Archive - May 10, 2010 - Blog entry

There is more to come in the drama called "EU".

You can tell alot about the questions which the government is truly interested in finding answers to by the amount of money it authorizes for the various investigations...

Two excellent commentaries on the euro bailout from an Austrian view. The folly of inflation.

A heretofore unknown volcano in Iceland could morph into a major global disaster - for Europe and the world.

Our friends at Research Edge referred to this weekend’s announcement as The Keynesian Elixir. Wikipedia defines an elixir as “a sweet flavored liquid used in compounding medicines to be taken orally in order to mask an unpleasant taste and intended to cure one’s ills. Elixir in the noun form means a drink which makes people last forever.” In this case, the Euro Elixir is masking the unpleasant aftertaste of unintended consequences. The cure will buy some time, but will emphatically, not last forever

Commodities update [post 1 trillion $ bailout]

Nothing to say on this really, except that Bernanke will be more than happy to oblige every and all requests which will further his goal of destroying the dollar and bring the dollar down to 1.0000 ER against its Zimbabwean brother from another mother.

It is important to note that in the near term, the contraction in private sector credit combined with the threat of fresh credit concerns ahead, will likely keep a lid on inflation pressures. This view is perhaps where we differ most from today’s consensus thinking, where many expect an immediate and permanent increase in inflation levels.

I would like to make clear how dangerous this bailout game is for those in the confines of the EMU. Suppose…. Just suppose, as with the Greek Bailout(s) announced just weeks ago, the markets call the bailers’ bluff? Exactly what ammunition will be left to move forward? The ECB/EU had better hope that this rally will hold up (and recent history shows that it will probably have an ever decreasing half-life), for if it doesn’t the member countries are in a world of hurt.

In times of great uncertainty it is often informative to seek the wisdom of one's elders. This past week at the Wesco Annual Meeting, 86 year old Charlie Munger provided a number of memorable nuggets of insight. The following is the 8500 word transcript.

Preliminary ratings for Q1 2010 for US banking institutions from the professional version of The IRA Bank Monitor are rolling in at a good pace. With 7,240 bank units reporting, the preliminary aggregate Bank Stress Index (BSI) rating is currently just 5 vs. 21.5 in Q4 2009. The benchmark year is 1995 which equals "1" on the BSI. This suggests that the US banking industry is officially on the mend in terms of building reserves, but the credit cleanup continues even as new events climb over the horizon.

Which door will it be?

This is supposed to calm down the markets Monday morning. The Fed opened its swap lines with other central banks and treasuries to provide dollar liquidity as investors flock to the euro. Mish says short squeeze.