Archive - Nov 2009

This raises the broader—and very contentious—issue of whether monetary policy should seek to lean against potentially dangerous swings in asset prices. The answer is far from clear, because the use of monetary policy for these ends necessarily compromises the attainment of other macroeconomic goals. Because such use of monetary policy is costly, high priority should be assigned to developing regulatory tools to address systemic risk. Even so, the crisis of the past two years has prompted many of us to reexamine the widely held view that monetary policy should respond to asset prices only to the extent that they influence the anticipated trajectories of inflation and unemployment. Further research into the connections among monetary policy, the banking and financial sectors, and systemic risk is needed to help answer this question." - Janet Yellen

Ms. Yellen: we respectfully would like to say that you could not be more wrong. In essence your question of whether the Fed should inflate asset bubbles, defines the Fed's completely perverted and flawed agenda better than any other tongue-in-cheek elaboration for the continued worthless existence of your money printing syndicate.

Perhaps it is just me, but isn't Treasury Direct's "to the penny" national debt meter supposed to update "daily?"

Update: Apparently, they've added data for the 20th and Zero Hedge is pleased to report that the new data now marks a three day streak of negative figures in the debt's second derivative. We are also delighted to report that continued declines at the pace of the last 3 days of data will pay off the entire debt in 3.35 years.

Or so claims none other than bailout abuser extraordinaire, the International Monetary Fund. As the TimesOnline reports: "Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy." Yet the man on the street is oddly mesmerized by recurring appearance of solemn-looking political leaders on their daily TV jaunt, so perhaps Mr. Strauss-Khan is unfortunately overestimating the ordinary citizen's attention span or interest in anything more than being able to procure the latest 50 inch plasma TV at sub $500. Or the fact that instead of a formal "Second" bailout which will still undoubtedly occur "when needed" courtesy of trillions and trillions of new pieces of still unprinted paper, the Obama's latest plan is to have rolling bailouts/stimuli/Cash for Cxxx/dollar plunge enforcement sorties from now until Wall Street bonuses are paid for the 2009 and potentially 2010 calendar year. After all, someone from 85 Broad has to confirm daily that the economic policies are certainly working, contrary to what every Tom, Dick and Harry is seeing after a 5 minute walk on any given street.

• Yields 0.802% vs. Exp. 0.786%
• Bid-To-Cover 3.16 vs. Avg. 3.1 (Prev. 3.63)
• Indirects 44.5% vs. Avg. 48.2% (Prev. 44.4%)
• Indirect Bid-To-Cover 1.75
• Alloted high 95.78%
• Yield is lowest on record

Historically, the appearance of recursive exceptionalism is a highly predictive harbinger of republican (and, as it happens, imperial) decline, eventual fragmentation (typically violent in character) and collapse. It was no accident that the Roman Republic's decline followed hard upon the unspoken disposal of two-consul rule (no matter if you believe that this actually began with Pompey, Caesar or Octavian). Likewise, it is instructive that the progression towards The Principate after 400 some years of a Roman republic was also driven significantly by the conflict between the remnants of Roman monarchy, the aristocracy, and the plebes. If you find yourself a supporter of Ludwig von Mises, you might also note currency debasement, price controls, tariffs and restrictions on the free movement of labor and goods among the similarities to contemporary conditions. Self-inflicted economic wounds notwithstanding, once you stop following your own rules, "all bets are off," and it can only be a matter of time before you find that rem ad Triarios redisse (or rem ad Federal Reserve redisse, as the case may be).

In this connection, today we find it instructive to direct the modest beam of the Zero Hedge searchlight onto the boxy, greenroof-topped, marble facade of the Federal Deposit Insurance Corporation. This post marks the beginning of a week-long Zero Hedge series on the FDIC.

With everyone and their grandmother screeching that it is about time for China to inflate the renminbi, despite that such an action would be economic and social suicide for the world's most populous country, SocGen's Albert Edwards once again stalks out the Black Swan in left field and posits the contrarian view de jour: China will aggressively devalue the yuan following a deep 2010 downturn coupled with escalating trade wars. As Edwards says: "I think the next 18 months will see major ructions in the financial markets. The consequences of a double-dip back into recession next year require some lateral thinking. If the carry trade unwind results in a turbo-charged dollar, any collapse in the China economic bubble will be doubly destructive to commodity prices. A surging dollar, coupled with China moving into sustained trade deficit through 2010, could prompt the Chinese authorities to acquiesce to US pressure for a more flexible exchange rate. But why does no-one expect a yuan devaluation?"

