CDS were indexed to. Nor do we know the corporate names or Citadel's leverage. For example, if they were leveraged 5 to 1, and the corporate securities dropped 2.5% and the CDS stayed constant, the loss would be close to 13%. There are many different scenarios to get to 13%. But there is an obvious poor correlation between the CDS market and the bond market. The CDS market probably is the derivative market most "disconnected" from the market from which it is "derived".

(posted at 5:45 pm by Mike Rulle)

 

Now I am wondering if I am suffering from innumeracy. According to this Bloomberg story Fannie Mae Mortgage-Bond Yields Plunge on Paulson Plan to Help Homebuyers, asset backed securities collateralized with "originally rated" AAA prime jumbo fixed rate mortgages are trading at 65 (par of 100). I do not know what the prepayment or other assumptions are assumed for this security. Assuming a normal 30 year amortization and a 6% coupon, this is a yield of 8.5%. This is the lowest equivalent yield it could be and is likely higher.  New fixed rate 30 year jumbos are quoted at 7.06 and 15 year jumbos are 6.29%. AAA Alt -A are trading at 51 cents on the dollar. This supports the premise of Lawrence Lindsay that this is entirely a transparency question---exactly what is not being addressed. This compares to "non-conforming" rates of 5.58% for new 30 year mortgages. This makes no sense.

(posted at 5:10 pm by Mike Rulle)

 

I never would have thought such a headline would seem so unusual and nostalgically calming Ford Said to Seek Up to $6 Billion for Volvo; JPMorgan Is Hired as Adviser. Of course in the current context, we see it as an act of survival by Ford. But in normal times, this kind of headline dominates the business news. Just good old business deals. It is amazing how the world feels like a frog sitting in a pot of heating water just waiting to be boiled to death. What happened to good old Keynesian "animal spirits" (a better concept than his government deficit spending)? We keep "waiting" for someone, i.e., the government, to do something. Well, we have seen what they can do. Time to stop waiting.

(posted at 9:51 am by Mike Rulle)

Why not zero? When oil was climbing faster than a speeding bullet 1000 years ago in the mid summer of 2008 AD, analysts could not project higher prices fast enough. Literally 4 months later (!) oil is now going to 25 Oil May Fall Below $25 a Barrel Next Year, Merrill Lynch Say. When it was 80, it was going to 100. When it was 125 it was going to 150. And when it was 147, it was going to 200. The most remarkable thing to me was how fast prices moved. Its one thing to forecast these prices, its quite another for these forecasts to "happen now". Of course there is no economic theory that predicts actual prices based on changes in supply and demand. While I was always skeptical of these upward forecasts (too Malthusian for my taste), these downward projections get oil closer to historical norms. Still, these forecasts are based on financial Armageddon, not historical norms in commodity prices. If there can be such a thing as a "bubble" in financial fear, we are in one now.

(posted at 9:11 am by Mike Rulle)

 

In a proposal by Lawrence Lindsey written in the Weekly Standard last week, he presents a solution to the current mortgage crisis Building a Better Bailout. The proposal is very interesting, but what is most interesting is the assumption that it is lack of transparency in CDOs and other mortgage backed securitieswhich is the cause of their illiquidity. It really is hard to believe that, although I don't deny it is true. While complex, everyone of these can be traced back to their ultimate credit source. One would have thought "work-out" specialists would have been all over this if it were that simple. It is as if Wall Street has lost confidence in itself as a function of being one of the creators of the mess to begin with. Lindsey's solution is an interesting one. He proposes a method by which those individual mortgage borrowers who expect not to default, in effect, put their money where there belief is. More to the point, if his transparency premise is correct, why is this the one thing the current administration is not focusing on?

(posted at 9:03 am by Mike Rulle)

DECEMBER 3, 2008

Chambliss: Palin 'allowed us to peak'.... Even as Romney, Huckabee, Guliani and McCain arrived to help out, the Georgia Senator said regarding his runaway victory in the "run-off" election; “When she walks in a room, folks just explode....And they really did pack the house everywhere we went....We had John McCain and Mike Huckabee and Gov. Romney and Rudy Giuliani, but Sarah Palin came in on the last day, did a fly-around and, man, she was dynamite". While Chambliss also thanked John McCain and the other big name Republican he said Palin made the biggest impact.  I like the "man, she was dynamite" quote. She may murder turkeys, not know Canada is in North America, and think Africa is a country but in pre-season balloting on the Karl Rove scale of helping fellow Republicans get elected, she won her first game in a blowout. To underestimate Palin is to be naive.

(posted at 5:45 pm by Mike Rulle)

All Hobart and William Smith Alums think alike. Not really, but fellow Statesman, Holman Jenkins, in the Wall Street Journal today summarizes what the "bailout" has gotten us so far. It has gotten us from bad to worse. In Holman W. Jenkins Jr.: The Bailout So Far he presents many similar points as I do in Bold and Fresh. Unfortunately, we are both correct.

