I agree with JG. JG is saying: the capital market line's slope decreases when people are optimistic. Amen. That the FOMC "expects inflation to moderate in the coming quarters" is interesting. Does it?
Thursday, January 31, 2008
I agree with JG. JG is saying: the capital market line's slope decreases when people are optimistic. Amen. That the FOMC "expects inflation to moderate in the coming quarters" is interesting. Does it?
We know MJW, see my 10 August and 12 September 2007 posts. Imagine, the SEC and (In)Justice Department are "faced with more cases than the staff can handle", yet fail to use my Blankfein test, prosecuting Raben and Borchard, see my 19 January 2008 post. Crazy, unless you believe the Feds are running an extortion racket with delayed reaction payoffs. Can I get a piece of this "action" for say $1,000 per hour? Nah, I'm not an (In)Justice Department "alumnus". Barney Frank, have I got an idea for you: investigate the SDNY US attorney's office, but remember to don a hazmat suit before you enter the place.
Wednesday, January 30, 2008
"The other great casualty of the Fed's blunder has been the global dollar bloc. ... The collapse of the dollar bloc, if it continues, will add to this exchange-rate volatility and in the worst case make it easier for beggar-thy-neighbor currency manipulation. ... As the world's most important central bank, the Fed must take the lead. And the way to start is by sending a message that its monetary decisions will be based on a renewed determination to protect the value of the dollar and its role as a reserve currency", Editorial, WSJ, 26 January 2008.
"In recent months, the noisiest criticism of the Fed has come from Wall Street. ... Of course, the Fed doesn't think it was surrendering to critics. Instead, it was trying to avert a financial stampede. ... The Fed's first responsibility is to keep inflation at low levels because, without that, its other goals of maximum economic growth and low unemployment become impossible", Robert Samuelson (RS) at http://www.washingtonpost.com/, 29 January 2008.
Amen, AF, well-said. Anyone who doubts gold is money should ask: why did Nixon "close the gold window" in 1971? Why does Uncle Sam hold 261.5 million ounces of gold? What is gold? MONEY! In "capital market line" terms, GOLD, not Treasury Bills, is the: least risky asset. Least risky asset, not riskless asset, there ain't no such animal! As Americans we are conditioned to believe there is a "riskless asset", but that is because like Pavlov's dogs we were brought up to think in dollar terms, not gold ounces. See also my my 24 December 2007 post.
How would the WSJ have the Fed send "a message"? By Helicopter Ben's saying so? That ain't gonna cut it no more. Either the banks fail or the dollar fails.
The Fed has some game going, that 75 years after its formation, RS can still write its, "first responsibility is to keep inflation at low levels".
Stephen Cecchetti, please read this. I read John Maynard Keynes' (JMK) General Theory, 1936, and didn't realize what JMK was talking about until page 336 of his 365-page magnum opus when I realized JMK had taken old mercantilist fallacies and dressed them up with new terms. I don't believe JMK believed a word he wrote, but decided to give the US and UK governments a rationale to reduce real wages through inflation and money illusion.
I agree with MH and have long thought the Fed's "plan", which even Helicopter Ben does not understand, and will slide into, is to drive US inflation rates to 6-15% for a decade averaging 12%, with measured inflation at 4-6%, averaging 5%. After a decade of this, US prices will be 211% higher, with nominal inflation of 63%, greatly reducing Uncle Sam's real debt burden.
Tuesday, January 29, 2008
"Mining giant BHP Billiton said it won't be able to meet its commitments to ship Australian-mined coal used for steel, potentially putting further upward pressure on steel prices", WSJ, 25 January 2008.
Coal demand looks insatiable for the time being. Given that China has power shortages, I expect coal prices to rise worldwide.
What is "The extent of Islamist penetration of the U.S. government"? Is a question Frank Gaffney (FG) asks on 22 January 2008 at http://www.washingtontimes.com/.
Our intelligence community and generals are a joke. They can't know less about the history of Islam than I do. Or can they? Are they fools, knaves or cowards. Islam is not a "religion of peace" no matter what President Bush says.
FG's question is well asked.
I like this kind of financial engineering. The Funds are "risky", but so is holding dollars. The ETF sounds like an excellent vehicle to "become" Uncle Sam. How? By enabling individuals to make "long-term" dollar short sales! Just like Uncle Sam. If you can't beat 'em, join 'em!
Monday, January 28, 2008
"The official story goes something like this" A 31-year-old trader with in-depth knowledge of the bank's control procedures took unauthorized positions that he concealed with fictitious countertrades after having fraudulently removed his trading limits in the bank's system. ... The story has been understandably greeted with disbelief", WSJ, 25 January 2008.
"Christian Noyer, governor of the Bank of France [BOF] ... said the [BOF] undertook 17 routine investigations on site at Societe General in 2006 and 2007. Regulators examined the bank's models for evaluating risk, especially in sophisticated financial derivatives and products, and its system of controls. ... One thing regulators and banks can and should do is 'provide incentives for people working with the fraudster to catch the fraud,' said Charles Goodhart, program director of regulation and financial stability at the London School of Economics", WSJ, 25 January 2008.
