Andy Xie: Institutional Irrationality
Andy Xie, former Morgan Stanley star economist, wrote:
“While rational expectation is returning to part of the investment community, most are still trapped in institutional weaknesses that make them behave irrationally. The Greenspan era has nurtured a vast financial sector. All the people in the business world need something to do. Since they invest with other people’s money, they are biased towards bullish sentiment. Otherwise, if they say it’s all bad, their investors will take back the money, and they will lose their jobs. Governments know that and create noises to give them excuses to be bullish.”
This institutional weakness has been a catastrophe for people who trust investment professionals. In the past two decades, equity investors have done worse than owning bonds in the U. S. market, lost big in Japan and emerging markets in general. It is astonishing to see how a value-destroying industry has lasted for so long. The bigger irony is that the people in this industry have been 2-3 times as well paid as in other industries. The key to its survival is volatility. As markets collapse and surge, it creates the possibilities for getting rich quickly. Unfortunately, most people don’t get out when markets are high like now. They only go through the ride.”
That’s your quote of the day . . .
>
Source:
Tight Spot for Fed, Blind Spot for Investors
Andy Xie
Caijing, 06-09 09:02
http://english.caijing.com.cn/2009-06-09/110180019.html
June 15th, 2009 at 10:37 am
They’ve lasted so long for same reason that lottery tickets, horse racing, dog racing, rat racing, cat racing, ferret racing, c@sinos, and other gambling dens have – - Americans are suckers for the promise of the opportunity to get rich.
June 15th, 2009 at 10:38 am
I should have said – PERCEIVED “opportunity” to get rich. There, corrected that one.
June 15th, 2009 at 10:44 am
Actually Leftback, Curmudgeon and I are going to start a mega-financial firm. Lefty will do the investing and Curmudgeon and I will be the “muscle” to slap some sense into the customers when they start to think that Lefty can do no wrong. Now if we can just get our hands on some of that TARP money…
June 15th, 2009 at 10:51 am
LOL >> ‘All the people in the business world need something to do.’
True-er words have rarely been spoken. Once ALL the vapors of deceiptare cleared and the veils of deception are torn down, where will they all go? and what will they do?
June 15th, 2009 at 10:58 am
I have been following Xie for many years… fascinating story of why he “left” MS.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aK7UIXigIxjM
apparently a couple of others were forced to resign for distributing his email as well. you can google his name and get some good stuff…
June 15th, 2009 at 11:02 am
@karen: Pretty obvious why insiders and paid Wall Street “economists” don’t tell the truth like Xie did. You find yourself out of the club and on the street, as opposed to being on The Street.
June 15th, 2009 at 11:10 am
In the video section: http://www.ritholtz.com/blog/2009/06/the-man-who-figured-out-madoffs-scheme/
Markopolos really lays it out…
June 15th, 2009 at 11:13 am
A lot of guys who are on The Street deserve to be on the street – instead of living in a big house they should be living in The Big House.
That’s a really good summary of where we are right now by Andy Xie. I may send that to friends, colleagues and others who are potential InvestTools.
Schadenfreude was on the short side this morning, those “long $” trades are starting to deliver (DZZ, SCO, DUG). Expecting the usual “turnaround Tuesday” action tomorrow.
June 15th, 2009 at 11:13 am
ZSL trade is looking nice today.
Did anyone play with SRS down in the 17’s?
June 15th, 2009 at 11:14 am
@ben22: I stuck a toe in SRS & FAZ last week. A little one.
June 15th, 2009 at 11:15 am
Yup. ON board.
June 15th, 2009 at 11:18 am
@Mannwich,
Good for you. I missed those. I’ve made a very nice return on ZSL though so I’m not feeling too bad. I’ll sell that at some point today.
Still long the $ with Lefty and AT. Starting to deliver in the UUP but profits are slim for me at this point.
June 15th, 2009 at 11:18 am
Extended Stay in BK. Extended stay in recession or green shoot?
http://www.calculatedriskblog.com/2009/06/extended-stay-hotels-files-bankruptcy.html
June 15th, 2009 at 11:19 am
brutal and honest assessmen of Wall Street and “money managers”- hopefully a more balanced economy will emerge when all is said and done
if you are lazy and plan on keeping your money in the market good or bad- fire your broker and invest in an index fund- because a broker-
can’t beat the market anyway
June 15th, 2009 at 11:24 am
Honest assessment of most WS asset managers – crooked or incompetent – you can do better with a dartboard.
Honest assessment of most funds of funds – who cares?, it’s all about the fees, baby !!
Anyone seen Walter Noel lately? Some observers feel that Fraudfield Greenwich has lost its “Mustique”….
June 15th, 2009 at 11:27 am
The whole industry is a sham.
June 15th, 2009 at 11:34 am
Is this a green shoot or merely a green chute?
Auto loan delinquencies jump in 1st quarter
Auto loan delinquencies shoot up 28 percent in 1st quarter, even as average loan size shrinks
Eileen Aj Connelly, AP Personal Finance Writer
On Monday June 15, 2009, 11:14 am EDT
NEW YORK (AP) — Those “green shoots” of economic rebound don’t yet have very deep roots.
While some economic indicators are pointing to better days ahead, data shows consumers continued to struggle to make loan payments in the first quarter.
The latest evidence showed in the rate of auto loan payments that were 60 days or more late. The rate skyrocketed nearly 28 percent in the first three months of the year, compared with the same period in 2008.
