Kansas City Fedhead Hoenig on... Retail Payments, Fedpotence, and Some Other Stuff not Worth Reading to ECB

"The Future of Retail Banking and Payments--Developments in Global Markets: The Role of Central Banks"

Kansas City Fed President Thomas Hoenig to the European Central Bank (3rd in the quantitative easing/currency debasement game after England then us) and De Nederlandsche Bank in Frankfurt on the 25th of May. It starts out like a winner. Sort of.

A speech on retail payments at this point to the ECB appears to be an attempt to show the Fed isn't just for destroying your currency anymore. If you look at the strategy of it, it's actually a smart move on their part to show the world (at least through their central banking brethren across the pond) that they serve other functions beyond printing money.

ECB President Jean-Claude Trichet insists that now is an appropriate time to discuss things like retail payments. Yes, they do.

Governments and central banks around the globe have made unprecedented use of their policy tools to fight further economic and financial decline. The ECB and the Eurosystem have taken rapid and bold actions in response to the crisis. These measures have been providing refinancing to the banks well above the usual levels and under more flexible conditions than usual. Executive branches have decided exceptional measures to support financial institutions and help stabilising the financial markets. You may now ask: does it make sense in current times to focus on the integration of payment markets and infrastructures? Does it make sense to invest in the integration and modernisation of retail payments business? Our answer is: Yes, it does.

Sure, ok.

Meanwhile, is the PPT propping up the dollar? Who can tell anymore? I read the comments at Michael Panzner's Friday post on blatant market manipulation via Financial Armageddon that asked for "proof" - where was Panzner pointing? What made Friday any different than other days? I have heard things start getting wonky around 10a EST, right around the time the Goldman rats wake up from their late morning naps (yes, I see what you fuckers are doing) and everything from gold to pharma has been brazenly slaughtered in the open. So? How much proof do people need?

So yes, I'm sure retail payments is a very important topic for a room full of central bankers at a time like this. Geniuses.

At some point, Hoenig insists that were the Fed to be excised from the duty of electronic processing (after an unnecessarily long monologue on the payments themselves), "it seems unlikely that a more competitive environment would emerge."

If you speak central banker (which I am sure everyone at this particular conference certainly does), you know that by speaking in vague "seems" and "appears," the Fed absolves itself from the responsibility of having said "it is certain" later on down the road when this plan fails.

It explicitly knows that this statement is untrue. If it believes in influencing but not dictating the flow of the economy, as it claims it does, then it should also encourage its own competition. Why not? If it is best to perform its duties, then it shouldn't fear competition. By stating this obvious statement with such narcissistic certainty, it is basically admitting to that fear. Clock ticking yet? Can you fuckers hear it now?

The rest of this speech may be found here. I found nothing else worth discussing here.


California Budget Crisis Continues: State Layoffs, Municipal Robbery, and the Taxinator's Continued Adventures with Fiscal Insanity

too bad we can't just monetize the Taxinator's pretty face, eh?

You know, if I didn't live here I might find this to be funnier.


SAN FRANCISCO (Reuters) - California's massive budget deficit -- now seen at $24 billion -- is unnerving local governments statewide, which fear the state will grab some of their money and endanger their credit ratings.

Governor Arnold Schwarzenegger has proposed the state borrow $2 billion from local governments to help fill its budget shortfall, one of many controversial financial proposals the Republican governor has put forth to the state's Democrat-led legislature.

Other proposals include laying off thousands of state workers, sharply reduced spending for the state's two university systems, early release for prison inmates and eliminating state welfare that provides assistance to needy families -- proposals that have cast a gloom over legislators.

"People are walking around with their heads down," said Assemblywoman Noreen Evans, chairwoman of the legislature's budget conference committee.

Yes, Arnold, "borrowing" from local governments sounds like an excellent idea. Why don't we also legalize crack-cocaine since obviously you're high on the stuff to even suggest this?


Blame for the Financial Crisis: Dallas Fedhead Fisher on Goldman, Easy Money, and Those Darn Debt-Ridden Kids, Part 2

If only Delilah could cut his beard...

Yesterday we took a look at Dallas Fed President Richard Fisher's thoughts to the Washington Association of Money Managers last Thursday and determined that Fisher believes the debt-ridden idiots who loaded up on easy money should bear some of the blame for the financial crisis. Fisher might have hinted at the Fed's responsibility in the matter but in a classy way, of course, pointing to the easy money itself without directly pointing at homicidal maniac Alan Greenspan.

What we did not get into, sadly, was the "blame conspiracy" which Fisher playfully dropped amongst his points on bloodthirsty bankers and the complications of exotic credit instruments packaged to feed investors' hunger for securitized debt. God forbid I just let this one go without giving it its due.

Who is to blame? Well, if you had been listening to the radio on Feb. 26, 1933, you would know the answer. You would have heard a crazed Father Charles Coughlin, pastor of the Shrine of the Little Flower in Royal Oak, Mich., rail against "the Morgans, the Kuhn-Loebs, the Rothschilds, the Dillon-Reads, the Federal Reserve banksters, the Mitchells[1] and the rest of the undeserving group, who without … the blood of patriotism … flowing in their veins have shackled the lives of men and of nations with the ponderous links of their golden chain."

I am not familiar with Coughlin nor his opinion but he is described around the Internets watercooler thusly: "A Roman Catholic priest first, radio personality second, and political activist third, Charles Edward Coughlin was a pioneer in radio talk who used the medium to promote his church, his religious beliefs, and his political agenda."

I like him already with such insight into the "ponderous links of their golden chain." What happened to the great speakers of our age, anyway? Even the man who rose to the highest public office in America partially due to his ability to give an amazing speech (bah! Where has Obama's silver tongue gone now?) now offers little more than winners like "the proof of the pudding's in the eatin'." What, sir?!

Fisher continues:

Advance the tape 76 years. If you substitute Goldman Sachs for the Rothschilds, Lehman Brothers for Kuhn-Loeb, AIG for Dillon Read, Ken Lewis or John Thain for "Sunshine Charlie" Mitchell and keep the text about Federal Reserve "banksters," you will have captured the liturgy of invective heard from Father Coughlin's contemporary secular cousins. Nothing is new under the sun; old prejudices and conspiracy theories never die.[2] On airwaves and in the blogosphere, on editorial pages and even in the halls of Congress and foreign parliaments, critics are casting about for whom to blame for "shackl(ing) the lives of men" and women from Bethesda to Beijing with the "ponderous links" that took us to the very edge of the abyss of global economic collapse.

Fisher is right, the old prejudices do not die - and perhaps this is because the sources which leave themselves wide open for criticism by operating behind the curtain (hellllo, Federal Reserve I'm talking to you!) do not die. Were Fisher's Federal Reserve System to embrace true transparency as opposed to a bastardized version of such convenient only for soundbites, perhaps the blogosphere and the pundits could lay off.

Keep dreaming.

The Fed cannot expose itself - were it to do so, it would become painfully obvious almost instantaneously that this institution is a crime against the Constitution of the United States, sanctioned and blessed by Washington to exercise continued theft of wealth and prosperity via reckless monetary policy and the alchemy of money creation.

Conspiracy theories, Goldman Sachs, inflation concerns, and the failure of the bond market; Fisher certainly took a bold step towards transparency in this one. He insists the FOMC is more than equipped to handle any monetary disaster in the waiting, though I imagine rampant inflation is the boogeyman hiding in each of their closets, fangs glittering in the dark, a low growl coming from under the bed. Is he supposed to be talking about this stuff out loud like this? Isn't that against some Fed directive that insists "deny, deny, deny" is the best way to deal with the noisy concerns of Fed critics?

Of course, any student of history knows that throughout time, governments unwilling to face the music and fund their liabilities have turned to monetary authorities to print their way out of their predicament. We all know by heart the pathologies that afflicted Weimar Germany, Argentina and other countries. And we have daily reminders from bond vigilantes like Bill Gross about the prospect of losing our AAA rating. This cannot be allowed to happen in America.

