Archive - Feb 19, 2010 - Blog entry

Famous short seller Jim Chanos characterized China as "Dubai times 1,000, or worse.” While talking his books, Chanos could stand to lose big on his China shorts by basing his view on flawed analogies with the US real estate market.

In our recent post, Coming to America, we encouraged readers to study Nail Ferguson’s concerns voiced in the Financial Times – A Greek crisis is coming to America. It does not take a wild imagination to see that ballooning debt levels on government balance sheets pose a grave systemic risk to the global economy and capital markets. This is precisely why we are left with our tongue on the floor when we hear Nobel laureate Joseph E. Stiglitz describing the prospect of a US or UK default as absurd, “particularly in the US because all we do is print money to pay it back.”

We can’t help but share the “shocking” news we came across in the Sunday Times that former US Treasury Secretary (and former Goldman Sachs CEO) Hank Paulson does not believe that banning proprietary trading at large banks (i.e. Goldman Sachs) insured by tax payer dollars is a good idea. Since most of those in Washington with the power to formulate financial reform have spent most of their careers on Wall Street, and maintain close ties with their former pals, this “shocking” news should not come as a surprise. But it still makes us sick to our stomach.

25 basis point move on the Fed Discount Rate = Discipline, right? In the meanwhile, the Treasury is planning on running an epic fundraiser next week, of $180 Billion dollars. I'm afraid equities won't fall more than a few points, so how much fear bid can we have?

Meeting the tip of the spear. The cycle of warfare is now driven by Moore’s Law (XLK), (CSCO), (GOOG). We can only afford to spend on winning current conflicts, not potential future wars. The war on terrorism will continue for at least 4-8 more years. Water (PHO), (CGW) is going to become a big defense issue. We may have to lose a few institutions in a cyber attack. Russia will never be able to field a million man army again. “We’re not going to be able to kill our way or buy our way to success in Afghanistan.”