Credit reporting agency TransUnion said the 60-day auto delinquency rate rose to 0.83 percent from January through March, compared with 0.65 percent last year. While still relatively low, the rising figure shows that “consumers continue to be stressed,” said Peter Turek, TransUnion’s automotive vice president.
http://finance.yahoo.com/news/Auto-loan-delinquencies-jump-apf-15525780.html?.v=1
June 15th, 2009 at 11:34 am
@ben22
are you checking out of the ZSL so soon?
I’m thinking of holding out for $9.30…
I checked out of the June SPY 93 puts I bought on Friday at 70 cents…Checked out too soo though (at 1.36 and they ran up to 1.80)…
@karen
do you have an SSO buy target in mind?
June 15th, 2009 at 11:35 am
lol,
people come to a blog run by a guy that is partner in a firm that manages money, for a fee, and they make comments about the whole industry being a sham.
I disagree.
@ ahab,
I know what you are trying to say here:
if you are lazy and plan on keeping your money in the market good or bad- fire your broker and invest in an index fund- because a broker-
But that really isn’t good advice, anyone that is lazy shouldn’t be in stocks period. Stocks aren’t for lazy people, even index funds, that was a myth, you know that. All the equity based index funds got killed last year just like everything else. Stick to the BND and call it a day would be my advice for someone that is lazy but doesn’t want to pay for investment advice. It’s got an extremely low expense on it and it’s pretty steady as she goes. I wouldn’t hold it however if credit deflation takes over. I think the reality is, for anyone that wants to be lazy it’d be best to stay out of the game.
June 15th, 2009 at 11:36 am
cvienne, it was 26.00-26.26. looking more like 25ish now… and you?
June 15th, 2009 at 11:38 am
@cvienne,
I am. I’m up almost 20% right now over a few days. I think I will be able to get a better price on it, if not, then the momentum should start and I’ll trade it again.
Make money and keep money, this market is still in crazy town so I’m happy to take the profits and not get greedy.
Remember when making 20% in a few days was a pretty big deal?
June 15th, 2009 at 11:38 am
Before the stock exchanges in the US really got going back around the turn of the century (19th into the 20th) very few folks bought anything but bonds if they let corporations use their money at all. But the quaint notion that it helps to have a claim on the corporation’s assets to ensure the return of principal faded rapidly.
Blame it all on the Dow. The Dow, originally comprised almost exclusively of railroad companies, provided a gauge with which to measure stock performance relative to bonds such that the heavy hitters could maximize returns on capital, along with opening the investing world to the ordinary joe that didn’t have the wherewithal to write a bond, but could afford a few shares of stock.
Now that bonds can be sliced and diced to make them accessible to the average investors, it would seem the pathetic returns (if any return, even of principal, at all) of the stock market might push more folks to bonds, except for one thing: The trashing of bondholder’s contractual rights in the Chrysler and GM fiascos. So, stocks it is. If bonds are just as big a crap-shoot as stocks, then why not stick with stocks, where the upside is unlimited?
Maybe that was the intent of the Obama Administration all along: Trash the rights of bondholders such that stocks are the only thing left. Then, since everyone knows that the Dow directly drives consumer sentiment, the Dow goes up and the consumer feels better and quits worrying about his lost job and dismal prospects such that he can spend (or mortgage, again) our way out of this downward spiral. Sadly enough, it seems to have worked, at least for the time being.
June 15th, 2009 at 11:39 am
ben22 – I took a bite at SRS just below $19 last week. Thanks Karen for idea to wait for $17 range. Stop set at $17.65.
Also bought some TWM with stop at $38.90.
Gordo
June 15th, 2009 at 11:40 am
That is AWESOME. A former economist with one of the Banksters absolutely nails it correctly.
S&P500 pretty much right on the trend channel beginning later march. Bulls wouldn’t want to see action below 915….
Euro (sep futures) looks like H&S pattern formed on the 60 min. charts and it’s vigorously testing the neckline….
All very interesting developments….we’ll see if bears can finally get some breakdowns….
June 15th, 2009 at 11:42 am
@gordo,
Nice trade. Typically a good idea to listen to Karen.
@Karen,
What would you do if we broke 880? Seems to be a very critical point. I still think this rally has legs.
June 15th, 2009 at 11:43 am
@karen
LOL – I had my eye set on 26.19…
It depends on on thing…I keep saying that if you look at the HOURLY S&P chart, it hasn’t painted two candlesticks under the 144EMA since this whole wim dam doodle rally started back in June…
The line this morning was 922.77, and it’s just painted one (but it’s holding…If it decides to do away with that, I’m switching gears to the 233EMA on the “hourly” chart…That’s down around 908 on the S&P…
So for now I like 26.19 on the SSO…If it breaks, I’ll wait it out until I see 908, and watch the behavior there…I might even buy July calls there…
June 15th, 2009 at 11:46 am
Back in March…(11:43)
June 15th, 2009 at 11:56 am
b22-
no disagreement- some people shouldn’t be in the market- however-
if you are so inclined to relinquish your money to a broker to manage in a long position- minus fees of course- and knowing that it has been proven that portfolio managers do not beat the market (with a outlier here and there) – then by investing in an index fund you have guaranteed that your losses will be less and you profits will be more- no?
does not mean that by investing in an index fund you won’t get crushed- only means that you will more likely to have less losses than with your broker- of course – this would apply only if the data Re brokers “beating the market” is correct-
nothing against broker’s per se- but they better demonstrate flexibility and the willingness to adapt to market changes- I am not sure this has been demonstrated for the most part-
and therefore credibility is lost
June 15th, 2009 at 12:04 pm
while past performance is not indicative of future results, I would say this ~2.5% Dow/sp correction won’t hold through 3:00 pm EST.