I can tell you that the FOMC is well aware of the doubts being voiced about its intentions. I can also tell you that nobody I know on the committee wants to maintain our current posture for any longer and to any greater degree than is minimally necessary to restore the efficacy of the credit markets and buttress economic recovery without inflationary consequences. Indeed, as I speak, we are studying ways to unwind our balance sheet in a timely way.

Thank you, Captain Obvious. I cannot possibly imagine that any FOMC member actually enjoys any of this; the endless criticisms, the buzz of the pundits, America poised to point its pissed-off pitchforks at the Fed when up until now they operated essentially in the dark. One does not become a central banker for the fame and fortune - now they can't even go to Starbucks without getting recognized.

As the Book of Volcker warns, the Federal Open Market Committee can ill afford to be perceived as monetizing debt, lest we come to be viewed as an agent of, rather than an independent guardian against, future inflation and drive real interest rates higher.

Too late, RF, the Fed is carelessly waving around its magic wand of funny money, monetizing any and everything that isn't nailed down. I have already referred to this as looting the ship, though certainly Fisher and his colleagues have an alternate perspective. No one is comfortable with the Fed's current monetary policy, least of all the Fed. Great. That's reassuring.

The conspiracies would likely fade were the Fed to be honest about its position, its impotence, and its objective. It is speeches like these which, to some extent, give me a sense of hope that central bankers aren't entirely clueless nor intent on obscuring the issues; not that I'd be so ignorant as to believe this is what we should expect from the Economic Demolition Team in the future - especially if Larry Summers skeezes his way into Ben Bernanke's spot in 2010. No, one should expect nothing but extended obfuscation and treason in that event.

So don't worry, Richard Fisher, the blogosphere will be here Fedbashing you and your cohorts so long as you continue giving us the ammo to do so. Nothing is new under the sun after all, right, RF? Your words, not mine, homie.


Dallas Fedhead Fisher: Blame the New Depression on Goldman Sachs, Pray, and Keep an Eye on Those Financial Bloggers

"Every age has its peculiar folly—some scheme, project or phantasy [sic] into which it plunges, spurred on either by the love of gain, the necessity of excitement, or the mere force of imitation."

"Men, it has been well said, think in herds; it will be seen that they go mad in herds...."

-Memoirs of Extraordinary Popular Delusions, -Charles Mackay (1841)

and yes, I totally stole that from RF's speech... thanks, homie!

I've got to give it to Federal Reserve Bank of Dallas President Richard Fisher, the dude has jokes. Not only that but he's got a light-hearted take on the financial crisis that in many ways makes a whole hell of a lot of sense. I think in reading this speech he has just surpassed Philadelphia Fed's Chuck Plosser as my 2nd favorite Fedhead. Who doesn't love an inflation hawk? You, sir, are no Jeffrey Lacker but you will certainly do in a pinch. Rumor is that Skeptical CPA has alternate thoughts on Dallas Fed's fearless leader which he shall reveal in due time; I don't know about you but I'm anxiously awaiting his take.

Fisher begins his speech before the Washington Association of Money Managers last Thursday with the parable of the Presbyterian pastor. You have to forgive him, he's from Texas and we all know how religious those guys are. Besides, since we have long thrown logic out of the window in the face of total economic meltdown, maybe all we have left is divine intervention? Lord knows we're going to need a miracle if we as a country are going to get out of this in one piece:

This generous pastor took pity upon the man. He took him to a barber for a shave and a haircut and to a store for a pair of shoes, a shirt, a tie and a new suit. The pastor then dropped the man back at the shelter, handed him $20 and told him, "Son, you have been saved. My church is just one block away from here. I want you to come to my church on Sunday and praise the Lord."

Sunday came but the man did not. So immediately after the service, the pastor went to the shelter. There was the man, sitting in a rocking chair, all dressed up and beautifully groomed, reading a newspaper. "Son, I had asked you to come to my church this morning to give testimony to having been saved. Where were you?" asked the pastor.

"Pastor," the man replied, "I surely did go to church. I woke up this morning, shaved my whiskers, combed my hair, put on this beautiful shirt and tie you bought me and dressed in this new suit. I put on these fancy new shoes. When I looked in the mirror, I felt like a millionaire. So I used the $20 to take a cab to the Episcopal church."
Well what does he mean? Sorry but no central banker decoder ring needed for this one (don't worry, I'll pull it out in a minute).

Fisher continues:

I certainly don't need to tell a room full of Washington money managers what got the nation into its current economic situation. A sudden new set of circumstances, easy money seemingly heaven-sent and the short-sighted suspension of time-tested, prudent financial practice led us on the road, not to salvation, but to economic perdition.

The new set of circumstances included the economic and financial windfalls that came from at least two major structural changes. The first was the end of the Cold War and the commercial reorientation of China, Vietnam, India and Eastern Europe, which unleashed enormous new capacity for the increased production of goods and services, held down costs and restructured the global economic map. The second was the explosion of computational power and communication ease that came from technological advancement and the Internet, facilitating globalization and leapfrogging frontiers that formerly separated the economic landscape. The world was our oyster. It simultaneously gave us new consumers and suppliers. It provided new sources of funds as well as new places to invest.

Here I disagree with RF (sorry, dude, you lost me...) in that it wasn't the development of the world outside of our borders that encouraged such short-sighted debt-mongering here in America. It was, in fact, our very own Federal Reserve which egged us on. Homicidal maniac Alan Greenspan ring a bell to anyone?

Let me give you an example from my own life, shall I?

From the day I turned 18, I was born into a life of debt. Some 10 years later, I'm still drowning and certainly my Gen Y counterparts can sympathize. Entire networks of 18 - 35 year olds overwhelmed by their obligations are everywhere you look in the obviousness of the blogosphere - Smart Cookie to Be (a CPA exam candidate studying with my company) is a perfect example. I don't talk much about debt because, well, who wants to discuss such things?

They sold us off before the ink had even dried on our high school diplomas. In 1999, at 18 years old, I was overwhelmed by the prospects of easy money to fund my adventures from Wisconsin to California. Guess what? I'm still paying for it a decade later.

Easy money may well have been encouraged by central banks that held interest rates too low for too long. But it was exacerbated by lenders, investors and consumers who—keen on enhancing returns that seemed pedestrian with a flat yield curve anchored by low, risk-free rates—"craved" and "devoured" new risk instruments, to paraphrase Bagehot. As a result, they came up with new "schemes" and "projects" and "phantasies" made more enticing by expanded markets and financial innovation.

Short-sightedness was manifest in the abandonment of prudential practices. For the banker and lender, the time-tested principle of "know your customer" took a back seat to the mad rush to package and sell exposure to others. For the consumer, "living within your means" became a less compelling discipline in a world where a house was not just a home but a means to financial gain. For the investor, prudence took on another dimension with the presumed ability to mathematize judgment and hedge away the risk of default.

Yeah, RF? How in the high holy hell were we supposed to know that? In hindsight and with 10 years under my belt, I see now that the prudent route would have been the wise one but how in the hell do you expect an 18 year old girl to get that? Really?!

By 24, I found myself bogged down with a 2 year old, a shiny new Nissan ($23,000!), a laptop ($1800!) and the ghosts of debt past - cell phones, credit cards, Capital One offers, student loans, you fucking name it. Where was the Fed then? Jerking us off trying to get us to bite on even more "easy money." Sorry, bitches, but I know better. While the quants were "mathematizing" my risk, I was off busting my ass just to make my monthly payments.

And even then the offers kept pouring in. Wells Fargo extended us $2500. Bank of America another $5000. What the fuck! We were already $35,000 in the hole! Who cares! Keynesians believed in the delusion of growth and knew they had the growth of China and the end of the Cold War to blame it on when/if the house of cards crumbled, so who cared?

I will give Richard Fisher this much: he, like his counterpart at the Richmond Fed, doesn't skew the issue like the rest of the central banking crew. It takes a little cleverness to get through any central banker babble but it is easily digestible for the rest of us commonfolk who do not count "central banker parlance" amongst our linguistic expertise.