"Financial service entities are traditionally inundated with systems of internal accounting control and auditors. ... It is just too convenient to saddle one rogue individual at one institution as some isolated incident in the unfolding drama of the worldwide breakdown of our financial system network. I'm just not buying it", Fred Cederholm at http://www.financialsense.com/, 27 January 2008.
"I find it difficult to believe that a rogue trader can tally $7 billion of losses in a relatively exotic business of a French bank, given the number of margin calls and cash funding requests that would have arisen in the past few months", Chan Akya at http://www.atimes.com/, 27 January 2008.
I don't believe the "official story". Having lost $7.2 billion SG apparently decided to "disavow" the trades and claim they were unauthorized. If there were no margin calls by the counterparties to SoGen's trades, we have a new problem: the counterparties accounting systems have problems!
Wow, "provide incentives". What does a BOF "routine investigation" look at?
I am in partial agreement. I agree the entry of China, India and Eastern Europe into the world's economy was an "exogenous shock" which reduced measured inflation. I disagree that "the inflation spikes of the 1970s aren't likely to stage a comeback".
Sunday, January 27, 2008
"I waited the appropriate 48 hours before communicating my displeasure with [TY] ... and his outlandish statements at his 'press conference' on Friday. As a former assistant [DA], he well knows that ... for a true bill to be handed up there must be a minimum of nine votes in the affirmative, not two 'runaway jurors'. ... Numerous people have called me to shed additional light on Yates' client. Many things that I have heard outside of the jury room give me pause to wonder what the real story is", Robert Ryan letter to the Houston Chronicle, 21 January 2008.
Bob "Ryan told me Monday, half kidding. 'Dorrell and I ... went public about the arrogance, the sheer arrogance, of the office of [DA].' The jurors' decision to comment on their verdict, which is public, may be the only check on a secret system", my emphasis, Lisa Falkenberg at the Houston Chronicle, 22 January 2008.
"A judge criticized the Harris County [DA's] office on Tuesday for not supporting a grand jury's decision to indict a Texas Supreme Court justice and his wife for a 2007 arson that destroyed the couple's Spring home. 'Why did they bring the case to the grand jurors if they didn't want the grand jury to do its job?' state District Judge Jim Wallace asked. ... Wallace disbanded the grand jury that last week indicted David Medina and his wife, Francesca, citing a procedural error by Harris County [DA's] Chuck Rosenthal's [CR] office. ... 'The unusal aspect of this case is that it was dismissed so quickly,' said Wallace, a Republican judge who has served 14 years. 'It should have been allowed to run its course'," Houston Chronicle, 23 January 2008.
"I have to wonder at the competence of a DA's office that couldn't get a grand jury--which is something of a captive audience--to decline to indict Justice David Medina in connection with what fire investigators say was arson that destroyed the Medina home. It's kind of the flip side of the old saying that a good prosecutor can get a grand jury to indict a ham sandwich. ... Victor ... Wisner's argument ... boils down to 'trust me,' and lists his own personal accomplishments as reasons why we should. ... Grand jury evidence is secret, but there is a provison in the law that would allow Medina, under certain circumstances, to ask a judge to make the evidence public. Any chance of that, your honor?", Rick Casey at the Houston Chronicle, 23 January 2008.
Why care what DA CR thinks? TY may have blown this as the case may become a reverse "Durham Three" as people volunteer information to Ryan and Dorrell. Stay tuned.
I'll suggest an answer Jim Wallace's question: CR expected the grand jury to return "no bill" and exonerate the Medinas. Consider: CR dismissed 30 other indictments because of the "procedural error". Why didn't CR find it before? Why didn't CR look for the "error" in the 30 other cases in question? How often has CR's office made such "errors"? Are there thousands of inmates in Texas' prison system that should similarly have their indictments quashed and be released? Was the "error" not an error at all, but made to thwart the grand jury's actions should it have returned a "true bill"? I don't believe the "error" story for a second. I'd like to see a new grand jury investigate CR's office.
"And such a panic is unfortunately what we have. ... The worst part of yesterday's decision is that it looked like more Fed appeasement of banks and equity traders, suggesting even a hint of panic by the Fed itself. ... Mr. Bernanke's interest in more Fed transparency is admirable, but we'd prefer if he saved his explanations for when he acts. ... The larger risk is that these rate cuts will contribute to a further flight from the dollar, along with more inflation down the road. ... Above all, Mr. Bernanke needs to be clear with everyone--Congress, Wall Street, investors--that easier money is not some magic elixir for the underlying problem of bank insolvency", my emphasis, Editorial, WSJ, 23 January 2008.