June 15th, 2009 at 12:05 pm
ben, i think as you do that the we will see a modest correction and continue up.. we talked about July 3 recently… then i’ll go short perhaps… i’ve got fxp, dug, faz, and dzz protecting me today. still have dto but it is still ugly… getting better tho!
June 15th, 2009 at 12:07 pm
curmudgeon-
undoubtedly- but it may happen as late as 3:55
June 15th, 2009 at 12:11 pm
@Curmudgeon (12:04)
I’m not so sure it will just whistle it’s way back today…
It’s opex week…so I wouldn’t be surprised for it to hang low here, then do a test of Andy’s 915 level tomorrow…
Then you see a 912 open on Wednesday, but a quick morning reversal…
So at this point, I’m content to close out shorts, wait around in cash until Wednesday AM, and then take my chances on some longs…
June 15th, 2009 at 12:15 pm
cvienne-
do you then think the $ strength is a two day blip- and that oil and commodities will continue up on Wednesday?
hmm . . .
June 15th, 2009 at 12:17 pm
@karen
“we talked about July 3 recently”…
I’d kind of had July 7th in mind (but what the hey – 7/3 is a Friday, then markets are closed 7/6)…
Basically, the same deal…
June 15th, 2009 at 12:18 pm
“If you want to make money on Wall Street….work on Wall Street”
When is the the mutual fund industry going to collapse? That’s the next big scam to be exposed. If it wasn’t for the 401k connection would anyone still buy them when you can use ETFs for buy from Vanguard.
June 15th, 2009 at 12:20 pm
Materials and energy taking a pounding today. I expect a bounce tomorrow and then more declines on Wednesday. But a look at the currency markets will show us the way, let’s see what the candle watchers have for us later…
ben: You are an outstanding representative of an industry that is going to contract. Your honesty and insight will carry you and your clients through whatever changes lie ahead.
June 15th, 2009 at 12:22 pm
@ JohnnyVee
sham-WOW!
Perhaps in the future the FED can mop up execess liquidity with a bunch of industry chamois.
June 15th, 2009 at 12:23 pm
leftback says-
“ben: You are an outstanding representative of an industry that is going to contract. Your honesty and insight will carry you and your clients through whatever changes lie ahead.”
I’ll 2nd that- as I said before “wise beyond his years”
June 15th, 2009 at 12:25 pm
@ahab
Don’t invest on my advice, but if you’re interested on how I “see” it…I’d say oil stays weak through tomorrow, and the dollar rallies another day…
I closed out my DTO today for a wimpy 8% profit (but I’ll take it)…My “strong dollar” play was to go ultrashort silver…I’m still hanging onto it with an 18% gain (but SERIOUSLY thinking about taking ben’s advice and bailing)…
But the oil chart still has some fundamental soundness (no fundamentals in oil itself, but the chart looks fantastic)…So that is why I still think the S&P has more upside to it (thru 2 July)…
If I see 912 on the S&P, I might go in and buy that…I’m not touching oil…Dollar will probably run to 84, but be “jaggedy” doing so…
That’s my 2 cents…
I might buy AAPL if I see $128…
June 15th, 2009 at 12:29 pm
tagyoureit Says:
“sham-WOW!
Perhaps in the future the FED can mop up execess liquidity with a bunch of industry chamois.”
funny stuff dude
June 15th, 2009 at 12:30 pm
…check that AAPL $118
June 15th, 2009 at 12:35 pm
The Curmudgeon says at 11:38am – “Maybe that was the intent of the Obama Administration all along: Trash the rights of bondholders such that stocks are the only thing left”
interesting concept / blame game … I’ll do what I can to pass it on to our current puppet President and his Toadies
June 15th, 2009 at 12:35 pm
Macro Man may be making a pitch for “Hedge Fund Plonker of the Year” with this post. MM doesn’t seem to realize that this is all ONE TRADE and questions the energy-equity correlation:
http://macro-man.blogspot.com/2009/06/what-do-high-energy-prices-mean-for.html?showComment=1245064832551#comment-c983018207604786711
He’s making the mistake of assuming that this is a real market at this point. I am going to close my trades here.
June 15th, 2009 at 12:36 pm
The S&P chart has that huge space between 910 (when it did a moon shot on 5/29) and 926 where not a lot of “technical” work has been done painting lines…
We may spend the whole opex week filling in that space…
June 15th, 2009 at 12:41 pm
Morning folks – nothing get’s you started on a Monday morning quite like a three hour commute!
I would have to agree with BR’s statement: Since they invest with other people’s money, they are biased towards bullish sentiment. Otherwise, if they say it’s all bad, their investors will take back the money, and they will lose their jobs. Governments know that and create noises to give them excuses to be bullish.”
That said – if you have money to invest, and if you do not do all of your homework before investing that money, and you lose a great share of your investment because you listened to the advice of a money manager, then as far as I’m concerned, that’s what you get for not doing your homework. The stock market is not a guaranteed money making opportunity. I also agree that the government likes to create noise to push consumer sentiment upwards. Not sure why that needed saying in this post though – when has government not done that? Can anyone name a government anywhere in the world that doesn’t do this?
June 15th, 2009 at 12:43 pm
“Governments know that and create noises to give them excuses to be bullish.”