And yet, while the world had indeed changed, the behavioral pathology documented by Mackay and Bagehot in the 19th century—a pathology based on their studies of countless debacles through history—prevailed. A "plethora" of commercial and financial opportunity begat "speculative" excess that inevitably begat a "panic." The thundering "herd," spurred on by "the love of gain, the necessity of excitement or mere force of imitation" and "mad" with irrational exuberance for the upside, suddenly realized in 2008 it had "devoured" more risk than it could stomach and panicked. The financial system seized up and the economy descended into recession.

Seized up like a crackhead sucking down his last rock, right, Richard Fisher? And who oh who created that? I cannot reasonably point the finger at Fisher's Dallas Fed. But did any of those who count themselves on the Fed's payroll consider the impact their easy money policy of yore would have on the ignorant and, frankly, entirely fucking stupid contingent of Americans who bought into said policy?

We are your reality, Richard Fisher. We are broke and oh-so-unfabulous. Raised on Reaganomics, how could we have known better?

Can we fully blame the Federal Reserve for our own stupidity? Probably. But that doesn't make our current situation any easier to digest.

Richard Fisher gets the Jr Deputy Accountant stamp of approval, second only to Richmond's Jeffrey Lacker (barely...). If only the rest of them were so realistic about this fucking mess we've got oozing in our hands...

So? You Fed fuckers made this mess, now what are you going to do to get us out of it?!


Socialism in the United States: You Know it's Bad when the Russians are Surprised

I believe this article is making the rounds (at least on teh Intarwebz) and therefore wanted to be sure to pass it along.

In case you were still confused as to which direction America is headed (or where we have already arrived), "American Capitalism Gone With a Whimper" pretty much sums it up nicely for you. Before I get accused of constantly bashing our dear President (with the Wicked Witch of the Far Left riding bitch in his GT Socialism Cruiser 5000), I remind you here that I didn't agree with our buddy GWB either -- to say the least. The last time I remember liking a President of the United States was Bill Clinton and that's because I was a blissfully ignorant 5th grader when he was in office (did I just make you feel old? Sry bout that).

It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people.

True, the situation has been well prepared on and off for the past century, especially the past twenty years. The initial testing grounds was conducted upon our Holy Russia and a bloody test it was. But we Russians would not just roll over and give up our freedoms and our souls, no matter how much money Wall Street poured into the fists of the Marxists.

Those lessons were taken and used to properly prepare the American populace for the surrender of their freedoms and souls, to the whims of their elites and betters.

Wait WHAT?! Russia was merely practice for the great transformation of America? Well isn't that reassuring. Whether you believe in this or not (I don't buy it), you must admit that we have certainly given up our wealth (through Fed shenanigans, bailouts, and the desires of the corporatocracy), our freedoms (Patriot Act ring a bell? You're branded a potential terrorist in your own country just for expressing your opinion -- case in point, the recent DHS report targeting "right-wing extremists"), and our futures (psst: you can't run trillion dollar deficits forever) without much of a fight. Sure, we grabbed our flaming pitchforks when the AIG bonuses went out but then what? Lay down and take your robbery like a good little bitch, America...

First, the population was dumbed down through a politicized and substandard education system based on pop culture, rather then the classics. Americans know more about their favorite TV dramas then the drama in DC that directly affects their lives. They care more for their "right" to choke down a McDonalds burger or a Burger King burger than for their constitutional rights. Then they turn around and lecture us about our rights and about our "democracy". Pride blind the foolish.

This point cannot really be argued against. We're stupid, America. We're stupid because we let these things go on, we're stupid because we don't even understand how our financial system works, and we're stupid because we keep electing the same asshats who did this to us in the first place (party affiliation doesn't matter - both sides are selling us down the river. But we're stupid because we keep letting them).

You may not be able to recite the Constitution but I bet you know who won American Idol, don't you? That's what I thought.

The final collapse has come with the election of Barack Obama. His speed in the past three months has been truly impressive. His spending and money printing has been a record setting, not just in America's short history but in the world. If this keeps up for more then another year, and there is no sign that it will not, America at best will resemble the Wiemar Republic and at worst Zimbabwe.

These past two weeks have been the most breath taking of all. First came the announcement of a planned redesign of the American Byzantine tax system, by the very thieves who used it to bankroll their thefts, loses and swindles of hundreds of billions of dollars. These make our Russian oligarchs look little more then ordinary street thugs, in comparison. Yes, the Americans have beat our own thieves in the shear volumes. Should we congratulate them?

No, Russia, you should not. You should call us out. We should call ourselves out, which is exactly why I share this with you now.

Are you going to lie there and allow this to continue? If you choose to ignore the obvious, do us all a favor and move to Canada. Surely they wouldn't mind having a few more Socialists around to suck at the government teat (free health care and moose! woo!). What we need in America is a wake-up call - or do we need more lazy, ignorant Americans to sit around and bitch about the very situation which they allowed to transform this country from the land of the free and the home of the brave to the land of the poor and the home of the bankrupted?

Surely we have enough of those lying around getting fat on junk food.

We may easily point the finger at the Federal Reserve and whichever asshat sits in the Oval Office and the impotence of Congress but in all fairness, America, we need to take a long hard look in the mirror and ask ourselves how in the hell we did this to ourselves. The fucking Russians are calling us out! Come on!


Bad Boys of the Bond Market vs Barack: Showdown at the NY Fed Corral

It's a standoff between fiscal responsibility and inflationary insanity in the bond market these days and the "bond vigilantes" aren't buying Obama's game for much longer -- literally.

Before we get into the Showdown at the FRBNY Corral, in looking for incriminating evidence which exposes PIMCO's Bill Gross as remedially qualified to comment on these things at best (hey, it's my job, sorry, just want to make sure we're taking everyone at face value here, kids), I came across a June 2008 article which Gross poetically attacks the problem of inflation that I wanted to share. Were he playing for the right team (I point you once again to LOLFed's thoughts on PIMCO should you care to read further on this), I'd almost say the guy is pretty dead-on.

Gross on fooling some of the people all of the time, inflation, and the global economy:

It’s Sunday afternoon at the Coliseum folks, and all good fun, but the hordes are crossing the Alps and headed for modern day Rome – better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.

I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. I laid out the case three years ago in an Investment Outlook titled, “Haute Con Job.” I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter.

Let me reacquaint you with the debate about the authenticity of U.S. inflation calculations by presenting two ten-year graphs – one showing the ups and downs of year-over-year price changes for 24 representative foreign countries, and the other, the same time period for the U.S. An observer’s immediate take is that there are glaring differences, first in terms of trend and second in the actual mean or average of the 2 calculations. These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.

Gross' first chart:
Alright so I doctored the damn chart. And?
You know you LOL'd

Gross continues:

This, dear reader, looks a mite suspicious. Sure, inflation was legitimately much higher in selected hot spots such as Brazil and Vietnam in the late 90s and the U.S. productivity “miracle” may have helped reduce ours a touch compared to some of the rest, but the U.S. dollar over the same period has declined by 30% against a currency basket of its major competitors which should have had an opposite effect, everything else being equal. I ask you: does it make sense that we have a 3% – 4% lower rate of inflation than the rest of the world? Can economists really explain this with their contorted Phillips curve, output gap, multifactor productivity theorizing in an increasingly globalized “one price fits all” commodity driven global economy? I suspect not. Somebody’s been foolin’, perhaps foolin’ themselves – I don’t know. This isn’t a conspiracy blog and there are too many statisticians and analysts at the Bureau of Labor Statistics (BLS) and Treasury with rapid turnover to even think of it. I’m just concerned that some of the people are being fooled all of the time and that as an investor, an accurate measure of inflation makes a huge difference.

So, Bill, are some of the people being fooled all of the time now?

Hell no. And considering the fact that Gross himself heads up the largest bond trading firm in Bizarro World, when he calls bullshit, it is likely that the serfs who make up the remainder of the bond-buying suckers listen. Guess what? They're listening.