"The FOMC did not act because the stock market was declining precipitously. ... Importantly, every Fed official knows that they should not and can not cut interest rates every time the stock market falls, or threatens to fall, by 5 or 10 percent in a day or two. Instead of focusing on high-frequency stock market gyrations, central bank officials are surely focused on the evolution of real economic activity. ... A second explanation for the timing of the cut is the possibility that this vintage of the FOMC would like to show that it can be more nimble than some people think they might be. ... If the proper interest rate instrument setting is 2 or 3 or 4 percentage points below or above the current level, why not just change it all at once? ... I should not sign off without making some comment about inflation. ... Clearly, today's actions are not directed at combating this gathering menace. Instead, for now the FOMC is forsaking its inflation objective in an attempt to keep the recession from getting worse", Stephen Cecchetti (SC) at http://www.voweu.org/, 23 January 2008.
Bank insolvency? Say it ain't so Joe. What does Michael Woodford think of this, see my 25 January 2008 post? As it is written, "Beware of false prophets, who come to you in sheep's clothing, but inwardly they are ravenous wolves. You will know them by their fruits. Do men gather grapes from thornbushes or figs from thistles? Even so, every good tree bears good fruit, but a bad tree bears bad fruit. A good tree cannot bear bad fruit, nor can a bad tree bear good fruit. Every tree that does not bear good fruit is cut down and thrown into the fire. Therefore, by their fruits you will know them", Matthew 7:15-20 (NKJV). Ignore anything Helicopter Ben (HB) says. HB's fruit is: sacks of dollars. As I have said many times, either the Fed destroys the banks or the dollar. It's that simple. Your answer: got gold? Get more! Let HB be "thrown into the fire" by himself.
Has SC ever traded stocks or bonds? Has he had any contact with the capital markets? "If the proper interest rate instrument setting is 2 or 3 or 4 percentage points below or above the current level ... ". How would he know? Or HB? Or anyone else? Speculators determine this when they trade bonds! Does SC think interest rates are a thermostat that a homeowner can set at 68 or 78 degrees? How does SC know the Fed is concerned about "real economic activity"? Because it says so? I disagree, "the FOMC is forsaking its inflation objective". It's furthering its' inflation objective: more rather than less! I mention SC in my 28 November and 16 December 2007 posts. The Mogambu Guru blasted SC for not understanding the inflationary effects "of dollar depreciation". Apparently SC's learned something since then.
Saturday, January 26, 2008
"When did protecting big, fraudulent business enterprises become the hallmark of conservative thought, or was it ever thus? ... Writing for the court, Justice Anthony Kennedy said Charter didn't need to collude with the other two companies in order to defraud its accountants and investors. If that were the case, Charter would not have engaged in the charade, taking the chance that one of the third parties would blow the whistle", Houston Chronicle, 18 January 2008.
"They're basically providing escape routes for people who are going to be pursuing their own game at the expense of investors,' said Stephen Arbogast, a finance professor at the University of Houston. ... The box makers can't be held accountable because the 'deceptive acts were not communicated to the public'. That, of course, in the nature of deceptive acts. They're not deceptive if you tell everyone about them", Loren Steffy (LS) at the Houston Chronicle, 18 January 2008.
I predicted the Stoneridge votes of seven of the eight voting Supremes, only Antonin Scalia surprised me. This ruling is a DISGRACE. If it comes to it, I hope President Hillary has Congress impeach these black-robed hooligans. Stoneridge flies in the face of 250 years of common law and prior Supreme Court rulings like: Pinkerton v. US, 90 LEd 1489, (1946) which upheld the concept of co-conspirator liability. This is basic, it's in Torts, 4th Edition, 1984, Section 46, by Prosser; literally, it's hornbook law. I am mortified. The "Crits" are right, "law" serves the interests of the ruling class. "Pretty Boy Roberts" pays off for the plutocrats like a "fixed" slot machine. Shame on these gangsters in black robes. Harvard Law Review (HLR), big deal. I remember reading a 1959 HLR article on conspiratorial liability. What don't the Supremes understand? Way to go LS.
This case is such a disgrace. Why weren't all the parties involved in the overbilling scheme indicted under the federal mail and wire fraud statutes, 18 USC 1341 and 1343?
Let's look at the "Supreme Five" who voted for Stoneridge:
Antonin Scalia, Harvard Law Review.
Anthony Kennedy, Harvard Law School.
John Roberts, Harvard Law School, Magna Cum Laude.
Clarence Thomas, Yale Law School.
Samuel Alito, Yale Law Journal.
Texas Attorney General, Greg Abbott, explained the ruling on 88.7 FM radio this way: If a person plans a bank robbery and drives the getaway car, he cannot be sued in tort by the bank. Why? He never went into the bank and no teller ever saw him. So? Under the felony-murder rule and Pinkerton, if one of the four robbers in the bank killed someone, the getaway driver could be charged with murder, but the Supremes say not sued in civil court for tort damages. Amazing. This is: ALICE IN WONDERLAND law! This is the worst decision by the Supremes since Kelo. See my 1 September, 9 and 17 October and 9 November 2007 posts on Stoneridge.