And some of the latest “noise” has to do with the central banks pulling back on QE and actually beginning to plan an exit strategy from the markets. This is the reason why the dollar has rallied and commodities have sold off. If you believe this “noise” I have a bridge in Brooklyn to sell you. The FED will monetize some more debt shortly, then the dollar will fall and commodities will rally. Then the FED will make some more “noise” and the process will reverse, etc, etc… The central banks are just jerking us around. Even the last auction was a head fake as central banks made more than 50% of the purchases when they commonly purchase about a third being offered. They wanted to send a signal that all is well with U.S. Treasuries to the rest of the buying public. Well it’s not. Proof of their intentions is in their actions not their words.
June 15th, 2009 at 12:46 pm
My $DUG and $COF shorts are working great in the morning. Took a small short position in $BAC. I have a feeling indices will test 50 dma.
June 15th, 2009 at 12:46 pm
Pat: It is the Europeans turn to talk down their currency this week. This zig-zag between the major currencies will go on for some time and lead commodities along on a leash. There is still the small matter of the enormous debt overhang and deleveraging that needs to take place.We all know what will happen but the question is when?
June 15th, 2009 at 12:50 pm
Thor-
Mynamar, Cuba, Venezuela, Moldova, Belarus, maybe some others
June 15th, 2009 at 12:53 pm
@LB
“This zig-zag between the major currencies will go on for some time and lead commodities along on a leash”
At this point, I’m more than happy to let them think they’re in control and lead people along on a leash…It’s starting to get pretty predictable on the charts (and that leads to trading profits)…
It’s when they “change” the game the next time that all hell will break loose…(Just like October ‘08 – March ‘09 when nobody knew what hell was going on and they were pulling policy out of their ass)…
June 15th, 2009 at 12:54 pm
Gee, a conflict of interest between the financial services industry and investors? No way, you don’t say!
Do ya think that maybe if you don’t buy, they don’t eat?
Ditto for the relationship between financial media and investors and the conflicts therein.
June 15th, 2009 at 12:54 pm
Because the higher closes of the S&P have been small the 3LB has reversed or had a turnaround. Now if we can shut that rising window from 5/29-6/1 then the bulls should get worried. They’ve closed below the top of the window but haven’t been able to get through the bottom of the window.
Someone brought up 880 on the S&P. For me the weekly reversal is around 877.52 on the S&P. If the week closes ≤ 877.52 then you might not have to wait until July for the downtrend. My 2¢.
June 15th, 2009 at 12:54 pm
Ahab – I’m assume you’re being facetious – don’t know your posting style well enough yet ;-)
I just sort of chuckle when people seem shocked that the government is lying to us, that politicians bend the law to suit their own narrow needs, or that corporations care nothing for their employees or investors. This kind of behavior is endemic to those in power. Always has been, and always will be. Doesn’t mean it’s not wrong, or that we can’t be upset about it. We just need to dispense with the false sense of surprise.
June 15th, 2009 at 1:02 pm
thor-
no I was serious- the countries listed could care less about consumer sentiment- it’s their way or the highway-
that they may be lying about many other things a given
June 15th, 2009 at 1:04 pm
Was Geithner scheduled to speak today or was it a last minute decision because the Asian markets were selling off? How long does Obama plan on speaking today? Until the market closes? Sheesh.
June 15th, 2009 at 1:04 pm
@ahab and LB,
Thanks for the comments. I think that this bear is going to create great opportunities for people that can stay in the business, if for no other reason there will be less of us. There are actually good reps out there. I know that it is proven that most money managers don’t consistently “beat the market” but that should never be the goal anyway. Beating the market may or may not allow someone to reach a financial goal. If, for example, you were a mutual fund manager that ONLY lost 33% last year, you beat the market. You still got killed though and probably didn’t help the client that invested with you that wanted to retire at the end of 2009.
RE:
When is the the mutual fund industry going to collapse? That’s the next big scam to be exposed. If it wasn’t for the 401k connection would anyone still buy them when you can use ETFs for buy from Vanguard.
My prediction is that the mutual fund industry still has many many years ahead of it, though it will look much different imo in the not too distant future. When the bear market takes hold again I think we are going to tank hard, these recent flare up in confidence will vanish along with the credit that is being created due to more confidence. After this happens then more people will come to realize that almost every single mutual fund is restricted from making moves in and out, having too much cash, going short, etc. they will finally pull the plug.
Just like brokers, there will be a lot less mf’s but they will survive and I’d imagine the funds moving forward will be much less like the collosal American Funds or Fidelity Advisor funds. Instead, I’d think you could see much smaller funds (in terms of total assets) that can move around much more and are not so restricted by style box, being able to short, buy things like gold, etc.
Just my guess.
June 15th, 2009 at 1:05 pm
yet another green shoot-
http://finance.yahoo.com/news/Extended-Stay-Hotels-files-apf-15526053.html?sec=topStories&pos=7&asset=&ccode=
June 15th, 2009 at 1:08 pm
“I think the reality is, for anyone that wants to be lazy it’d be best to stay out of the game.”
And stay in cash when the dollar tanks and a nasty bout of inflation takes hold a few weeks, or months, or years down the road? Staying out of the game is not a luxury that most can afford.
“Maybe that was the intent of the Obama Administration all along: Trash the rights of bondholders such that stocks are the only thing left.”
Seems to me that for every instance of trashing bondholders rights, there are two or three of bailing them out at taxpayer’s expense…
June 15th, 2009 at 1:12 pm
Ahab – heard about that on my way into work this morning.
More important for economic news moving forward, specifically for the housing market. California is freezing foreclosures for the next 90 days. That’s going to muddle up a lot of housing data numbers. See below for the full article.
