Archive - Feb 2010 - Blog entry

We are told we are in recovery. We are told we are not having deflation. We are told a lot of things but the facts seem to keep working against Messrs. Bernanke, Summers, and Geithner. The latest core CPI belie their Keynesian beliefs.

A silly story in a Japanese paper. Based on this you would have to conclude that our biggest creditor doesn't think too much of us.

I was interviewed by BusinessInsider about China, click here to watch.  If you did not see it, this presentation covers a lot of points I discussed in this interview.

A quick glance at Greece's progress in implementing its austerity measures to placate the EU enough to justify a publicized bailout.

This issue is actually important to the economy, civil rights, and the political causes which are most important to you . . .

Does the Fed's move spell the end of easy bank profits? Not a chance! They will continue making a killing on prop trading and the revival of M&A activity. Then there is OTC derivatives, which fatten up profit margins and remain unregulated. We need another Brooksley Born and fast!

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.”

For all you skeptics out there, let there be no doubt that the U.S. recovery is more than just fluff. Strength in manufacturing is picking up steam and services (66% of the economy) are expanding. And even after the Fed's latest move, policy remains far too accommodating...

Scott Rasmussen [President of Rasmussen Reports] observes that the American people are “united in the belief that our political system is broken, that politicians are corrupt, and that neither major political party has the answers.” He adds that “the gap between Americans who want to govern themselves and the politicians who want to rule over them may be as big today as the gap between the colonies and England during the 18th century.”

China recently raised the Reserve Requirement Ratio by 50 bps to 16.5% for its domestic banks. This is the second hike in the past month and certainly not the last as China’s economy is still sprinting ahead. While equity markets have begun to price in the risk of “global exit strategies,” currency markets have yet to consider the implications of continued strong underlying growth in China. It is likely that additional Chinese monetary tightening will be accompanied by pressure to revalue the yuan.

Ben Bernanke knows that the Fed's exit strategy is flawed, so he keeps thinking up new schemes to sop up "excess reserves" from the banking system. The latest is to allow money market funds by Treasuries directly from the Fed. Will this idea work? Will it positively impact the dollar? Will the Fed start draining the pond soon?