Upon hearing the Supreme's ruling in Worcester v. State of Georgia, 8 LEd 483 (1832), President Andrew Jackson (AJ) is supposed to have said, "Justice Marshall has made his decision, now let him enforce it". Where is an AJ today? Kennedy's opinion is crazy. To believe it, you would have to believe no conspiracy could take place for fear a conspirator would "rat" on his fellows! Who in his right mind could believe this?
Here we have peasants like Joseph K in Franz Kafka's Before the Law, waiting for the Law and never being admitted to it. Supremes, you should be ashamed of yourselves.
The article includes a chart showing foreclosures in 2007's last quarter were 421% more than in 2006's last quarter. My guess: things will get worse.
Friday, January 25, 2008
"What we lack, as Westerners, is imagination. ... The appeasement strategies of the West are not evidence of 'stupidity,' [Robert] Conquest explained. They are evidence of the fact that men lack the scope needed to 'envisage alien minds'. ...Nuclear weapons have already fallen into dangerous hands. ... Russia is the West's most dangerous enemy. Al Qaeda doesn't even rate a distant third. ... History teaches that totalitarian regimes cheat when it comes to arms control. They always have and they always will. Anyone who does not know this, politically speaking, is a child. A nuclear-free planet merely signifies a nuclear-free West", my emphasis, JRN at http://www.financialsense.com/, 18 January 2008.
What don't our politicians understand? I do not feel Russia is an enemy today, however, we should base our military posture only on Russia's military capabilities as opposed to its intentions.
I agree with MW's conclusion "the anticipated future path of the policy rate" as this is consistent with the "rational expectations" hypothesis. I disagree with MW about his apparent goal in writing the article, i.e., it is desireable for a CB to control anything. If you assume a CB is good, you may want it to control "the economy" to the extent it can. If you assume: the CB exists to redistribute wealth from monetary claims holders to debtors, you see anything aiding the CB in its mission as undesireable. Besides, how can a CB do anything unless "the anticipated future path of the policy rate" is wrong! Absent market errors, the CB cannot redistribute anything! Therefore the CB must deceive the market to effect its policy preferences! As I read in Barron's in 1979, "How do you know when the Chairman of the Fed is lying? Every time he moves his lips"! I await MW's comment on the Fed's recent 75 basis point interest rate cut.
Thursday, January 24, 2008
The Medina case gets worse every minute. The grand jurors should consider indicting CR and VW for obstructing their operations. DD's "explanation"of the accelerant is irrelevant to the indictment. What? The "explanation" should be reserved for DD's case in chief and presented to the petit jury. It shouldn't be able to quash an indictment. DD, one of our best local criminal defense lawyers should know that. That it was used to quash the indictment indicates: DD, CR and VW concluded the trial petit jury will disbelieve the "explanation" and convict! Under any circumstances, I think this should proceed to trial.
The (In)Justice Department called the Rocky Flats grand jury "runaway" too. So? I don't believe anything that comes out of CR's office on this one. It appears a backroom deal was struck to protect the Medinas which is blowing up on page one of the Houston Chronicle.
Bravo PY. I bought a Hollywood Hills condo in April 1998 which I sold in December 2006 for 391% of my purchase price. Since then condos in my old building have fallen 8%. Now a war story.
In 1996 I approached some of my tax clients to syndicate some Los Angeles (LA) area apartment buildings. Why did I think they were cheap? They were available at 12-14% cap rates. In 1996 financing them was difficult as every bank I approached demanded 30% down. So? If you buy a property with 30% down and pay 8% for the mortgage, with a 12% cap rate you make 21.3% on your money. How? .7 x .08 = .056; .12 - .056 = .064, .064 / .30 = .213. It looked good to me. This calculation excludes potential property appreciation. None of my clients would do it. They were scared. In 2002 some of them asked me, "What's good? Surely you know. What should I do now?" I told them, "I haven't a clue. Good opportunities usually look bad, but if I saw something really attractive, I would say so". Since 1996, LA area real estate cap rates have fallen and rents increased, such that the properties are triple their 1996 prices! Had we bought the properties in question, we would have realized a 33.4% internal rate of return for nine years, assuming we sold the properties at the end of 2005 for triple the initial purchase price. Not too shabby. But we didn't.
Wednesday, January 23, 2008
This case looks worse every minute. It appears a corrupt DA squashed an indictment to protect a powerful judge despite there being substantial evidence the judge and his wife committed a crime. All you need to sustain an indictment is "reasonable or probable cause". I see plenty of it. I would not trust anything done by any judge, prosecutor or police agency in this case from here on out. Let's see if Judge Jim Wallace calls in the Texas Rangers to investigate the DA's office for obstructing justice.
"Output from the world's exisitng oil fields is declining at a rate of about 4.5% a year, a new study concludes, meaning oil producers will have to find new production of 3.8 million barrels a day this year just to stay even. ... Yet the study's authors, Boston-based Cambridge Energy Research Associates [CERA], argue that their assessment supports a generally rosy view of the industry's future, given that new projects in the works will make up for the decline. ... The study strikes a more optimistic tone that do many heavy hitters in the industry", WSJ, 17 January 2008.