California imposes 90-day foreclosure moratorium
The Associated Press
SACRAMENTO, Calif.—California is imposing a 90-day moratorium on housing foreclosures under a new law that takes effect Monday.
The law is expected to make lenders try harder to keep borrowers in their homes. Loan companies must prove they tried to modify the delinquent loans before they can begin foreclosing.
But supporters acknowledge the California Foreclosure Prevention Act won’t stop thousands of foreclosures from eventually happening. There have been more than 365,000 foreclosures in California since early 2007, with many more already scheduled.
The bill passed in February is similar to the Obama administration’s Making Home Affordable Program that began in March.
Both encourages lenders to cut interest rates or rewrite loans to affordable levels.
June 15th, 2009 at 1:13 pm
Wow. So many 3pm bulls. I wonder if the banksters will pull a fooler (most have already sold the shares they intended to) and sell into the 3pm rally …
June 15th, 2009 at 1:16 pm
“Seems to me that for every instance of trashing bondholders rights, there are two or three of bailing them out at taxpayer’s expense…”
true enough…which seems to say…don’t buy bonds unless you’re part of the Admin’s inner circle, or perhaps, bond-buying should be a political play, pure and simple, but then, the whole stinking mess of it has become just that really.
June 15th, 2009 at 1:16 pm
drey Says-
“Seems to me that for every instance of trashing bondholders rights, there are two or three of bailing them out at taxpayer’s expense…”
good point
June 15th, 2009 at 1:17 pm
ben22, re: mutual funds, just a quick thot.. what i like about the two mutual funds i have for an IRA account is that they can own stocks in foreign countries.. e*trade has made that option available, of course.. but i haven’t used it yet.
June 15th, 2009 at 1:19 pm
As Mish has pointed out, the foreclosure moratoria achieve precisely…. nothing. Except perhaps allow the courts to catch up. Keep an eye on California because whatever ugly stuff is going to happen, it will happen there first.
June 15th, 2009 at 1:27 pm
Karen,
There was a fund called First Eagle Overseas that I used to have a ton of clients in, it closed a few years back. Unfortunately in 2007 I sold most people out of it and can’t get back in now as far as I know. That was sort of my point above, like brokers, they aren’t all bad (funds), just most of them are. You have to do a little work to find the one’s worth owning.
Drey,
good points above, but with this:
And stay in cash when the dollar tanks and a nasty bout of inflation takes hold a few weeks, or months, or years down the road? Staying out of the game is not a luxury that most can afford.
The dollar collapse and the coming promise of inflation is so common now as a call. imho it is completely wrong and not really grounded in reality. We are getting inflation via optimism right now. To quote Prechter’s quote last week of someone else:
Whats obvious is obviously wrong.
June 15th, 2009 at 1:28 pm
leftback – I agree, didn’t solve any problems, but it did make the numbers change for three months correct? Sure, in the end the homes get foreclosed on anyhow, but having CA not reporting “real” foreclosure numbers is going to make the rest of the countries not look as bad – hence more “green shoots”.
June 15th, 2009 at 1:28 pm
RE: SPX
Looks to I and I that a test of 880 is in the cards… but I’m not adding to my shorts yet…
Still holding firm with QID, SRS, and FAZ
June 15th, 2009 at 1:29 pm
Foreclosure moratorium: Just another well-intentioned but foolish gesture that just makes things worse in so many ways. And it’s based on the naive belief that this little economic kerfuffle we’re having will blow over and so if we just hold our breath for a bit we’ll be all right. (ultra-snark)
Other blogs will undoubtedly outline the unintended consequences quite well; CR is probably on it as we speak. God knows the MSM won’t get it and will trumpet it as a good thing.
Kick the can, it’s what we seem to be doing the best.
June 15th, 2009 at 1:32 pm
thor-
you are at ground zero- but- no matter what happens out there- there are still be some kick-ass beaches and oceanfront properties- can’t get that in Indiana or Kansas or Nebraska or Oklahoma . . .
there is this little Chinese Restaurant in Venice Beach, Mao’s Kitchen- best egg drop soup I ever had, I would got to California just to get that again-
only problem was stepping over the homeless folks
June 15th, 2009 at 1:36 pm
I-Man-
QID- you, me and Steve Barry
June 15th, 2009 at 1:37 pm
Ahab – yup, sure am. Even more so because my partner has been trying to sell his house out in the desert for the last two years. The guy he rents out a room to is a real estate agent so we get the inside scoop on what the market is like in Palm Springs and San Diego – getting slightly better in PS, getting slightly worse in San Diego.
Agree with you on the beaches and CA’s natural beauty. Of course I’m biased as I’m a native. Homeless sucks to be sure, but much like SF where I grew up, they usually tend to stick to where the tourists go. Sucks for the tourists, great for those of us who don’t live near them. I live in SOCAL for the weather – can’t tell you what it’s like to wake up in the morning and 95% of the time it’s a beautiful, sunny, warm, day.
June 15th, 2009 at 1:40 pm
I don’t have a forum that is focused on this bit of news, so will post it OT:
http://finance.yahoo.com/news/Obama-pleads-for-support-of-apf-15526934.html?sec=topStories&pos=1&asset=&ccode=
Obama pleads for support of health system overhaul
“CHICAGO (AP) — President Barack Obama pushed hard Monday for a health care overhaul, saying the system is “a ticking bomb” for the budget that could force America to “go the way of GM” without a legislative fix.