Via Bloomberg

For the moment, at least, inflation isn’t a cause for concern. During the past 12 months, consumer prices fell 0.7 percent, the biggest decline since 1955. Excluding food and energy, prices climbed 1.9 percent from April 2008, according to the Labor Department.

Bill Gross, the co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co. and manager of the world’s largest bond fund, said all the cash flooding into the economy means inflation may accelerate to 3 percent to 4 percent in three years. The Fed’s preferred range is 1.7 percent to 2 percent.

“There’s becoming an embedded inflationary premium in the bond market that wasn’t there six months ago,” Gross said yesterday in an interview at a conference in Chicago.

So what the hell does all of this mean? It means that we are in serious doo-doo. Duh.

OK, so the 30 year is looking pathetic - at least we've got TIPS, right? Ha! No, akshully, sry!

Investors who want to hedge against inflation while still earning a decent return on their investment got some unhappy news Friday: The U.S. Treasury announced that buyers of its Series I U.S. Savings Bonds – 30-year bonds whose returns are adjusted for inflation – will earn nothing on I-bonds issued between now and October 31 of this year. That’s right: nada, zilch, zip. This marks the first time that I-bonds have had a zero rate of return for any six-month period since I-bonds were created in 1998.

Blame inflation or the lack of it: Consumer prices have plummeted since the economy ground to a halt last fall and the U.S. remains mired in recession. The Consumer Price Index plunged 5.6% from September through March, according to the Treasury. I-bonds have two components: a fixed rate of return, which is 0.1% on newly issued bonds (down from 0.7%) and an inflation adjustment, which thanks to negative inflation wipes out the fixed return for the next six months.

I repeat: hit the deck, stick a fork in us, we. are. done.


You Know It's Bad When the Bad Guys Say It's Bad: World Bank's Zoellick on "the Sugar High"

awww how cute
psst, hey panda, careful! the dude is evil!!

Strap on your tin foil hat, kids, we're about to take a trip into the land of the global elite conspiracy to rule you like the subservient little sheep you are. Okay, so maybe that's pushing it, but when it comes to tin foil hattist targets, World Bank President (and former managing director of Goldman Sachs of course, aren't they all?) Robert Zoellick is towards the very top of the list of Diabolical Bastards.

Zoellick could be referred to as a master Ponzi operator, promoting the watered-down, bastardized capitalism of our modern day under the constraint of growth; you wonder why our global economy is seizing up like a drunk two days off of the bottle? Well duh, without that all-critical "growth" component, the jig is up and the Ponzi busted. And yet Zoellick and the rest of his ilk continue to insist that some Keynesian scramble to plug the black hole will solve our woes. I truly hate to be the bearer of bad news here but without that missing "growth," each and every one of these measures will continue to fail, and miserably at that.

And yet, what's this? Zoellick on stimulus measures, warning that the "sugar high" will eventually wear off. Sugar, RZ? More like crack-cocaine. And Lord knows the economy is going to be flipping out like a crackhead on his last rock as soon as the funny money runs out.


World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.

“While the stimulus has given an impulse, it’s like a sugar high unless you eventually get the credit system working,” Zoellick said in an interview yesterday with Bloomberg Television’s “Political Capital with Al Hunt.” “When unemployment increases, that’s probably the most political combustible issue.”

Sure, Zoellick is no Bernie Madoff, but for his little scheme to work at the World Bank, he's counting on the Madoffs of modern finance (Ben Bernanke comes to mind) to keep the wheels greased up. So why in the hell is he talking about civil unrest, rising unemployment, and the uselessness of stimulus?

The World Bank is monitoring private companies’ abilities to roll over “a lot” of debt in the developing world, Zoellick said. At the same time, he played down risks to the global recovery posed by rising U.S. Treasury yields, saying that “in terms of absolute levels, rates are still pretty low for most players.”

Zoellick also said that the dollar will remain the world’s main currency “for a long time,” and noted that investors flocked to the dollar as a haven during the worst parts of the financial crisis.

“Right now, the international system appears to have a sufficient amount of stimulus,” Zoellick said. “The danger is if you spend too much government money, you create a different problem.”

I'm confused. As badly as I would like to tear Zoellick apart, I just can't. He's right. Mostly.

That being said, maybe we should go see what Ben Bernanke is up to??


Aaaaand We're Back: Oil, Guns, Butter, Gold, Soybeans, and OMG WTF LOOK OUT!!

Sell in May and go away didn't really work out like it was supposed to this year, and that shouldn't come as too much of a shock to any of you out there with a brain cell or two left. Trust me, it's rough out there, and if you're the type with balls large enough to go against the Goldman rats in the razor pit, I commend you. We have seen what this market can do to one's sanity (see: Jeff Macke's nervous breakdown on CNBC - or was he speaking in some secret code to tell us something MSM won't let slip during prime time?) and if you're in it, you're probably already incredibly aware that not only is it dangerous to play in the sandbox with the Goldman rats, it's potentially lethal.

From AP, proof that the "rally" is losing steam as the curtain crumbles and truth at last prevails (psst, PPT, it always does):

NEW YORK (AP) -- Commodity prices soared across the board Friday as a sinking dollar stoked fears of inflation.

The Reuters/Jefferies CRB index, a widely used measure of the global commodities markets, rose 1.3 percent. The index jumped 13.8 percent in May - the biggest monthly jump since at least 1975, the farthest back data is available on Thomson Reuters.

"Commodities are definitely in vogue again," said Rob Kurzatkowski, futures analyst with OptionsXpress.

Prices for gold, oil and grains moved higher as the dollar sank to its lowest level in months against the euro and the British pound.

The dollar has weakened considerably since March as investors move out of cash holdings and into riskier assets like stocks on hopes for an economic recovery. Investors are also worried that the massive amounts of money the government has been pumping into the system could lead to inflation.

That has been a boon for commodities like gold and oil. Demand for gold tends to rise when the dollar is weak as investors seek protection against inflation, which can be triggered by a falling greenback. And oil is priced in dollars, so when the U.S. currency falls it becomes cheaper for foreign buyers.

This, kids, is nothing to joke about. When all that remains are commodities and hard assets, you might consider this that day of reckoning we have been talking about for weeks. You can only conjure up healthy balance sheets through the magic of creative accounting for so long before the whole house of cards crumbles.

After its bombing in the open market by unknown sources last week (I shall not name names but any time something like this goes down, you can guess who I am wont to point the finger at), gold is finally poised for a breakout - you can only hold these things down for so long, after all.

Wait a minute... breakout? More like getthefuckout. Told you gold wasn't going to sit there and take all of that manipulating lying down forever.

Making things worse for Zimbabwe, as if vulgar hyperinflation and a currency worth more to wipe your ass than to actually buy anything weren't enough, gold output in the impoverished African nation is down 50%. That sucks for Zimbabwe, especially since China is just itching to unload those $2 trillion in useless US dollars they've been squatting on. Oh snap!

Gold isn't the only hard asset making a run for the fire escape. Platinum and palladium (um what?) are - at least for the long-term - showing far more potential for performance than, say, the acid trip of financials. Well fucking DUH!


May 29 (Bloomberg) -- Platinum rose to the highest in almost six weeks on speculation that demand will revive for the metal mostly used in auto-emission filters and jewelry amid signs that the global recession is easing. Palladium also gained.

U.S. gross domestic product shrank at a 5.7 percent annual rate from January through March, compared with an initial 6.1 percent estimate, a Commerce Department report showed. China’s growth prospects improved from three months ago, according to a Bloomberg News survey of 14 economists.

“Indications from the physical platinum market, and flows and implied stocks, suggest the platinum supply-demand balance is in good shape,” John Reade, UBS AG’s head metals analyst in London, said today in a report. “If the worst global recession since 1945 can only take the platinum market back to balance, surely this has to be pretty bullish for the long term.”

