If anyone thinks the financial crisis is over, then why are the banks and IB's selling their LBO debt at deep discounts AND financing the transactions at capital costs BELOW their actual cost of capital (not counting the gifts from the FED)?
The FED's money is the Treasury's money and the Treasury's money is YOUR money. Sooo...that means that the banks are using your money to rid themselves of problem debt and finance it at cheap rates subsidized by you.
But, then again, it's only a problem once everyone figures it out.
Just don't ask the question "Exactly how much debt do we owe?" While relevant, it's not immediately life threatening. It's like saying "OK, we owe $1mm and we make $100k but I can afford the payments."
But don't EVER ask the question "And just how much does it cost to service that debt?" This question is just a bit more timely, like a femoral laceration. This is the same as "Holy Cow! If I add up all of my mortgage debt, car loans, credit card debt, boat loans, second home mortgage, HELOC's, RV loans, credit lines, student loans (that I am paying for my kids), payday loans to cover the past due credit card payments, property taxes, con summer loans to pay for the new furniture and plasmas and any anything else that comes out of my paycheck, I might have just a weeeee problem here." Time for the wife to work a double at the Thrifty Mart.
OK, think of that and then add lots and lots and lots of zeros and you begin to get the idea that consummers and the government might be in the deep end with lead flippers. Or, just don't ask...
Monday, April 28, 2008
Don't believe everything you hear about "core" inflation and the "CPI" rate. Try going to the Bureau of Labor Statistics web site (bls.com) and take a look at the rates of inflation for various goods and services. I love the fact that the only thing that was cheaper in 2007 was apparel as that was virtually all made in China.
And don't talk about wild extrapolations. Inflation is worse now than in 2007. Go to the grocery, buy gas, take a vacation, pay your utilities or try to get a job in trucking.
Also, remember that inflation has the greatest effect upon average Americans as this group (no matter how you define "average") has the most fragile disposable income and is the most exposed to daily expenses of fuel and food. Oh...that's right...the government DOESN'T count food or fuel in their posted inflation rates.
But you DO eat and drive, don't you? And don't listen to the line of BP (bull poop, for those with sensitive ears) saying that inflation is only when the dollar declines. Any time your purchasing power declines, whether via dollar decline or demand/supply imbalance, you get less for each dollar you earn and that is inflation.
To make matters worse, we have virtually no pricing power when it comes to wages, due to globalization, so we are left with price inflation, stagnant wages, shrinking purchasing power, tighter credit, declining home prices and less disposable (and savable) income.
When has this combination ever been bullish? Can the market really see into the future six months and this bull rally is really a vision of future bounty? Well...NO...if the market was so darn good, you would have not had the collapse of financials and Bear Sterns.
So, the lesson of the day is do your research, trust the facts (when you can find them) and see how your financial life is changing. If you expect to be better off in six months, then maybe the market can see the future. If you are not so sure, then why are you long financials? After all, you must be betting that the FED will continue to lend against (really buy, but that is another story) bad mortgages, the Department of Education will buy bad student loans, some agency will buy bad credit card debt, the Department of Are You Kidding Me, You Spent How Much on that Boat? will buy bad boat loans, the Department of Commerce (I'm running out of Departments) will buy bad corporate debt, the Treasury Department will buy 1/5 of 1% of bad derivatives (did I mention that amounts to about $1T US dollars?) and so on and so on...
The only full employment job category in the nation is printing press operators...pass me the oil, boys, she's gonna blow....
And don't talk about wild extrapolations. Inflation is worse now than in 2007. Go to the grocery, buy gas, take a vacation, pay your utilities or try to get a job in trucking.
Also, remember that inflation has the greatest effect upon average Americans as this group (no matter how you define "average") has the most fragile disposable income and is the most exposed to daily expenses of fuel and food. Oh...that's right...the government DOESN'T count food or fuel in their posted inflation rates.
But you DO eat and drive, don't you? And don't listen to the line of BP (bull poop, for those with sensitive ears) saying that inflation is only when the dollar declines. Any time your purchasing power declines, whether via dollar decline or demand/supply imbalance, you get less for each dollar you earn and that is inflation.
To make matters worse, we have virtually no pricing power when it comes to wages, due to globalization, so we are left with price inflation, stagnant wages, shrinking purchasing power, tighter credit, declining home prices and less disposable (and savable) income.
When has this combination ever been bullish? Can the market really see into the future six months and this bull rally is really a vision of future bounty? Well...NO...if the market was so darn good, you would have not had the collapse of financials and Bear Sterns.