I think the CERA decline estimate optimistic. Time will tell. Oil's future demand growth will largely come from India and China.
Tuesday, January 22, 2008
"The whole grand jury process was subverted by [CR's] political maneuvering, according to the grand jury foreman and assistant foreman. ... If the indictments are dismissed, Ryan said, grand jurors may try to re-indict. It's unfortunate when a panel must go to such lengths to carry out justice. It's worse if the [DA] has gone to such lengths to obstruct it", Lisa Falkenberg at the Houston Chronicle, 18 January 2008.
Does CR think he is Mike Nifong of the "Durham Three" case, or Steve Cooley of Los Angeles County who won't indict Cardinal Roger Mahoney for hundreds of cases of accessory after the fact to sexual battery on a child? See my 5 December 2007 post. For that matter, who is David Medina (DM)? DM was Governor Rick Perry's General Counsel. Is he today's Alberto Gonzalez? An affirmative action Texas Supreme Court Justice?
Is justice is just blind? Or deaf and dumb too? I remember the "Rocky Flats" case involving Rockwell International (RI) which a grand jury made public, much to the (In)Justice Department's chagrin. Phew! Did the (In)Justice Department protect RI? It looked that way to me. RI paid an $18.5 million fine in lieu of $982 million in clean up expenses.
CR's actions are Kafkaesque. They remind me of Joseph K who waited at the door of the law, in Before the Law, 1920, yet was never admitted to The Law. Who will indict CR for obstruction of justice?
Sol Wachtler (SW), former Chief Justice of New York's Court of Appeals said, "district attorneys now have so much influence on grand juries that 'by and large' they could get them to 'indict a ham sandwich", http://www.barrypolk.com/, 15 July 2004. SW supposedly said that to Marcia Kramer and Frank Lombardi of the NY Daily News on 31 January 1985. Why couldn't CR "control" this grand jury? Did the grand jury see the facts and refused to be intimidated by what appears to be another gangster masquerading as a "civil servant"?
Kalifa said it all. Chinese real estate looks like Los Angeles in 2005, or Hawaii in 1990. Closer to a top than a bottom. The Hawaii story is interesting because Japanese investors began buying Hawaii properties at close to the top of the market.
Monday, January 21, 2008
Way to go, HK! See also my 26 November and 15 and 24 December 2007 posts. I have made the oxygen, not air, molecule analogy myself many times.
Now Moody's tells us. Who needs 'em? I remember when I first saw a "condo hotel" deal thinking, "this is being offered because the hotel manager can't finance the property acquisition more cheaply. This is being offered to ignoramuses at the top of the market".
Sunday, January 20, 2008
DW erred. He meant to write, "195% more" as he says the finance people make "nearly three times as much" as their classmates. There is no industry as full of overpaid incompetants as finance. See also my 25 October 2007 post.
In effect, China increased developers' interest rate by 20%, as opposed to increasing all interest rates. I expect this will cause Chinese land prices to fall.
Saturday, January 19, 2008
People respond to incentives. California wants to import illegal aliens, so has about 4-5 million of them. Does anyone still buy California municipal bonds? You cruel, heartless malefactor of great wealth, you oppressor of the people. "Stealing" illegal alien children's healthcare. How could you?
The SEC just restored integrity to the capital markets. All hail the SEC. "Why do you look at the speck of sawdust in your brother's eye and pay no attention to the plank in your own eye? How can you say to your brother, 'Let me take the speck out of your eye,' when all the time there is a plank in your own eye? You hypocrite, first take the plank out of your own eye, and then you will see clearly to remove the speck from your brother's eye", Matthew 7:3-5 (NIV). SEC, apply the Blankfein test. Ignore Raben and Borchard.
Either oil will fall, or coal will rise in price.
Friday, January 18, 2008
"When they fear inflation, bond buyers typically seek higher yields to protect the value of their investment. ... But sharply lower yields [since 10 January] overall are hardly a symptom of rampant inflation anxiety", Mark Gonloff at the WSJ, 16 January 2008.
MC and I live in alternative worlds. "TIPS ... shield holders from the eroding effects of inflation" he claims. What? Holding TIPS guarantees you will lose to inflation! I used MC's title for this post. The only one "charmed" by TIPS, is Uncle Sam, the issuer. See also my 5 October 2007 post.
Did the CPAs which "audit" the financial institutions being subpoenaed, Citigroup, Lehman Brothers, Morgan Stanley and UBS find these transactions? If not, why not?
San Diego real estate prices peaked 25 months ago. This isn't over.
Thursday, January 17, 2008
"There may be another wave of credit-rating downgrades of subprime-mortgage securities. [S&P] yesterday sharply raised its projected losses for subprime mortgages made in 2006 to 19% from 14%, as loan deliquencies are rising", WSJ, 16 January 2008.