For the last day in May, call me crazy but I'd say precious metals kicked everyone's asses, at least in this peyote-drunk market:

  • Gold - +20.60 (+2.15% chg)
  • Silver - +0.64 (+4.22% chg)
  • Platinum - +49.00 (+4.30% chg)
  • Palladium - +10.00 (+4.44%)

As we said on Wednesday with the kickoff to the bond market implosion (which is coming, kids, don't fool yourselves into believing otherwise - and yes, I'm talking to you Federal Reserve, you bastards should be on top of this shit WTF!), the ominous signs are starting to outweigh the manufactured green shoots (beyond Richmond Fed's manufacturing survey released this week, there aren't too many bright spots to be found amongst the static of doom-and-gloom). Are we paying attention? Good.

Want my advice?


Disclosures: no gold positions as I'm a broke 20-something some $20k in debt like the rest of my pathetic Gen Y brethren sold into a lifetime of debt by the delusion of easy credit. Also: bullish on paying my rent.


Manipulation Turns into Full-On F&^* You on the S&P

Via Michael Panzner's Financial Armageddon - what's this? Manipulation in the air? You don't say!

From 3:54:28 pm to 4:00:02 pm, S&P 500 e-mini futures rallied 17.25 points on approximate volume of 356,300 contracts, or 19.3% of the total turnover from 9:30 a.m. until futures finished trading at 4:15 p.m.

Hmmm. Manipulation, anyone?

What in the hell is going on here??


Credit Crisis 2.0: Are You Ready for the Fallout?

This is pure poetry.


NEW YORK (Reuters) - The global financial crisis may morph into a second, equally virulent phase where borrowing costs rise again, hobbling an embryonic economic recovery, debilitating cash-strapped banks, and punishing investors all over again.

Early warnings signs of this scenario include surging government bond yields, a slumping U.S. dollar, and the fading of the bear market rally in U.S. stocks.

Optimists hope that a fragile two-month rally in world stock markets, a rise in U.S. Treasury yields from record lows during the depths of the crisis in late 2008, and some less scary economic data all signal that a recovery is around the corner.

But gloomy analysts insist that thinking is delusional.

The telling harbinger is benchmark Treasury note yields' surge to six-month highs around 3.75 percent this week, as investors began to balk at the record U.S. government borrowing requirement this year.

The U.S. Treasury plans to sell about $2 trillion in new debt this year to fund a $1.8 trillion fiscal deficit.

Heavy selling of U.S. dollar-denominated assets could trigger a full-blown currency crisis and usher in surging inflation, forcing mortgage rates and corporate bond yields up, undermining any rebound in economic activity.

"The financial crisis is a downward spiral with two twists," said George Feiger, chief executive of Contango Capital Advisors in Berkeley, California.



Revenue Recognition for Dummies: PCAOB Comes Down on EY for Blowing FAS 48

Friday, May 29, 2009 , , , , 0 Comments

Come on, people, revenue recognition isn't all that complicated. It's not like we're talking governmental accounting or anything here (a dash of sum-of-the-years' digits, a little bit of cost and equity, with a pinch of WTF thrown in for good measure - yeah!).

Via CFO.com, seems EY needs a refresher on FAS 48:

Ernst & Young failed to note when two clients strayed from revenue-recognition rules, according to the latest inspection report on the Big Four firm by the Public Company Accounting Oversight Board. Consequently, the regulator's sixth annual inspection of E&Y resulted in those clients having to restate their previously issued financial statements to make up for the departure from U.S. generally accepted accounting principles.

These companies — whose identity the PCAOB keeps confidential — had "failed" to fully follow FAS 48, Revenue Recognition When Right of Return Exists. The rule calls on companies to, at the time of sale, make reasonable estimates of how many products that customers will return as a factor in deciding when revenue can be recorded.

Further criticizing the audit firm for its work on a third client, the PCAOB claims E&Y didn't test the issuer's VSOE, or vendor-specific objective evidence, which is used to figure out whether the amount of revenue recognized for individual parts of a technology contract was reasonable.

The PCAOB noted the revenue recognition audit deficiencies mentioned here, as well as several others at eight of E&Y's clients after reviewing the firm's work between April and December of last year. The deficiencies were linked to the firm's national office in New York and 22 of its 85 U.S. offices. These errors were significant enough for the oversight board to conclude the firm "had not obtained sufficient competent evidential matter to support its opinion on the issuer's financial statements or internal control over financial reporting."

The PCAOB also criticized E&Y for not fully exploring a client's revenue contracts to see how their terms could affect the issuer's revenue recognition, for not doing enough work to assess the valuation of another issuer's securities, and for relying on information an issuer had deemed unreliable for estimating an income-tax valuation allowance.



Paul Krugman: The Only Thing We Have to Fear is Inflation Fear Itself? No, Krugman, We Need to Fear Your Friends

Paul Krugman. We all know who he is. Many hold Krugman in high enough regard to refer to him as one of the top economists of our day. That's fine, as everyone is entitled to their opinion, however I question Krugman's motivation. This certainly does not invalidate his opinion nor expertise, it simply makes him a diabolical douchebag like the rest of the crew.

I can see the look on your face, dear reader. "Jr, whatthefuck are you talking about? Krugman is a genius! He's a Nobel Prize winner! WTF!" WTF indeed. May I remind you here that our buddy George W. Bush was also up for a Nobel? Oh yes.

They say you are known by the company you keep which leads me to wonder if Paul Krugman should be given as much credit as he gets. What?! Yes! Pay attention, I'm trying to school you here. Perhaps you have heard of the Group of 30, the "experts" who essentially drafted Obama's plan for economic recovery - yes, that same plan which is bombing and plunging us further into the depths of economic abyss.

We have been over this before, kids. (See my March 28th Goldman Sachs: Funding Economic Terrorism. Or at Least Financial Shenanigans) Krugman, through the Group of 30, rolls with the likes of Tim Geithner, Paul Volcker, Larry Summers, and Goldman Sachs' E Gerald Corrigan. A winning bunch if there ever was one, eh?

These are your experts. Yes, even Tim Geithner. Again, I am not trying to discredit Krugman (how dare I, as an art school drop-out, call into question the expertise of a fucking Princeton economist, right? I remind you, dear reader, that Zimbabwe Ben Bernanke hails from the same school and obviously has his head inserted directly up his ass these days FWIW), I am merely pointing out for your good that nothing, nothing in this economic Bizarro World we call home should be taken at face value. Especially not "the experts" as we have seen what good their "expertise" has done of late. Oh, you didn't see? Karl Denninger was kind enough to explain where expertise and Fed shenanigans have gotten us, skeeze on over and take a look for yourself.

As we discussed before, the Group of 30 (a non-profit org masquerading as an economic advisory panel, or perhaps it is the other way around) is funded by some familiar names including:

* American International Group
* Goldman Sachs
* Standard & Poor's
* Board of Governors of the Federal Reserve System
* Federal Reserve Bank of New York (hahahahahahahahaha! wellllllll fuck me! look who it is!)
* JPMorgan Chase
* Citi
* Soros Fund Management
* Morgan Stanley & Co.
* People’s Bank of China (among many other international central banking organizations)

How fucking cute! Soros as in George Soros the eugenicist trying to destroy billions of human lives around the world in the name of population control? Aww!

Now that we got that out of the way (dear reader is, as always, encouraged to do their own research and come to their own conclusions), let's discuss inflation with our buddy Paul Krugman, shall we?

Via NYT op-ed

Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike.

But does the big inflation scare make any sense? Basically, no.

So if prices aren’t rising, why the inflation worries? Some claim that the Federal Reserve is printing lots of money, which must be inflationary, while others claim that budget deficits will eventually force the U.S. government to inflate away its debt.

The first story is just wrong. The second could be right, but isn’t.

Now, it’s true that the Fed has taken unprecedented actions lately. More specifically, it has been buying lots of debt both from the government and from the private sector, and paying for these purchases by crediting banks with extra reserves. And in ordinary times, this would be highly inflationary: banks, flush with reserves, would increase loans, which would drive up demand, which would push up prices.