Obama went before the American Medical Association in Chicago to declare anew that the existing system leaves too many uninsured and forces “excessive defensive medicine” by doctors worried about malpractice suits. He also declared once again that he does not favor socialized medicine and cautioned people to beware of “scare tactics and fear-mongering” by critics who make this claim.”
…I would suggest people interested in this topic read the firt and last sentene about and you will see that they are at odds with each other. These are the same scare tactics used by Paulson and Bernanke last fall. Obama tends to frame his programs with Cassandra-like explanations, and we are to accept this…it seems to me that when he says the US will go the way of GM without his health care plan, and in the same speech warns of scare tactics and fear-mongering, that we are now in the time of Elmer Gantry…
The American health care system is too expensive. That is a given. But if reforms are undertaken, you’d better be sure that it is what you really want, for the cure may turn out to be worse than the disease…
…Can anyone say “Zombie Medical Care”…I thought you could…(apologies to Mr. Rogers…)
June 15th, 2009 at 1:41 pm
I-Man: Sooner or later that perfect technical set-up will arrive, the lower low and the lower high. But until Zero Hedge reports JPM buying large blocks of SDS instead of SPY, I am keeping a significant amount of dry powder.
June 15th, 2009 at 1:41 pm
Off topic…
But there sure is a lot of “silence” coming from the Administration about the Iranian election fiasco…
I guess they’re hard at work crafting the proper response (Translate: wait to hear how Conan O’Brien spins it on late night TV, then glance over at the “laugh-o-meter”, then craft a policy statement)…
June 15th, 2009 at 1:42 pm
re the 3:00 pm pump: retraction of previous post. It looks like they’re too busy buying down mortgage rates:
June 15 (Bloomberg) — Yields on Fannie Mae and Freddie Mac mortgage securities fell for a third day from the highest level since the Federal Reserve said it would buy home-loan bonds, suggesting a further decline in home-loan interest rates.
Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds dropped 0.17 percentage point to 4.75 percent as of 11:35 a.m. in New York, the low since June 3, data compiled by Bloomberg show. While that’s down from a six- month high of 5.07 percent on June 10, it’s still up from 3.94 percent on May 20.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=asvFhC.vhMvA
June 15th, 2009 at 1:45 pm
Thor,
I was sort of thinking along the same lines re LB’s 1:19. The 90 day Cal. foreclosure nonsense is just that, and it won’t help, but in the short run couldn’t it cause all the consumers in California to go out and spend more on things like gas, or other items? Could this, again, in the very short term, extend the day of reckoning for oil and make $3 gas feel not so bad?
Would it, in the very short term stem some of the decline in home prices there, thus creating a psychological change in people where they feel better about the stop of home value decline. I mean look, most of us here realize things aren’t better but look how many people believe they are based on media reporting and the stock market rise. This thing could turn into some more “green shoots” for the msm which could then translate into an uptick in the confidence numbers and at that point the misinformed bulls would be out in even more force than they are right now. I can hear Don Luskin now, stating all the reasons the new bull is for real, and if a voice of reason would ask, well what about when the 90 day Cal. period is over he’d state, with so much confidence:
‘california doesn’t matter’
I think Mish, while probably very correct by October, could be underestimating the impact this has in the very short term.
Like everything else that is being done the 90 day order is a way to adress symptom’s of the problem, not the problem, so far though, some of these band aids have powerful short term effects, despite being destined to fail.
June 15th, 2009 at 1:46 pm
Typing is my stong suit..
June 15th, 2009 at 1:46 pm
@Bruce in Tn
Oh, you answered my question…Not a peep on the Iran situation because Obama has the blinkers on and is hard focused on creating Zombie Medical Care…
I suppose it was another chance to get on TV…Did anyone see Bill Maher the other day? Even HE is telling Obama to “cool it” with the TV appearances…
Thanks for clearing that up…
June 15th, 2009 at 1:47 pm
Cvienne:
“But there sure is a lot of “silence” coming from the Administration about the Iranian election fiasco…”
Frankly, I would be shocked if anyone in the administration commented on it right now. It’s an ongoing, extremely delicate situation and any official comment out of the White House would be seen by the Ruling Council, in Iran as blatant interference of their internal affairs by The Great Satan. That’s a fairly obvious scenario and say what you will about the O Administration, they’re not that stupid when it comes to foreign affairs.
June 15th, 2009 at 1:50 pm
ben: Luskin doesn’t matter, and he actually lives in California. I still want to see a Luskin-Ritholtz smackdown.
June 15th, 2009 at 1:50 pm
LB knows well how to invest when probability is on his side:
But until Zero Hedge reports JPM buying large blocks of SDS instead of SPY, I am keeping a significant amount of dry powder.
That seems prudent as anything I’ve heard lately.
June 15th, 2009 at 1:52 pm
@ben22 (1:45)
We can conjure up any second derivative scenarios we want (like more SPENDING CASH for those who are in foreclosures yet get to stay rent free in their homes for 90 days)…
It even sounds plausible doesn’t it?
But sooner or later everyone is going to run out of unemployment benefits…
A cat may have nine lives, but if you try and resurrect the cat on the 10th try, what do you get?
June 15th, 2009 at 1:53 pm
Forget brokers, the crux is:
Since the last bubble burst, governments around the world have not been focusing on reforms. They are trying to pump a new bubble to solve existing problems.
They haven’t done squat, and won’t do squat, until we refuse to play. Right now that’s all people want to do: pump it back up, so I can play around some more. Make back the lost money. It is fun: the adrenaline rush, telling responsible people they are nitwits, and doing a couple of victory laps around the shiny new military vehicle in the driveway. It appears we won’t do shit until the World economy is a bomb crater.