(posted at 9:32 am by Mike Rulle)

 

Sometimes the obvious needs to be stated. In a Forbes magazine article "Larry Summers' Judgment," economist David Henderson makes an important point. Even as some in the swooning media proclaim the "brilliance" of the Obama economics team he cautions that; "One can be brilliant and still make bad forecasts and huge mistakes in judgment. And that matters when you're coordinating a president's economic policy". In particular, he implies that Summers' "judgment" is impacted by politics. He points out that in 1993 he was recommending opposite policy prescriptions from today even as the budget and unemployment situation were very similar. Just what we need.

(posted at 9:00 am by Mike Rulle)

Greg Mankiw discusses a recent macroeconomic study which demonstrates that even short term benefits of Government deficit spending stimulus programs are lacking. While Mankiw himself has not fully committed to the study's conclusions, he notes "that short-run business cycle theory remains one of the least settled parts of economics" Fiscal Policy Puzzles. We should keep this in mind as we are bombarded with repeated rounds of the "world will end tonight" if we don't do just what Obama/Pelosi/Reid want. Remember, these are taxes which pay for this.

(posted at 8:50 am by Mike Rulle)

Washington Post Opinion writer David Ignatius is an idiot. In his aftermath article on the Mumbai attacks he rhetorically asks Could Mumbai happen in U.S.? He seems genuinely perplexed that the answer appears to be yes. Where has he been for 8 years? Of course, even as we have fortunately not had an attack since 9/11, by no means does this reflect well on Bush. Under Bush, "there was far too much of that fear-mongering and spasmodic reaction after 9/11. The challenge is to understand the adversary so that, if an attack comes, the authorities will respond with cool heads and steady aim". That's the ticket.

(posted at 8:43 am by Mike Rulle)

I will continue to find commentary such as this fascinating. I am like a teenage fan of Harry Potter; I can read this kind of stuff over and over and not get bored Robert Scheer: Will Obama Stay the Course?. What drives these people? Scheer tells us that Obama's "brain is big" and "style fresh". But it all hangs on him and not the "cast of retreads from a failed past....who wouldn't know change if it slapped them in the head". What Scheer fails to explain is how "Obama the Superstar" managed to pick such a dopey group. When you are so big brained, I guess everyone pales in comparison.

(posted at 8:33 am by Mike Rulle)

The New York Times obviously supports Eric Holder for AG. They point out he is needed because the Attorney General's office is currently "mired" in scandal. The scandal committed by Justice under Bush is "indefinite detention and torture of prisoners, and to undermine rather than protect Americans’ cherished rights". What "Americans" and "cherished rights" are they talking about? The Mumbai massacres are still on their pages and they write like there is still an election to win for Obama  Editorial - The Next Attorney General. Earth to NY Times, your guy won. Be careful, they may decide to keep Guantanamo open and keep the Patriot Act unchanged.

(posted at 8:22 am by Mike Rulle)

 

The story line on the "Big Three" Pursuing U.S. Aid, G.M. Accepts Need for Drastic Cuts has always had a ridiculous premise. The idea that large complicated organizations can present a "business plan" to a Congressional Committee and have it understood on its face makes no sense. This is political grandstanding by Congress. They know exactly what they are going to do and why. Whether this passes now or when Obama is inaugurated is apparently unclear. But Congress will be paying off constituents. If they require "green" technology and few labor concessions the money will be lost.

(posted at 8:12 am by Mike Rulle)

DECEMBER 1, 2008 

The Mega-Bear Quartet definitely does not look good. Today, the Fed announced yet another ad-hoc proposal to buy back Treasury Notes. I mentioned in an earlier post that it is very disorienting for the market to observe the Fed and Treasury continue, even accelerate, along a path of ad hoc policy making. The not so subliminal message it gives is that the past stuff didn't work, so lets try this new thing. It is clear that in addition to real losses, we have an extreme case of risk avoidance in the market place. There already is plenty of theoretical liquidity in the system, just no real liquidity. Just pumping new dollars into the system without an over all stated plan does not provide the confidence to make this effective. My impression about Bernanke is he does not really understand the "human" side of the equation. This includes interacting with senior bankers in his bully pulpit role, and presenting a single, consistent, and clear action plan to the marketplace. Any one or even all of the things he has done could have been effective, but the manner in which he conducts himself is not working. He needs to go. (Bernanke Says Fed May Buy Treasuries to Aid Economy

(posted at 4:00 pm by Mike Rulle)

I have been making the same point as Reason Magazine Free Markets Are Under Attack Again. It still jars the memory thinking of the September panic when "Josh Brolin" was sent out by Paulson to scare the public into supporting the "bailout" just 2 weeks before he himself changed his mind. As Matt Welch states in this article this panic speech occurred "just hours before Washington Mutual became the biggest bank to fail in U.S. history without generating as much as a fluttered eyelid from blasé depositors" I maintain the lack of fluttered eyelids is what caused Paulson to change is mind. The rest for now at least is history. 