But these aren’t ordinary times. Banks aren’t lending out their extra reserves. They’re just sitting on them — in effect, they’re sending the money right back to the Fed. So the Fed isn’t really printing money after all.

Really, Krugman? You can actually write that with a straight face? Bernanke himself went on National fucking teevee and said as much, you asshat! We aren't talking about the banks, we know the Fed is sitting on the same money they conjured up to bail them out, that much has been proven (unless, of course, they're the ones moving tens of billions of dollars in the market like PPT on methamphetamines). What about the Fed's $300 billion Treasury scheme? Where is that money coming from?

Of course the Fed isn't printing money, dickhead. In case you weren't aware, Mr Krugman, thanks to the magic of modern technology, the Fed doesn't really have to. "Money" is but a blip on a chip - shift around a few blips, plug in some numbers and viola! In-fucking-flation!

Krugman goes on to point to historical examples which debunk the inflation fears. But wait, didn't he just say these aren't ordinary times? So how in the hell could past examples be appropriate proof that we have nothing to fear huh?

Bah. Krugman can shove it as far as I am concerned. Blah, blah, blah, deny, deny, deny...


FDIC About to Become a Barren Wasteland of Dried Up FAIL?

As much I would love to go on and on about the epic failure of the FDIC - the moral hazard, the broken promise, the complete stupidity of an "insurance" fund that felt compelled to pass on collecting premiums from member banks for nearly a decade, the list goes on - I think the time has come for Congress to start slicing the tumors off of America's crippled host. In case there are no doctors in the house on Capitol Hill, let me simplify this: we are dying. Treasurys are showing extreme strain and without that little scheme to feed off of, we're fucked. Was that simple enough for everyone? Great!

The FDIC may soon have to put itself on its own watch list. If the 300+ "trouble" banks it is tracking don't take it down, Tim Geithner's retarded PPIP scheme (no offense to retards intended, of course) surely will. Why is a broke agency guaranteeing PPIP any damn way?

Yahoo finance is usually a joke. Oh who am I kidding? This is a joke too. Still, it's nice to see what the MSM are saying while wading around in the kiddie pool. Via Yahoo Finance, FDIC Fund Running Dry (no shit, huh!):

At the end of the first quarter there were 305 'problem institutions' with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.

Call me crazy but that doesn't look too well for the FDIC.

Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP [Public-Private Investment Program]. The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit. [my emphasis]

The prospect of the FDIC paying back that loan anytime soon from increased assessments on the banks is extremely remote. This is simply a back-door bailout of the FDIC, structured as a line of credit so it does not increase the reported budget deficit.

Using the FDIC to backstop the PPIP program is simply a way to bypass Congress. There is no way that Congress could not have approved the line of credit and let the FDIC become insolvent. By all rights, the assessments on the banks should be raised to make up for the shortfall in the FDIC, but now is not exactly the time to do it, since it would simply deplete their capital at a time when they desperately need to improve their capital base.

Isn't bypassing Congress illegal? I'm just sayin...

Curiously, the article goes into JPM/WaMu/FDIC and we all know where that particular rape and pillage is headed:

In the 12 months to 3/31/09 there have been 44 failures with $381.4 billion in assets at a total cost to the fund of $20.1 billion. The 5.3% of failed assets cost to the fund over the last year is somewhat misleading since by far the largest failure was Washington Mutual, which was bought by J.P. Morgan (JPM) at no cost to the FDIC (but very generously backstopped by the Fed).

That's kind of a lie. Why? The Fed isn't going to have to pay if a Delaware judge determines next month that the FDIC swept in and sold WaMu off under false pretenses, now will it?

Check this out and see if you can tell me what is wrong with this particular picture:

"Assets?" More like Fed liabilities plugged with unicorns and rainbows, wtf is this? It's all made up! Conjured from nowhere like the fair maiden crying as Rumpelstiltskin spins gold! That's probably a good analogy now that I think about it; soon, the Fed will accept first-borns as collateral for TALF loans right along with questions CMBSs and pieces of paper with "thanks for the bailout, bitches" written on them.

Damn! We are going to need a miracle at this point. Or a whole hell of a lot more drugs to keep the market on crack. Whatcha gonna do, Bair? Looks to me as if you have a huge mess on your hands!


Fed Failure Evident Now in Treasury Market, Time to Readjust the QE Scheme?

Quantitative easing FAIL!

The Fed is dead-set on destruction and we know this, but hopefully they realize that the ominous signs are all around. Sharks in the water? Yeah right, this is bigger than that.

Via WSJ's Real Time Economics, the bond market is screaming in agony but will the Fed listen?

To date, the Fed has purchased a little less than half of the $300 billion it has pledged to buy in Treasurys by the fall, yet long-end Treasury yields have continued to trek stubbornly higher since March and are now beginning to pull mortgage rates up with them.

To keep rates from moving even higher from here, now is the prime time for the Fed to fine-tune its programs. That may not necessarily mean increasing the amount it buys — which might have the unwanted effect of undermining the dollar. Rather, the Fed should be more targeted in the maturities it buys, Treasury market participants urge.

Treasurys maturing in five to 10 years should be the focus of the Fed’s buying, said Ward McCarthy, managing director at Stone & McCarthy. McCarthy sees no need to increase the overall amounts, but urges the Fed to dedicate “as much heavy artillery as possible” to those maturities.

Cute, but I argue here that the Fed doesn't have any heavy artillery and exhausted its options quite some time ago. They've got some Nerf arrows, a slingshot, and a bag of rubberbands. Good luck.

Higher Treasury yields come amid tentative signs of economic improvement. Traders and investors are also demanding higher returns in response to the huge amount of new Treasurys on offer this year at a time when there are fewer primary dealers to buy the debt. Goldman Sachs estimates the government could sell some $3.5 trillion in Treasurys this fiscal year ending September, dwarfing the amount of Fed buying.

This week, yields rocketed decisively higher, breaking through key psychological levels. Adding to the sell-off were worries about the U.S. ratings outlook, even though the three major ratings firms all noted that the U.S. triple-A rating isn’t under any threat for now. Higher Treasury yields upended the mortgage bond market — the 10-year Treasury yield is the benchmark for fixed-rate mortgages — further exacerbating the sell-off in government debt.

You couldn't pay people to take this shit! Now that's funny.

Perhaps if we were going to head down this path eventually anyway we should have done so a tad bit earlier on? I seem to remember my favorite Fed President recommending as much while Janet Yellen was still blabbering on about F-bills.

So, uh, what happened to that plan to sop up the excess funny money sloshing around the system with Treasurys? Looks to me like the only thing we'll be sopping up here is blood.

Run Fed Run!!


Ithaca's Solution to Fed Funny Money: Don't Use It

(h.t. to Gabe F. for the heads up on this one)

Remember awhile back we talked about communities printing their own money? Well they're still doing it and frankly I love the idea. Federal Reserve Notes are sooooo 2007, especially since they are sliding by the day. Good riddance!

In Ithaca, NY, they're called "HOURS" and they are cleverly circumventing the minefield of continually-plunging FRNs. Awesome!

Via the Sustainability Institute:

I just got a thick envelope in the mail, and when I opened it, money fell out.

Four bills, to be exact, along with four newsletters. The bills are denominated in "Ithaca Hours." On one side they say IN ITHACA WE TRUST. The other side reads, "This note entitles the bearer to receive one (two, one-half, or whatever) hour labor or its negotiated value in goods or services."

The newsletter, which comes out six times a year, contains listings of 1200 individuals and businesses in Ithaca, New York, that will accept Ithaca Hours (called HOURS in Ithaca and henceforth here). Here are just a few of the things you can buy with HOURS: bookkeeping, bowling, bricklaying, building materials, bush-hogging, business consulting, cake decorating, calligraphy lessons, camera repair, candles, canoes, car repair, carpentry, childcare -- and that's just a few of the Bs and Cs.

