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Fed Speak Friday - Volcker, Lacker and Ben Batting 1, 2, 3
Fed Speak Friday - Volcker, Lacker and Ben Batting 1, 2, 3
What a fun day for debate!
Former Fed Chair, Paul Volcker went way off-script in Chicago yesterday and "moved unsparingly from banks to regulators to business schools to the Fed to money-market funds during his luncheon speech. He praised the new financial overhaul law, but said the system remained at risk because it is subject to future “judgments” of individual regulators, who he said would be relentlessly lobbied by banks and politicians to soften the rules."
“This is a plea for structural changes in markets and market regulation,” he said at one point. He also had some great quotes:
Banking — Investment banks became “trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”
Financial system — “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”
Risk management — “Markets that are prone to excesses in one direction or another are not simply managed under the assumption that we can assume that everybody follows a normal distribution curve. Normal distribution curves — if I would submit to you — do not exist in financial markets. Its not that they are fat tails, they don’t exist. I keep hearing about fat tails, and Jesus, it’s only supposed to occur every 100 years, and it appears every 10 years.”
The recession — “It’s so difficult to get out of this recession because of the basic disequilibrium in the real economy.”
This afternoon, Richmond Fed President Jeffrey Lackerwill speak in Kentucky (his hometown) on "Reflections on Economics, Policy and Financial Crisis!" and it always makes me nervous when Fed Presidents put exclamation marks on the word "crisis" so we’ll be paying attention to that one. After market hours, at 4:30, Uncle Ben comes to the plate with "Implications of the Financial Crisis for Economics," which sounds like a snoozer but that’s three Fed guys in a row saying "crisis" in the same day - I don’t like it!
I was bearish yesterday morning but we bottomed out earlier than I thought and I sent out an Alert to Members at 10:01 saying:
Of course DIA $105 puts are now up a huge 46% and the IWM $67 puts are $2.30, which is over 100% so shame on you if you don’t take that money and run - we can always find something else to trade later and you can put those profits into a sensible, long-term disaster hedge like the QID play from yesterday’s chat.
It was housing that was our big worry and we got better-than-expected Existing Home Sales with 4.13M homes (annualized)changing hands and that, thanks to the magic of a downwardly-revised July number, was up 7.6% vs flat expected. That is the fun thing about Government statistics - they tell you a better-than-expected 4.1M homes were sold in July and the market goes up, then we expect 4.1M homes to be sold in August (annualized) and that would not move the market but then, in August, the government revises July DOWN to 3.84M homes sold (which means our excitement over July was completely misplaced) and then reports 4.13M homes for August and calls that UP 7.6% - isn’t that INCREDIBLE?!?
When I say "incredible" I mean, of course, lacking any and all sense of credibility. Nonetheless, the market loved it and we shot up on the "good" news. If we’re lucky, August will also be revised down and the same completely inept measurements will show September to be "improving" to 4.1M again and we can rally off that number.
Today it’s all about Durable goods and expectations are set so low there that it will be hard to miss at this point so we can celebrate the mediocrity as only Americans can this morning. We can expect a pop on Durable goods to take us back to yesterday’s open ahead of the bell and then we’ll see what sticks into the weekend.
8:30 Update - Confusion! Durable Goods were DOWN 1.3%, which is 30% WORSE than expected and last month was UP 0.4% but, ex-Transports, we are UP 2% vs. down 3.8% last month so that’s what they are focusing on in pre-markets and the futures are flying up about 1% already (8:45).
What a great opportunity this will be to re-enter our directional shorts - very exciting stuff for us as we can sell options to suckers who think we’re heading up and up and buy puts at ultra-low prices from bears who are getting squeezed out of positions. As I mentioned yesterday, though - we are still long-term bullish, the adjustments we’re discussing are just our directional short-term plays as we use those to ride the waves of the market while we PATIENTLY wait for our long-term positions to mature. Our new trade ideas yesterday were a mix with short plays on PCLN (backspread), the Russell (a bullish TZA spread) and the Nasdaq (a bullish QID spread) and long plays on SKX, ADBE (see Wednesday’s post as well), XLF and TASR.
Gold is touching the $1,300 mark this morning, giving the metal bulls ore-gasms with dreams of $1,500 dancing in their heads. We’re sticking with our GLL trade (now $34.60) but maybe no more if the Fed boys sound like they are about to ramp up the printing presses. What I do know is that there is no way they are going to extend the tax cuts until after the election and if the Fed doesn’t punch the button on easing - I’m not sure how long investors are going to be willing to wait for the next government give-away.