What do the rating agencies do? MBIA sells 14% debt rated AA, while MBIA's stock is rated AAA. What madness. AA corporate debt yields less than half of 14%.
Deferred-prosecution agreements look like another racket. Instead of the miscreant facing criminal charges, it pays off "former" Justice Department employees. How neat.
Wednesday, January 16, 2008
Yves Smith has a nice 14 January 2008 post on this at http://www.nakedcapitalism.blogspot.com/. Countrywide is a first class mess.
In effect, Uncle Sam has been "running out the mill" for years. That we do not use accrual accounting conceals actual military expenses.
Amen TMG, welcome aboard. We should adopt the "pizza standard", see my 7 January 2008 post. In about 1979, I concluded the notion of Fed "success" at anything was absurd, "Why won't the Fed lend me $5 billion at the Fed funds rate? I will put the proceeds in T-bills and return the difference to the Fed in a year". I can use cheap money. Why not? I'm a US citizen? Should I not have the same rights as say, Citigroup an artificial entity? Why can't all Americans borrow from the Fed? I estimate US prices are about 36X their 1913 level, indicating a 97.2% reduction in the dollar's value. TMG is in my ballpark! The official CPI is 21X its 1913 level, implying compound inflation of 4.3% annually for 73 years, my estimate is 5.1%, 0.8% more. However, more detailed analysis shows my excess arose after World War II. For example, the official 2007 CPI is 7.4X 1957's CPI, indicating a 4.1% compound inflation rate for the last 50 years. I estimate 2007 prices are 13X 1957 prices on average, a 5.3% average inflation rate, 1.2% more than the official CPI. Buy long-term bonds? Hahaha!
American's desire for free, or at least cheap money is old news. It's not well known, but Frank Baum's The Wizard of Oz, 1900, was an allegory on 1896's election. Dorothy was the American public; Oz, represented the gold ounce; the wizard was William McKinley; Dorothy's slippers were not made of ruby as in 1939's movie, but of silver; the American public was asked to follow the "yellow brick road", i.e., the gold standard; William Jennings Bryan was the cowardly lion; the Emerald City represented Washington DC and green paper money, and the Wicked Witch of the East stood for New York banking interests. "Political Interpretations of The Wonderful Wizard of Oz" at http://www.en.wikipedia.org/, explains the political significance of the book in detail.
Tuesday, January 15, 2008
I agree with Simmons, the era of cheap oil is over.
Waiting line? Invoking Milton Friedman's spirit, that means a price is suppressed! Ignore the rhetoric and look at the consequences. Congress prefers 4,000 people a year die to parties willingly exchanging money for goods. You may object that "Congress prefers". It is a legal principle that "A man is presumed to intend that natural and probable consequences of his acts". I read an 1896 Supreme Court case to this effect. No, Congress, I do not let you off my hook. I find you guilty of second degree murder by showing "depraved indifference to human life". We run a drug war that costs about $80 billion a year, instead of legalizing drugs and imposing an excise tax on their sale. See also my 13 November 2007 post.
Monday, January 14, 2008
What's really happening? MC&T are short-selling dollars! In a perverse historical inversion, MC&T are issuing their own version of Roosa Bonds, see my 8 November 2007 post. There are two ways to look at the narrowing "spread" between US Treasuries and other bonds. Think about it. Thank you W.C. Varones for bringing this to my attention, at http://www.wcvarones.blogspot.com/, 9 January 2008.
Francine McKenna has a nice post on this at http://www.retheauditors.blogspot.com/, 5 January 2008. Ernst & Young (E&Y) is apparently another Big Four firm with an incomplete accounting library. I read somewhere that CPAs should respect "substance over the form". Apparently, E&Y must be made aware of this. See also my 24 October 2007 post on Wal-Mart.
Sunday, January 13, 2008
I agree in part with DW. I would not create "new and improved rules for global governments to monitor banks". Any such monitoring will be evaded. Period! Let some big banks fail. End the category of banks which are "too big to fail", see my 12 December 2007 post. Also stop telling the public that isn't Fed policy. Helicopter Ben, no one believes you. As for the rating agencies, see my 28 December 2007 post.
I agree with TMG and note the SC decided the "gold clause" cases in 1935. Consider, US prices were about the same in 1913 as in 1792 and are by my estimate, 36X what they were in 1913! The Fed was founded in 1913. Coincidence? I don't think so. See also my 18 November 2007 post. Buy TIPS? Hahaha! Buy long-term bonds? Hahaha! Put money in a Roth IRA? Hahaha!