June 15th, 2009 at 1:53 pm
I still want to see a Luskin-Ritholtz smackdown.
That would be a classic beat down for BR. I’m not sure he’s worthy of BR’s time. I think that’s why Barry stopped wasting time on Kudlow’s show. What is the point if you have to scream just to state a few facts that nobody wants to hear.
To us, Luskin, or Wesbury, or Bowyer don’t matter, but they are followed by the masses which makes them important, for all the wrong reasons.
June 15th, 2009 at 1:54 pm
@ Left:
They’ll be a little more sneaky than that on the short side I’d imagine… in fact, all they really have to do is not pump, the rest will take care of itself… kind of like what its doing right now.
June 15th, 2009 at 1:58 pm
I-Man: Correct. LB was being facetious above. Well, we are approaching The Pumping Hour….
June 15th, 2009 at 1:59 pm
“The dollar collapse and the coming promise of inflation is so common now as a call. imho it is completely wrong and not really grounded in reality.”
Maybe so, Ben. In fact, I view this whole inflation/deflation debate as the single most fascinating thing about the economic shitstorm we now find ourselves in. Still, my gut says when the govt throws hundreds of billions at the economy in such a scattershot, unfocused way, and in such a poorly conceived and inconsistent manner, and when the Fed is forced to keep rates too low, too long by the fundamentals, there can be only one outcome and that is inflation – but it’s a good debate and differing opinions are what makes a horse race.
“Seems to me that for every instance of trashing bondholders rights, there are two or three of bailing them out at taxpayer’s expense…”
I should have added one more thought to this observation, folks. BOTH of these results make me physically ill.
June 15th, 2009 at 2:06 pm
With regard to the Iranian elections, I agree completely with Thor @ 1:47.
Iran is not a threat to us. Our continued focus on such matters is part of our problems, as then we feel the need to intervene, and that causes blowback later on. Imperial habits can be hard to break.
It also strikes me as more than a tad ironic that so many are so focused on fraud in the Iranian elections, yet collectively we swept most information about problems in our own elections in 2000 and 2004 under the rug (Ken Blackwell / Katherine Harris, Diebold Systems, how easy electronic voting machines are to tamper with and how often they malfunctioned).
June 15th, 2009 at 2:07 pm
@Thor (1:47)
OK so you just made my point…
If we’re the GREAT SATAN and always have been, then what difference is it going to make?…
There are two choices:
1. Condemn the process because it failed to live up to democratic voting “standards”
2. Or support the outcome
If your inclination is to condemn the process…and you wait a week to do so…You’re going to be hated by them anyway…Meanwhile, you look wishy washy…
If your inclination is to support the result…Why do you have to wait to do that, or WANT to if your ‘diplomatic stance’ is to get them to like us more?…
In any case, my posit was rhetorical…
Obama has already gone on the “grand apology tour”…His diplomatic stance is therefore “maybe if we don’t do anything and run around apologizing for everything, they’ll LIKE us more”…
He ought to use that tactic more with the Chinese (oh wait, we do use that tactic when we need them to buy more of our debt)…
June 15th, 2009 at 2:12 pm
You can print as many greenbacks as you want but if they are all stuffed in John Thain’s commode in Kenny Lewis’ office at Bank of America, the net effect of the QE policy on the velocity of money is attenuated and delayed.
It is kind of the same situation with crude oil, copper and other commodities right now. There is so much crude stored that it looks as though more has been consumed recently than is really the case. Inventories (even in China) can only increase for a while until storage is replenished and then demand will fall. Anyway you look at it, the reflation trade has been overstated, at least in the short run.
June 15th, 2009 at 2:16 pm
@LB (2:12)
“Anyway you look at it, the reflation trade has been overstated, at least in the short run.”
I agree…and besides, if it’s mostly the Chinese “stocking up”, at some point you’re [China] competing against yourself in the spot markets…It would be more wise to “cool your heels” for awhile and let prices sink back down before you went in for another scoop…
June 15th, 2009 at 2:19 pm
Where are all the customer’s yachts?
June 15th, 2009 at 2:25 pm
@Dogfish
“Iran is not a threat to us. Our continued focus on such matters is part of our problems, as then we feel the need to intervene, and that causes blowback later on. Imperial habits can be hard to break.”
Yeah, our policy ought to be that we just stand back and let Israel & Iran duke it out between themselves…
Then we can sit comfortably around by the poolside and enjoy our “benefits packages”…
I don’t worry about that arsenic in the punchbowl because it’s on the “opposite” side from where I’m drinking…
June 15th, 2009 at 2:31 pm
http://finance.yahoo.com/news/Obama-officials-outline-rb-15525120.html?sec=topStories&pos=3&asset=&ccode=
Great… lets give the Fed even more power than it has grabbed already… brilliant. Just f*cking brilliant.
Just a little snark from your token sensi tokin Anti-Federalist.
June 15th, 2009 at 2:34 pm
@I-Man
Can’t you see that Larry Summers is basically ‘expanding’ the power of the job that he will occupy come next January?
Now THAT is brilliant!
June 15th, 2009 at 2:39 pm
@I-Man
I wonder if that’s a way to neuter Ron Paul’s bill. Just merge the two together in conference committee or some other legislative trick in the name of “greater financial oversight or stability”.
June 15th, 2009 at 2:44 pm
Larry Summers scares me a lot more than Ben Bernanke. There is no soul, only ego, ambition and hubris.