Is Warren Buffett's pro-bailout, anti-public interest philosophy going to cost him one of his bigger fans:

"We must stop subsidizing speculators with cheap funding and tax breaks. We have to hold people accountable for malfeasance, break up large financial institutions, and allow them to fail instead of bailing them out. (Click here for my suggestions.) As for high pay and tax breaks for speculators, even Warren Buffett says: “Hell no!” But he won’t help us make changes. U.S. taxpayers will have to figure it out, or we will pay." Janet Tavakoli

A day before the first revision to Q3 GDP is released, the Federal Reserve tells us it may not be as useful as we've been led to believe.

For the low, low price of $0.00 you too can now prove your mettle as the world's most profligate helicopter pilot, in the comfort of your own iPhone. It is only fitting that countless hours of entertainment will cost you nothing, as even at infinity dollars (when will the Apple store finally convert its apps into ounce of gold equivalents?), there is no price one can put to recreating the unique experience of single-handedly destroying 200 years of history in the creation of what was once the world's most resilient and enduring middle class, all overnight, just so Goldman Sachs can pretend they collect garbage all the way to the bank. From Bailout Ben: "Bailout Ben (aka Helicopter Benny), the intrepid pilot of Bail Force
One, is on a mission to engineer the biggest bailout in the history of
the universe! Benny's helicopter is flying lower and lower, and if he doesn't bail out every single company he will crash & burn!"

A picture is worth a thousand Krugman essays, which is why we present a chart comparing the US Monetary Base (and by subtracting Reserve Balances with Fed Reserve Banks, Currency in Circulation), and the Fed's holdings of MBS and Agency paper (worthless GSE/FHA garbage). In summary: Currency in Circulation: $920 billion; MBS/Agency Holdings: $997 billion. The dollar in your pocket is now entirely backed only by worthless, rapidly devaluing and subsidized housing.

With the media finally waking up to the risk of recurring "systemic threats", aka Goldman not paying $20 billion in bonuses, courtesy of finding out just how much shit is really held by the Fed's discount window, everyone is suddenly interested in hearing it direct from the man at Ground Zero - Ron Paul... Even Steve Liesman, who no matter how hard he tries to spin "Audit the Fed" into "Control the Fed" will fail miserably every time he is not stuck in a patented blathering, factless monologue mode.

New flu has RBD mutation , Hacked Emails Show Climate Science Ridden with Rancor , Chavez and Uribe at each other's throats again, Gold approaches PM's Jan 2010 target , Solzhenitsyn approves.

Oil at $1,170 should translate to about $50/gallon at the pump. Then again gold, oil, all the same to CNBC - just buy, buy, buy. In other news, bonuses set to top one quadrillion at Goldman Sachs' oil propaganda desk.

Dollar: 0, S&P (not Dow): 36,000, Gold: infinity. For an obit of the US middle class look at any streaming ticker. For everything else, there is the Fed Chairman.

Over the past two weeks, the highly leveraged fixed income market is stuck in a motionless void, with both bonds and loans barely budging. The trackable universe moved ever so slightly wider, with bonds 3 bps out to 668 bps, and loans 4 bps wider to 431. The spread is still at a record tight 237 bps, indicating that unlesssecurity priority ends up getting inverted courtesy of the Rattner doctrine, there is little if any additional convergence left. As we noted last week, positioning for a divergence trade may be one of the least risky postures as the credit bubble may be poised for popping. The problem of shorting loans (especially if one wishes to avoid JP Morgan's LCDS mindfuck) may be overcome if accounts merely call up Goldman Sachs and pull a Carl Icahn. Biggest loan mover wider was Sungard at about 125 bps, while West Corp tightened by almost 100 bps. In bonds the two notable names were First Data as a widener (seems tech has been getting pounded in debt), while MRI specialist Alliance Imaging and perpetual yoyo TRW Auto both ripped over 50 bps.