Saturday, January 12, 2008
"Tata Motors' emergence as front-runner to buy Jaguar and land Rover from the ailing Fod brings one question uppermost to a commentator sitting at a wealthy Western desk: Precisely which economic sectors can be relied upon in the future to provide jobs for Westerners at wages higher than are obtainable in the Third World" ... Since the majority of location-dependent jobs in Western countries are low-skill it therefore follows that if governments wish to protect local living standards, they need to discourage low-skill immigration. Except in Japan, they have not been doing so; both in the EU and the United States low-skill immigration, frequently illegal immigration, has gotten completely out of control and is immiserating the working class. ... From the summary above, it is pretty clear that income levels in the West are converging with those in the more competently run emerging markets. The bad news is that in the years ahead this is likely to happen through an absolute decline in Western living standards. ... By 2030, it is possible that the median real income in the United States and Western Europe may be no more than 50-60% of its level today", Martin Hutchinson (MH) at http://www.prudentbear.com/, 7 January 2008.
I think the average American male's earnings have fallen 35% since 1973, putting me at odds with official US statistics.
I have been saying things like MH for about 25 years. MH's position has significant implications for our educational establishment, i.e., we don't need most of it. Bertolt Brecht wrote "The Solution". It says in part, "Would it not be easier In that case for the government To dissolve the people And elect another?" It seems that's what Uncle Sam is doing.
Friday, January 11, 2008
"I also want to address the issue of protecting telecom companies from lawsuits. It's critical that Congress provide retroactive liability protection for telecommunications companies, as a bipartisan bill from the Senate Intelligence Committee does. ... The amounts of these claims ... are enough to send any company into bankruptcy. ... Not only is the litigation itself costly, but the companies also may suffer significant business and reputational harm as the result of the allegations against them. ... to which they cannot publicly respond, because they are not allowed to confirm or deny whether. and to what extent, they provided classified assistance to the Government", Attorney General Michael Mukasey at the WSJ, 4 January 2008.
"A couple of years ago, Michael T. Arnold landed at the Los Angeles International Airport after a 20-hour flight from the Phillipines. He had his laptop with him and a customs officer took a look at what was on his hard drive. Clicking on the folders called 'Kodak picktures' and 'Kodak memories,' the officer found child pornography", Adam Liptak at http://www.nytimes.com/, 7 January 2008.
Only $3 million, quash this indictment under the Blankfein test. Get out your crying towel for the telecoms, "business and reputational harm". Boo hoo.
Don't you feel safe now? A laptop with child pornography on it was seized and its owner may get indicted. Immunity for the telecoms and imprisonment for a nobody.
I love Spengler, here he is a little late. I endorsed Putin for US president in 2004, when Bush ran for reelection. Still Spengler, welcome aboard. Spengler even compares Putin to Richelieu. Wow. Like Gomez Addams in the "Addams Family", 1964-66, who said, "Tish! I just love it when you speak French", I love it when Richelieu comes up. Where is the Cardinal now that we need him?
Thursday, January 10, 2008
Wow! Where do I begin? This post was excerpted from "Structured Finance: the Unknown Ideal", which title I assume was borrowed from Ayn Rand's Capitalism: the Unknown Ideal, 1966. "[F]ind its own-most soul ... collapse back into the feudal regime known as [CF]", what does that mean? J. Robert Oppenheimer said on 16 July 1945 upon seeing the Almogordo, NM, Trinity test, "We knew the world would not be the same. A few people laughed, a few people cried, most were just silent. I remembered the line from the Hindu scripture, the Bhagavad-Gita, ... 'Now I am become Death, the destroyer of worlds'." That's demonstrating power. "Properly handled [SF] can only lead to prosperity and countless blesssings to the common man". Wow. SF is now at least as important as the discovery of fire.
As serious revolutionaries, we study the masters, "To take such an attitude is to seek truth from facts. 'Facts' are all things that exist objectively, 'truth' means their internal relations, that is the laws governing them, and 'to seek,' means to study. We should proceed from their actual conditions inside and outside the country, the province, county or district, and derive from them, as our guide to action, laws that are inherent in them and not imaginary, that is, we should find the internal relations of the events occurring around us. And in order to do that we must not rely on subjective imagination, not on momentary enthusiasm, not on lifeless books, but on facts that exist objectively; we must appropriate the material in detail and, guided by the general principles of Marxism-Leninism, draw correct conclusions from it", Mao Zedong, Little Red Book, Chapter 23. "Idealism and metaphysics are the easiest things in the world, because people can talk as much nonsense as they like without basing it on objective reality or having it tested against reality. Materialism and dialectics, on the other hand, need effort. They must be based on and tested by objective reality. Unless one makes the effort one is liable to slip into idealism and metaphysics. ... The way these comrades look at problems is wrong. They do not look at the essential or main aspects but emphasize the non-essential or minor ones. It should be pointed out that these non-essential or minor aspects must not be overlooked and must be dealt with one by one. But they should not be taken as the essential or main aspects, or we will lose our bearings", Chapter 22. My opinion: the SF community should seek the Chairman's wisdom. Alternatively, we will have to send them all to reeducation camps.
As good revolutionairies, we study "painful re-adjustment". "You can't make an omelet without breaking a few eggs", Lenin. "Break eggs? I can help break eggs", Stalin. What are SF's "broken eggs"? Countrywide, Citigroup, the US dollar ... ? "All right, I can see the broken eggs. Where's this omelette of yours"?, Panait Istrati, a Romanian writer, and supposed "Trotskyist" on visiting the USSR in 1928-29.