Not only that, but Ithaca is learning a lesson in community - something entirely new to an America attached at the hip to our fake FRNs. This, kids, is a great thing.

"It has enriched my family's life and taught me the meaning of community," says one user. "Ithaca Money is wonderful," says another. "It hooks people up you wouldn't normally interact with." A man who makes drums and sells them for HOURS says, "They let my wife and me eat out more often, which is good for us parents. We get more time together." A piano teacher says, "HOURS are steadily building people's trust, especially as people learn that dollars are funny money, and inflationary. HOURS are something you can get a handle on."

So why all the damn doom and gloom? If we have learned anything from this mess, it is that America is far more creative and resilient than the last few years of ignorantly gorging ourselves on debt may make us appear. The ingenuity that has risen as a result of total economic meltdown never ceases to amaze me, and I'm proud of my fellow resourceful Americans for pulling this off.

Can't wait to see what else we come up with - suck it, FRNs!


Who Scores in Timmy's Latest Derivatives Scheme? The Wall Street Mafia, of Course!

Surely the Goldman rats are working overtime on this one sacrificing young virgin traders on the Altar of Sachs to the God of Financial Douchebaggery in hopes that Tim Geithner's latest crackpot scheme to sterilize the derivatives market for all but the largest offenders will slip through Congress. Not on my watch, you little pricks, I see what you're trying to do.

I advise you, dear reader, to keep a very close eye on DC-based (I mean in financial incest terms, not actual location terms) law firm and friend to bank lobbyist groups, Davis Polk & Wardwell. In case you missed it, they have inserted their doctrine into the Treasury before, with the Treasury too moronic to even rewrite the proposal, choosing instead to send a revised draft of DPW's suggestion directly to Congress. Idiots! I smell a rat and no, this time, it isn't one scurrying around Goldman's basement.

So! The Street asks, just who stands to gain in Tim Geithner's derivatives scheme? Do we even need to answer that question?

Regulation of all of those nasty derivatives that helped caused the fall of Lehman Brothers and hastened the economic decline last year has definitely been on the minds of the Obama administration and Treasury Secretary Tim Geithner.

For months, the administration has been gathering ideas and proposals on how to get control of an almost $600 trillion market traded over the counter, outside of the regulated and monitored exchanges and with very little oversight.

From all indications, Geithner's plans will not be quite as forgiving and "hands off" as his predecessor Hank Paulson's, and the banks seem to be aware of this.

In February, a combined proposal letter from Goldman Sachs (GS), JPMorgan Chase (JPM) and Barclays (BCS) went to Treasury with suggestions about how to shape the forthcoming regulation. That letter surfaced only recently, and the indications are that it was received positively by the Treasury Department. Much of what was in that proposal will be adopted by Treasury.

OMG! I am shocked that this reeks of the same old fucking players. Truly. Just shocked. WTF! Who did you think it would be? (more on this via Midas Letter - surely I'm not the only one who finds Geithner's motivation suspicious)


The Good and the Bad News: Richmond Fed's Rosy Manufacturing Numbers, Fun with Forex, and Who in the Hell are These Confident Consumers?!

The big picture, brought to you via FXStreet.com. And yes, I would really like to know where I can find these "confident consumers" who made markets "soar" in response to their exuberance. WTF! Seriously, if anyone knows where the "confident consumers" are please let me know since all I see are a bunch of unemployed, scared-to-death San Franciscans teetering on the edge of depression. Thanks!

Here we go, let's take a peek at what's going on out there in the big scary world, shall we?

Bounce on data. Investors returned from their long weekend in an optimistic mood, sending the S&P500 2.6% higher. Most of the gains occurred in the first hour of the session, after consumer confidence showed the biggest monthly jump in 6 years, and the Richmond Fed manufacturing report beat expectations. The Nasdaq’s 3.6% gain was boosted by a broker upgrade for Apple. Risk aversion barometer VIX slipped to the pivotal 30 level. US treasuries suffered, the 10yr up 9bp in yield, despite good interest in the 2yr auction (where 54% of bids were indirect – a proxy for foreign buyers). Commodities oil (+1.1%) and copper (+1.9%) followed the positive tone.

EUR was sold until noon London on weak current account and industrial orders data, falling from 1.4000 to 1.3860, but rebounded completely after US equities opened strongly. GBP fell to 1.5780, but then made a new 2009 high at 1.5970. USD/JPY drifted sideways in 94.50 to 95.15 range.

AUD followed EUR down to 0.7705, and back up to 0.7865, equalling Friday night’s high.

After a dip to 0.6090, NZD shrugged off any budget concerns to reach 0.6255 early this morning, a level last seen in October 2008. AUD/NZD continued the recent downward trend, finding support at 1.2560 for now.

The Richmond Fed factory index stands out in May as being the first of the many regional manufacturing surveys to rise back into positive territory (4 from –9). Its strongest reading since March last year reflected rising orders and shipments, although not jobs (though they are falling at a slower pace). The Dallas Fed index headline more closely mirrored the “slower pace of contraction” story of the other regional Fed surveys for New York and Philadelphia. The Richmond survey also includes services (unchanged at –29) and retail (weaker at –13 from –11) components so the apparent factory upswing does not seem to have spread to optimism in other sectors this month.

The Conference Board’s consumer confidence index jumped by a steep 14 pts for the second month running, but once again it was the expectations index doing most of the work: it rose by about 20 pts in each of April and May, whereas the present situation index averaged gains of just 3.5% in the two months. The CB index’s two month gain of 28 pts is the steepest since at least the 1970s. It seems that hopes about the eventual turnaround in the economy are being boosted by the stock-market rally and some over-enthusiastic media reporting of the so-called “green shoots” of recovery, whereas the way respondents currently feel is little improved. That said, there was a further modest improvement in the assessment of the job market, though the –39 reading is still seriously weak.

The S&P Case Shiller House Price index fell a further 2.2% in March. Sales were boosted by cheap foreclosed properties which weighed heavily on prices. Nationally, prices are now down 32.2% from their July 2006 peak, and seem to have some ways further to go, although the pace of monthly decline has slowed somewhat from January’s –2.8%.

Japan’s April corporate services price index fell 2.4% in March. The embattled corporate sector, squeezed between declining sales and an uncompetitive yen, are in cost cutting mode. Pricing power in the provision of services to corporates would seem to be nil.

German GDP growth was unrevised a –3.8% in Q1, for an unrevised –6.9% yr annual decline. The detail showed a 7.9% plunge in capital investment, a 2.6% fall in construction, but a 0.5% rise in private consumption. Exports fell at nearly double the pace of imports (–10% vs –5%).

Other Euroland data included a 0.8% fall in industrial orders in March; also there was a 0.8% fall in May import prices in Germany.


Dallas Fedhead Fisher: China Freaking Yelled at Us for Printing Money!

I'm sorry but I found this funny. Funny because we've been warned by China before. Funny because despite that warning and our subsequent announcement that the Fed was printing money, China continues to buy our debt. Funny because, well, let's face it, it's hilarious to imagine a bunch of angry Chinese bankers interrogating Dallas Fed President Richard Fisher over the Fed's shenanigans. That's probably the most hilarious part about all of this.

Sorry, should I be completely depressed about something? We're plunging into the depths of economic doom whether I am depressed over it or not, so might as well make fun of it instead, right?

Especially after Fisher's charming story about the woman who thanked him in a Texas Starbucks for lowering Fed interest rates (bah!), this is just too awesome. Sorry, you skeezy little central banker, you, but I believe the story of the a bunch of angry Asian finance professionals over the thankful mortgage-owner at Sbux. Why? Regional Fed Presidents aren't like the Jonas Brothers, teenage girls aren't screaming their lungs out at them and no one is making fake Twitter accounts and blogging their every move... wait... uh... scratch that last part but you get the idea. Hell, I am obsessed with these central banker asshats and even I might miss Janet Yellen if she happened to be behind me while ordering my grande quadruple black eye. Or maybe that's because she's not tall enough to reach the counter? (oh snap! Shouldn't have spouted off about nonsense like F-bills, Janet, and I might have left you alone)

Anyway. China is pissed and poor Richard Fisher has to take all the shit (aww, my heart truly goes out to him. Not).