So, the lesson of the day is do your research, trust the facts (when you can find them) and see how your financial life is changing. If you expect to be better off in six months, then maybe the market can see the future. If you are not so sure, then why are you long financials? After all, you must be betting that the FED will continue to lend against (really buy, but that is another story) bad mortgages, the Department of Education will buy bad student loans, some agency will buy bad credit card debt, the Department of Are You Kidding Me, You Spent How Much on that Boat? will buy bad boat loans, the Department of Commerce (I'm running out of Departments) will buy bad corporate debt, the Treasury Department will buy 1/5 of 1% of bad derivatives (did I mention that amounts to about $1T US dollars?) and so on and so on...
The only full employment job category in the nation is printing press operators...pass me the oil, boys, she's gonna blow....
Friday, April 18, 2008
OK, folks, I finally found the ultra secret combination that gets me into this blog! Sorry that it has taken so long but we are here now and the party can start!
The financial world isn't ending but the rules are changing. Throw out the old rule books and watch how the FED and the Treasury re-write the game. Pay careful attention because they have taken a lot of the penalties out of the game...think the championship game in RollerBall with Ben Bernanke as the head of the Houston team (OK, too obscure - go rent the movie - THE ORIGINAL version - and you'll understand).
If the FED or the Treasury or any government agency now stands ready to guarantee every piece of bad mortgage, student loan, LBO loans and other types of financial toxic waste that only the bankers got fee rich when they birthed these securitized hell spawns, what makes you think that the folks that actually OWE these debts are now MORE willing to pay?
A financial Yucca Mountain is just a few strokes of a President's pen away. See it grow, feed it with your tax dollars and then just water it a bit with other give-aways and entitlement programs. The Manhattan Project had nothing on this little gem of a financial MOAB (see reference to Taliban cave dwellers having the air sucked right out of their caves)!
I'm not the brightest bulb in the pack but if you think your rich uncle is going to leave you a fortune very soon, my guess is that you begin to work just a weee bit less and begin to anticipate the unearned windfall coming your way. Paying your bills somehow now seems just a little less important.
These guarantees will do more real harm that good. Oh, it will feel good for a while until you realize that each and everyone of us, as taxpayers, are taking it in the shorts with increasing federal debt, higher inflation and more interest on the federal debt. Depending upon how large these guarantees get, the bigger the problem. A drunk has to sober up sometime.
Remember, the big, bad voodoo daddy of all such guarantee programs, Social Security, is neither very social nor very secure and it is eating our national fiscal lunch. Do you think any of these guarantee programs will be better administered or have better consequences?
Final thought, would you ask your brother-in-law (the one your wife MADE you hire because "he really needs a job"), who nearly ruined your company by posting the combination to the company safe on "My Space" because he thought it would be safe and because he couldn't remember it), to run your finance department, manage your retirement plan and balance your check book? Any thoughts as to why it's a good idea to ask the FED to "manage" all institutions that affect our economy?
"Hey, Ben, grab me a beer, NASCAR is on." How did that work out for you, huh?
The financial world isn't ending but the rules are changing. Throw out the old rule books and watch how the FED and the Treasury re-write the game. Pay careful attention because they have taken a lot of the penalties out of the game...think the championship game in RollerBall with Ben Bernanke as the head of the Houston team (OK, too obscure - go rent the movie - THE ORIGINAL version - and you'll understand).
If the FED or the Treasury or any government agency now stands ready to guarantee every piece of bad mortgage, student loan, LBO loans and other types of financial toxic waste that only the bankers got fee rich when they birthed these securitized hell spawns, what makes you think that the folks that actually OWE these debts are now MORE willing to pay?
A financial Yucca Mountain is just a few strokes of a President's pen away. See it grow, feed it with your tax dollars and then just water it a bit with other give-aways and entitlement programs. The Manhattan Project had nothing on this little gem of a financial MOAB (see reference to Taliban cave dwellers having the air sucked right out of their caves)!
I'm not the brightest bulb in the pack but if you think your rich uncle is going to leave you a fortune very soon, my guess is that you begin to work just a weee bit less and begin to anticipate the unearned windfall coming your way. Paying your bills somehow now seems just a little less important.
These guarantees will do more real harm that good. Oh, it will feel good for a while until you realize that each and everyone of us, as taxpayers, are taking it in the shorts with increasing federal debt, higher inflation and more interest on the federal debt. Depending upon how large these guarantees get, the bigger the problem. A drunk has to sober up sometime.
Remember, the big, bad voodoo daddy of all such guarantee programs, Social Security, is neither very social nor very secure and it is eating our national fiscal lunch. Do you think any of these guarantee programs will be better administered or have better consequences?
Final thought, would you ask your brother-in-law (the one your wife MADE you hire because "he really needs a job"), who nearly ruined your company by posting the combination to the company safe on "My Space" because he thought it would be safe and because he couldn't remember it), to run your finance department, manage your retirement plan and balance your check book? Any thoughts as to why it's a good idea to ask the FED to "manage" all institutions that affect our economy?
"Hey, Ben, grab me a beer, NASCAR is on." How did that work out for you, huh?
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