"Mishandled as it has thus far been, it can wreak havoc on a monumental scale", says SR. Yes, SR, read the Brezhnev-era joke at my 10 November post about the three economists.
The only thing new is now we centralize counterfeiting at the Fed. Instead of issuing phony bank notes, the "counterfeiters" issue overvalued CDOs. Many years ago, John Exter, founder of Ceylon's Central Bank, wrote about the "inverted pyramid of debt". Antal Fekete describes the operation of Exter's pyramid at http://www.kitco.com/, 28 September 2007. See also my 24 August post.
Wednesday, January 9, 2008
"For the first time in four years, the national vacancy rate for office buildings rose in the fourth quarter, as an unusually large amount of new space came on the market and tenants shied away from signing new leases. ... Only last summer, commerical brokers were warning tenants that they needed to sign leases quickly at top rents because space was scarce", WSJ, 7 January 2008.
The rental-sale ratio indicated California real estate was overvalued. Over about the last 500 years, house prices have averaged about 110-120 months rent. At its peak, Southern California's ratio was 210. It was like buying technology stocks at 100X earnings. A likely way to lose money. Posts worth reading on these items are at http://www.calculatedrisk.blogspot.com/ on 2 and 6 January 2008. In a 29 Ocotber 2007 post, I referred to an article by Jeremy Siegal, a Wharton professor, about the dangers of buying high PE stocks. Similarly, it's dangerous to buy "high PE" real estate.
Oil's price increase did not surprise me. The majors erred by not increasing exploration expenses when oil was cheap. JO's surprise at oil's demand inelasticity indicates he forgot the economics he learned at Wharton, MBA 1966.
Tuesday, January 8, 2008
"Waste Management Inc. [WMI] former Chief Financial Officer James E. Koenig will have to pay more than $4 million in disgorgement, prejudment interest and civil penalties, according to the final judgment entered against him in a high-profile corporate-fraud case. ... [WMI] restated its earnings by $1.7 billion in 1997 after new mangement took over. The restatement caused a $6 billion decline in the value of company shares", WSJ, 4 January 2008.
$6.7 million? That's 10% of Lloyd Blankfein's $67.9 million 2007 bonus, see my 21 December 2007 post. Therefore I advocate our (In)Justice Department adopt a new test to determine when it will forgo prosecuting a securities fraud case. My new test is simpler than a balancing test judges use when deciding to admit evidence, i.e., does the "prejudice exceed the probative value"? It's the Blankfein test: does the fraud involve at least $6.8 million? If not, decline prosecution. Hey Mike Garcia (MG), how about it? Dismiss the charges against the "Goldman Sachs two". Free the Goldman Sachs two! Hey MG, write up the Blankfein test and try to have it inserted in the US Attorneys' Manual. Why not?
$4 million in disgorgement for engaging in a scheme which overstated WMI's earnings by $1.7 billion? I invoke the spirit of Jesse Jackson again, see my 31 October 2007 post.
We must accept the NIE not as an objective, dispassionate fact analysis, but a propaganda piece to help the Bush administration proclaim the Iraq War a success, to aid Republican 2008 election prospects. No one should take any government report at face value. Does anyone believe "our" official inflation statistics, for example?
Monday, January 7, 2008
Amen. "Oil and the Dollar" was the WSJ's title for its editorial. See also my 24 October and 8 November 2007 posts. We can look at other "staples" price changes since 1957. I present some 1957 and current prices, and their percentage of 1957 prices so we can see what's happened:
Superman comic book, $0.10; $2.29; percentage of 1957 price: 2290.
Hostess cup cake, $0.10; $1.39; 1390.
Pizza slice, $0.15; $2.75; 1833.
Gold, $35, $863; 2466.
Gasoline regular gallon, $0.24, $2.97; 1238.
Candy bar, $0.05; $0.75; 1500.
Newspaper, $0.05; $0.75; 1500.
House, $14,000; $225,000; 1607.
Small paperback book, $0.35; $6.99; 1997.
Silver ounce, $0.90; $15.30; 1700.
Copper pound, $0.29; $3.12; 1076.
NYC subway ride, $0.15; $2.00; 1333.
Crude oil, $3.06; $99.42; 3249.
Postage stamp-letter, $0.03; $0.41; 1367.
Wheat, $2.01; $9.31; 463.
Corn, $1.11; $4.48; 404.
Hot dog, $0.20; $3.00; 1500.
While oil may seem high to us and is 32.49 times its 1957 dollar price, it is only 2.17 times (3249 / 1500) its 1957 hot dog price, or 2.38 (3249 / 1367) times its 1957 postage stamp price, etc.. Suddenly oil's "price" doesn't look that high. We only think oil is "high" because we have been conditioned to think in dollars as opposed to say: pizza slices or hostess twinkies! See also my 19 November post.