Via Telegraph UK:

Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature."

"I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States," he told the Wall Street Journal.

His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons.

Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.

However, he agreed that the Fed was forced to take emergency action after the financial system "literally fell apart".

Hahahaha, China totally busted him. I love it.

I also find it funny that the Telegraph felt compelled to point out Fisher's hawkish reputation seeing as how, well, we're pretty much going exactly where he warned we would. Whoopsie! Bonus points to Ambrose Evans-Pritchard for basically implying that the Chinese find us to be a bunch of brute, ignorant money-printing pigs.

Ouch, that's going to hurt in the morning...


Why Larry Summers is the Worst Guy Ever to Head the Fed, Obama's Biggest Challenge Yet Part 2

It's been a bit since I posted over at Urban Conservative (partially out of being distracted more by policy than politics of late) and in fact I haven't written there since Ben Bernanke appeared on 60 Minutes to announce the Fed is printing money just days after China warned our central bank not to.

Coincidentally, China is sending the same warning again on the same day the Treasury market began to show serious signs of impending doom (in case you missed it).

So today seemed an appropriate day to elaborate on Obama's greatest decision yet (and the one I'll be most closely watching) via UC. Part of that article follows, the rest may be found here:

Obama’s true challenge, disregarding the rest of the noise, is still ahead. Soon, he will have to start considering who he would like to replace Ben Bernanke as Chairman of the Fed.

Bernanke’s term expires on January 31, 2010 and Obama’s people have certainly made it clear that the President does not intend to keep him in his post beyond that date. The first sign Obama wasn’t too keen on another term for Helicopter Ben? Sticking Timmy the Two Bit Tax Cheat Geithner in the Treasury, leaving ex Harvard President Larry Summers’ calendar free for “Take Over the Federal Reserve” on February 1st, 2010.

So, you say?

So, Larry Summers is, as one blogger put it, a walking, talking conflict of interest.” Summers has collected millions in speaking fees from firms like Citigroup (multiple bailouts ring a bell?), Goldman Sachs (NY Fed/Goldman scandal sound familiar?), and Bank of America (CEO Ken Lewis working with ex Treasury Secretary Hank Paulson and Ben Bernanke to possibly mislead investors, anyone?).

The New York Times paints a lovely picture of Summers saying “Mr. Summers, who will be 54 on Nov. 30, is universally described as brilliant, but is also renowned for being arrogant, occasionally rude and sometimes difficult to work with.” The article goes on to discuss Summers’ infamous reputation as a sexist after “girls don’t do economics” comments were, according to him, taken out of context some years ago.

A real winner. Seems to be a theme of this administration. Please, please, President Obama, I plead with you now: do not mess this one up. Please.

I will be happily watching this unfold in the weeks and months ahead as I was 6 when Alan Greenspan was placed at the head of the Fed and a tad distracted by other things when it came time for Bernanke to take his place. But this one? This one is an absolute do not miss.

I sincerely hope OMGObama understands how important this is. If he does just one thing correctly during his entire term, I hope it is this (setting the bar low, eh? Yeah well I've had a few months to adjust my expectations kthnx).


Ignore the Supreme Court: OMGObama's Real Challenge, Filling Bernanke's Shoes at the Federal Reserve

Pic credit: John Robertson
(awesome, btw!)

Rumor around the non-existent water cooler is that Barack Obama is eyeing Larry Summers to take over at the Fed once Ben Bernanke's term expires, not necessarily even considering extending Zimbabwe Ben another term. This troubles me beyond belief; which is saying quite a bit considering what an absolute failure Bernanke's latest QE scheme has become (on top of Bernanke's multiple other sins which shall remain nameless). Is it fair to put the Fed's failure on its Chairman? Aren't there enough Fedheads to point fingers at? The FOMC? GWB's insatiable appetite for war-mongering and wasteful spending?

The Supreme Court is important in its own right but we need to watch this one closely. As we already know, our buddy OMGObama doesn't really have the best, uh, eye when it comes to choices for his administration (TIMOTHYFUCKINGGEITHNER OMG WHATATOOL!!!) and picking the next Chairman of the Fed FAILboat is nothing like figuring out which tax cheat should go in which empty Czar slot.

But I digress. Via the Daily Star:

Sometime this summer, President Barack Obama will have to start thinking about one of the big decisions of his presidency - whether to reappoint Ben Bernanke as chairman of the Federal Reserve when his term expires next January. What complicates the choice is that the other obvious candidate is Lawrence Summers, the White House economic czar.

Bernanke has emerged as one of the few heroes of the financial crisis, widely praised for his innovative stewardship of the Fed. He's still something of a sleeper in Washington, so low-key that the frequent descriptions of his "soft-spoken" manner don't do justice to just how quiet he is. But in fixing the financial breakdown, he has been a veritable tiger. The Bernanke Fed is so much more powerful than its predecessors that it's almost a different institution.

Rewind! "Bernanke has emerged as one of the few heroes of the financial crisis, widely praised for his innovative stewardship of the Fed." Where in the hell is the Mogambo Guru when I need him? -insert bipolar cackling laughter here- OMGLOLWTFBBQ!

To say that "the Bernanke Fed is so much more powerful than its predecessors that it's almost a different institution" doesn't do the Fed's power grab scrambling to save the economy that it itself imploded justice. I assume the Daily Star intends for this statement to be a reflection of a bold, bright, and newly-strengthened Federal Reserve ready to take on the big bad economic crisis. I, being not on crack cocaine, see it as a terrible turn for the worse. Hell, even the Fed is reluctant to keep taking on more and more, lest it risk its precious independence. Where has that gone, by the way? Anyone seen it? Looks to me like the Fed is playing Tim Geithner's bitch these days. Come on, boys, I expected better out of my favorite evil cabal.

The article continues with Bernanke looking back at lessons learned these last two tumultuous years and what he hopes his successor can learn from this mess and the Fed's mistakes. His thoughts?

For all the computerized financial engineering that preceded the meltdown, he thinks it resembled a classic 19th-century bank panic. Investors thought their money was parked in securities that were as safe as bank deposits. When these securitized assets proved to be riskier than expected, investors panicked.

"We were seeing variants of classic panic behavior," Bernanke said, remembering the wild days of 2007 and 2008 when supposedly safe markets suddenly locked up as frightened investors rushed to get their money out.

Bernanke recommended studies by Gary Gorton, a Yale economist who has analyzed the ways the recent panic resembled those of the late 19th century. In his latest paper, "Slapped in the Face by the Invisible Hand," Gorton explains that the long-ago panics typically came at the height of the business cycle and involved new information that frightened depositors into withdrawing their money. Such bank panics disappeared for nearly 75 years after the enactment of federal deposit insurance in 1934.

"Slapped in the Face by the Invisible Hand" sounds like it could be the latest in a long line of OMG the sky is falling! doom-and-gloom books these days. Perhaps it should be re-written as the story of the American taxpayer?

I tried to get through this article but after the Daily Star massaged Bernanke's balls over the fabulous job he's done handling the financial crisis and had the audacity to imply that the FDIC cured the "bank panic" problem, it became apparent to me that this was little more than a propagandist fluff piece with little connection to reality whatsoever.

Sorry I had to call you out on that, DS, hopefully you try harder next time.

And you wonder why print news is a dying art? Possibly because 95% of it is swollen with deceptive and asinine pablum (case in point, above)?

My bet? Bernanke will be sent to live out his Fed days on the Board of Governors and few of his colleagues will speak poorly (at least out loud) about his absolutely treasonous and possibly criminal behavior during his Chairman days. Sure, the rest of us know better, but I guess there's something to be said for being the mousy economist.

I remind you here, dear reader, that the Columbine kids were also "quiet." I'm just sayin.