Speaking of Government bailouts for the rich as well as lies, damned lies and statistics - the Republicans revealed their "Pledge to America" but, strangely, none of them put their hands over their hearts and swore to anything… We had a great political discussion in last night’s chat so I won’t rehash it here and Jon Stewart summed it up very nicely last night when he was comparing the text to the old "Contract With America" of 25 years ago and ended up laughing so hard he couldn’t go on. One of our Conservative Members said that it all boils down to whether we are better off than we were two years ago and my response was:
Better off - Well, two years ago the S&P was at 750 (and still not done going down) and people were lining up at banks to take out their money because they thought the entire economy was going to collapse and whole wall street firms were going bankrupt overnight with thousands of people losing their jobs on a daily basis (close to 1M jobs lost in a single month at the peak).
During this crisis, we still couldn’t get the Republicans to pass legislation that was proposed by their own leadership because they thought that it was a good time to throw a temper tantrum and hold government hostage so, yes, I do think we are so much better off than we were two years ago that I can’t even imagine the workings of a mind that wants to go back to the insanity of Republican "leadership."
That’s all I have to say on the matter until after hours but I do feel a weekend post on the subject forming! Doug Kass agrees with me. Not about politics but about bonds as he now says that shorting bonds will be "the trade of the decade." I still think buying TASR for $4 will be the trade of the decade but shorting TLT at $105 was already the plan I’ve laid out in previous posts. Japan is having no luck propping up the Dollar this week and the 3am trade came early this morning as the Yen bottomed out at 85.38 at 12:20 and shot up to 84.10 and looks to be heading even higher this morning (lower is higher as it’s Yen to the dollar). That is a HUGE one-day move for a currency but, then again, it happens all the time lately as they step up the manipulation - kind of the way we’re used to up and down 100-point moves in the Dow these days.
The Nikkei did not, of course, like the move and they fell 1% to close the week at 9,471, over 1,300 points below the Dow this morning and 200 points "too tight" based on our invisible Nikkei-Dow rubber band theory that says they should stay within 1,100 points of each other. Europe was off to a cold start despite a rise in German Business Confidence but they cheered right up on our Durable Goods report and are now up about a point ahead of our open.
We did the charts earlier this week and no one is in any danger so we’ll be looking to just drift through the day and see what sticks but we’ll certainly be hedging into the weekend and picking up those same directional plays we already made money on twice this week. Will third time be a charm or do we break up and out next week on surprisingly good data - tune in and find out!
Have a great weekend,
- Phil
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As far as I'm concerned, Obama's presidency ended the day he appointed Geithner treasury secty.
Fred said it best---both parties are worthless and by definition so are their economists. We need fundamental change or we would not be in this situation of a credit casino with a bankrupt house [U.S]. Financial system cannot save US or help in return to balanced economy. Real political leaders can, but they are indeed rare or easily influenced by Wash. power system. Perhaps crisis is needed to jar us into reality, but for now the swan song continues.
There's just so much dross in this post.
And, my god, if you want to find both parties worthless, I'm fine with that. But there are at least a few economically sane republicans. There are approximately none among the democrats. To have a huge preference for them is just bizarre. To complain about the repubs when the dems had all the levers of power is about equally bizarre.
These people are spoken of as leaders. Leaders whom have accomplished some great works past and present. They are excused their mistakes. Volker, Rubin, Greenspan, Bernanke, etal.
There is much we are forced to suffer at the hands of those that would borrow us into slavery. These people are traitors. Obama, Bush, Clinton, Reagan, Carter, et al. People whom sold us out for their own short term benefit and the opportunity to be "powerful".
They are glorified and placed in ivory towers, heroes in history books, to be burnt into the fragile memories of children and remembered for posterity. While in reality, they have impoverished and sold our souls for a sou. They cared not for our children, for our country or for the potential inherent in true liberty.
They are the worst of humanity. Parasites of such malignancy, they drain the lifeblood of all without regard for the host. There is no hell capable of shredding their souls to the degree nor with the intensity of suffering to suit their crimes against humanity.
There is no curse that could be visited upon them of sufficient power and degradation.
Still, we have to hear the baying of the sheep in their defense. The excuses of whether they had " taken a different road" or "rose to the occasion". When will you people take your collective heads out of your asses and look around? Do you enjoy the chains they have placed on you and your children? Do you revel in the destruction of hope? The extinguishing of the light that is possible in each moment of time?
The world's worship of these dark reapers makes one question the idea that humans have intelligence at all. We are so easily brainwashed and controlled to provide our life's energy for their sustenance in great luxury. Like a complacent herd, we barely notice, as they milk our lives and collect our wealth for their own uses.