(posted at 3:23 pm by Mike Rulle)

 

Interesting article in the American Prospect on the upcoming winter debates on the Cap and Trade proposals Getting Real on Climate Change. Last summer, the bill collapsed as there was an almost instantaneous awareness at some point in the debate that this was going to raise energy prices. This is hilarious because everyone knows that to be true. The challenge for the climate change people is to somehow try to mask this, or at least make it seem worthwhile. But with gasoline at $1.20 wholesale, the incremental cost of subsidizing already unprofitable technologies even at $3.00-$4.00 per gallon is too much. The timing couldn't be worse for the greens. American Prospect thinks this bill will not happen now. However, they hold out hope for "stimulus" spending on "green" technology. Bad, but not as bad as cap and trade.

(posted at 3:11 pm by Mike Rulle)

 

Tudor Jones hedge fund suspends withdrawals I have to admit, knowing the professionalism of this organization, this is very disconcerting. The lack of liquidity is obviously extremely severe. It is pretty frustrating. I am sure there is as much reluctance on the part of owners of illiquid securities to sell at market bid prices as there is by buyers to pay the presumed high offer prices. The bid/ask spreads are very wide. For whatever reason, the market just will not budge. So Paul Jones goes the good bank/bad bank route. The Government should take a hint.

(posted at 2:55 pm by Mike Rulle)

  

Well, it looks like the National Bureau of Economic Research says (Determination of the December 2007 Peak in Economic Activity) the expansion stopped 11 months ago.This means the expansion was 73 months or 6 years.Their explanation is pretty opaque as it matches 2 different measures which have not agreed with each other, real GDP and real GDI. They both kind of see-sawed around zero growth at different times. Officially, I think, this means we are in a recession.

(posted at 2:11 pm by Mike Rulle)

The Big Picture economics blog says the NY Times, WSJ and Bloomberg all have it wrong on Black Friday sales. They point out that these are surveys not actual sales data and they are conducted by biased industry groups. They will all be revised downward they say. Still, isn't the survey qua survey, still better than expected? Not relevant they say. However, actual retail sales from online stores was up 1% Friday but down 4% for the month. The onliners expect to be flat for the Christmas season. No one is disputing the economy is weak. But comparisons to the depression seem pretty unwarranted. With real estate and equity markets down as much as they are, isn't "flat" amazing?

(posted at 1:53 pm by Mike Rulle)

 

The political analyst, Charlie Cook, writing in the National Journal Cook: The GOP's Palin question states "Among the broad American electorate, Alaskan governor and recent Republican nominee for vice president Sarah Palin certainly seems to be damaged merchandise. . . . But, and there is usually a but to such things, 76 percent of Republicans would like to see her a major figure in the future, and she had a whopping 83 percent favorable among them. . . . at least at first blush, looks unbeatable for the nomination and unelectable in a general election" -- How does some one with an 83% favorable rating in her own party and about 50/50 among independents also qualify as being damaged goods and unelectable? The Democrats don't like her. I will stick with Karl Rove on this and say none of this matters for 2 years. Still, after all the Turkey killings, the Couric blasts, and the incessant negative attacks on her intelligence and character, 83% is a pretty big number.

(posted at 12:55 pm by Mike Rulle)

  

Joseph Epstein of the Weekly Standard writes about the praise many in the media have given to the great intelligence of the Obama appointees Obama's Good Students. Epstein is a bit skeptical. He describes the typical A student. "My sense of the good student is that, while in class, he really has only one pertinent question, which is, What does this guy, his professor at the moment, want? Whatever it is--a good dose of liberalism, libertarianism, feminism, conservatism--he gives it to him, in exchange for another A to slip into his backpack alongside all the others on his long trudge to the Harvard, Yale, Stanford law or business schools, and thence into the empyrean". Having at one time been one of those good students (as well as taught them), I have to agree with Epstein. Plus, isn't this whole concept ridiculous? Who the heck didn't do well in school at that level? The concept of "Ivy League equals good decision-maker" is a non-sequitur.

(posted at 8:33 am by Mike Rulle)

Stories such as this in the LA Times are really unbelievable Consensus emerging on universal healthcare This is likely the same consensus that exists for global warming. There is no consensus on "universal" health care except among the group which leans toward Government control. I am not sure the word "bias" really does the media justice. I think "stupid" is closer to the truth. (posted at 8:25 am by Mike Rulle)

While trying not to get too off the deep end, the more one reads stories like this Born to Run? Little Ones Get Test for Sports Gene the more one thinks of the matrix revolution as our future.

(posted at 8:09 am by Mike Rulle)

The Financial Armageddon narrative continues today in full swing. The headline in the NY Times Deep Discounts Draw Shoppers, but Not Profits demonstrates how easy it is to frame a story one way or the other. Several surveys state that weekend sales may have been up 3-7% over last year. However, no one believes it yet. The Times speculates that with prices so discounted, retailers will be losing money. If prices are so discounted and buyers spent 3-7% more than last year, that means they are buying a lot more "physical merchandise". Two things can be learned from this. Price adjustments do work. Second, the Armageddon forecast has a lot of sustainability even as the obvious headline should have been that on this weekend, at least, consumers significantly outperformed expectations.

(posted at 8:02 am by Mike Rulle)