We need to circle to herd and place our most capable in the line of defense. We need to defend ourselves and the best method of defense would be to put our priorities first. Eliminate this government of debt slavery. Pull down the structures that imprison us. Taste the cool water of liberty where individuals govern their actions in a society of mutual benefit.
Their power is found in fiat money- it is their greatest weakness. Our power is found in collective action and the word no. No we won't pay, no we won't play, we will decide our futures individually in a society that recognizes liberty is the enemy of control and control is the greatest Satan ever created.
+1.4x10^12
Debt is slavery and liberty demands the chains be broken.
How bad things happen: Let's not forget Robert Rubin and the repeal of Glass-Steagall act.
Volcker resisted loosening G-S as Fed Chair, Greenspan was receptive. In 1998, Under Rubin as Treas. Sec., it happened, along with investment banks able to leverage up to 30-40X, and the Citi-Travelers merger. Then Rubin raised eyebrows when he quit the as Treas. Sec. and went right to Citibank.
Fast forward: Rubin's 2008 Citibank was the real reason for TARP (surprise! along with one other) because they were the most vastly overleveraged -- other banks were forced to take the $$ to cover for Citibank.
With a track record like that, it's little wonder Rubin was a natural to be the current co-chairman of the CFR and proud attendee and star of the latest Bilderberg meeting in Barcelona, Spain.
I think Volcker was trotted back out for credibility, then quickly ignored and put back on the shelf when he wanted to go further than the current regime wanted. Volcker already criticized the financial "reforms" because it failed to reduce TBTF risk far enough.
Any regulations are only as good as the regulator's willingness to enforce them. So far not. The 1998 LTCM meltdown, FMA & FMAC 2004-present, the Bank crises of 2008, and Bernie Madoff 2009 were slow moving train wrecks seen coming down the tracks with plenty of bells and whistles going off for warning, but they were ignored.
There's just a big lump under the rug to show for what the regulatory agencies have done. Now the SEC wants to be exempt from the FOIA and the Consumer Protection Agency will be within the Fed where it will not be accountable either.
I guess they'll all finally be able to sit around and watch porn for a living in peace and quiet.
Love the Ben cartoon. But I think passers by will after all be willing to grab that cash.
http://keynesianfailure.wordpress.com/2010/09/24/why-this-time-qe-really-will-spur-inflation/
doolittle: I like Volcker. Not in every last way, but he's so much sharper than that idiot Ben. I don't think Volcker intended to destroy Carter. He was appointed by Carter and told to fix inflation, and then Carter realized too late that Volcker took the task completely seriously and threw the economy into recession, which was after all the only way to fix inflation. I liked Carter in most ways but he was totally delinquent on the economy. Kind of like Obama. I liked him and I would still like him if he hadn't wasted so much good will. Sorry, he can't blame anybody but himself.
Look at what Volcker ended up doing for Reagan: relentlessly crushed inflation and the economy with it for a year, and then the economy boomed back and Reagan got re-elected in an even bigger landslide. Obama could have done similar: take a lot more pain in 2009, but have a real recovery in 2010-2012. It's not only good economics it's good political strategy. And it's not rocket science.
Obama was campaigning while Republicans were pushing through the most in-your-face rip-off of US taxpayers in living memory, the big bank bailouts. If he opposed them he could have won it and he would have been a hero for it. Instead, he supports them and takes joint credit!
Obama takes over at a time when Republicans are running the highest pace of deficit spending in US peacetime history. He owned the fiscal moral high ground. So what does he do? He hands it on a silver platter back to the Republicans by passing a big stimulus.
As a Democrat I can only say, what a loser!
Tom, the problem is that the dems really haven't cared in the least about the deficit since the 60's when both parties considered it pretty much de rigeur that a budget had some semblance of balance. The repubs intermittently care, at best.
But you completely nail it when you point out how Obama blew it. The irony is that there was so much talk in the press about how the narcissist in chief wanted to be considered a "transformative" figure "like Reagan". But he didn't have the balls to do like Reagan did and bite the bullet and endure a couple bad years while things were fixed economically. He had the mainstream press about 99% on his side unlike Reagan but he still couldn't bear to tell the truth and have everybody take some bitter medicine.
Without courage, all other virtues can be pretty worthless.
I gotta respect the Volker. He was a real fucker under Nixon--which gives me pause. Didn't live through it but I don't like the guy. He nailed Carter and ended his Presidency. That's a real....whatever. Obama is all alone. I voted for the guy. I hate people who take President's down.
Great run down.
Great Ben quotes.
great scam, easily one of the better ones.
http://covert2.wordpress.com