June 15th, 2009 at 2:49 pm
@cvienne
While clever, the punchbowl analogy is hardly apt. The world is not one big punchbowl, and to simplify it as such leads to counterproductive and reactionary decisions that come back to bite us in the ass 10 years later… kind of like all the bailouts will do to us financially.
Israel can take care of herself. Keep in mind that it is a nuclear power. If Iran did anything, or supplied a nuke to Hezbollah (which, ironically, was originally established BY Israel… talk about blowback), then Israel could turn Iran into one large sheet of green glass. The fearmongering that leads to intervention is produced by those positioned to profit from that action, exactly like what happened with us getting into the (2nd) Iraq War. Great for a few, bad for the majority, which really sums up our country this past few years.
There is an opportunity cost to all the attention we pay towards our self-annointed duties as worldwide “democracy” police (I use the quotes because our motives in such interventions are almost never altruistic). Time spent by average people getting worked up about Iran is time spent they aren’t getting worked up about our own less-than-stellar government. But then again, what was it that Strauss taught about uniting against external threats?
In short, Muslims are the new Commies.
June 15th, 2009 at 3:05 pm
Big fund unwind…the only things up are the Greenback , Natgas and pork bellies, the things most professionals were short….
Everything else getting liquidated…
June 15th, 2009 at 3:09 pm
Dogfish @ 2:06
“Iran is not a threat to us”.
Maybe not directly.
But once the Iranian government gets nukes, which they surely will at some point, they may just let
hezbollah and hamas do their dirty work for them.
June 15th, 2009 at 3:10 pm
@Dogfish
Conceptually, I don’t disagree with you…
I suppose we could “have a go” at pulling back from intervention and conflict half way around the world and turn inwards…
Why not try that for awhile?…
But my ‘realistic’ side tells me that the world actually is a big punchbowl…It’s a big scrapheap of finite resources that soverign nations compete to control for their own self interest…I don’t think there is any way to “go it alone”…
The Romans were imperial to the extent that they managed to keep marauders far away from Rome as long as they were fighting wars…When their resources dried up (because the expansion was complete), the marauders eventually came knocking at the gates of Rome…By that time, the Romans just simply gave up and let them in…
It is human nature…Humans are “plunderers”…You can elevate society to a certain intellectual level (and the intellectuals can pine for a higher standard of existence). But if you can’t DEFEND that, then there are many other bands of humans out there who couldn’t give a good GD about your sophisticated morals…They just want your gold, your whiskey, and your women…
June 15th, 2009 at 3:15 pm
@Andy T (3:05)
Yup…
They might as well close the books on the quarter at a profit…
I still have the notion that there will be enough cash sitting around (and raised), that the market won’t drop too low just yet…
Just keep it in some comfortable range so that what’s still on the books June 30th will be the right temperature…Then the first week in July comes and they can start up the engines again and get the next quarter off with a bang…Reach a crescendo in July and then there will be a race to the exits through September 30th…
June 15th, 2009 at 3:33 pm
What’s it going to be, the Pump or the Dump? To pump or not to pump, that is the question…
June 15th, 2009 at 3:35 pm
leftback – I worry more about what the stock market is going to do over the next several years rather than the next 20 minutes ;-)
June 15th, 2009 at 3:40 pm
Thor – LB just wants your gold, whiskey and women. :-)
June 15th, 2009 at 3:43 pm
LB – My first two gold coins haven’t arrived yet, I’m more of a “green shoots” kinda guy (wink wink) and you can take all the women you want ;-)
June 15th, 2009 at 3:50 pm
It’s always the pump, at least 99% of the time lately. Trying here a bit. Might not be enough? 10 minutes is a long time in this environment though.
June 15th, 2009 at 4:04 pm
@ DL
If that happens, then we turn their entire country into green glass… but preemptive strikes are counterproductive actions born of fear. And we all know what Yoda said about fear. Anger, hate, suffering, etc. The only thing that is an existential threat to our country is ourselves.
If we were really serious about nukes we should’ve given A.Q. Khan more than a slap on the wrist. But that took a backseat to politics and courting Pakistan’s influence. That’s worked out so well, with our puppet Musharraf getting thrown out and the population becoming more radicalized.
There are many reasons to justify action against Iran: new market for Western companies, control of energy resources, keeping it away from BRIC, further destabilization of the region to allow Israel to dominate further… all of which I don’t necessarily agree with but at least see the logic behind. The only logic I see behind the fear of their nukes is as cover for one of these other reasons. And if we can’t be honest about our reasoning behind huge strategical decisions then that is a hint we shouldn’t be doing them. Idealistic I know, but naive it is not.
@cvienne
I don’t think we have to go it alone, but we do have to focus less on negotiating with other countries through the barrel of a gun. That was one of the interesting dynamics about the Cold War.. militarily, we were at a stalement, so we had to compete with communism on the strength of our ideas (and the size of our wallet). Now if anyone disagrees, we take the easy route and just bash them over the head. That breeds resentment that costs us in the long run.
If we had been less belligerent this past decade, our corporations might have the deals to develop Iran’s energy fields instead of Russia and China. But as it stands, their investment in Iran’s energy fields pretty much guarantees that we (or Israel) can’t take any significant military action against them, even if we wanted to, without starting WW4. We can defend our interests without being so offensive (in both senses of the word).
I totally agree that this is mostly about human nature and control of finite resources. I just think that if we try to lay claim to everything we’ll end up with nothing.
June 15th, 2009 at 4:14 pm
So what’s the verdict? Pump, Dump, or Plop?
June 15th, 2009 at 4:29 pm
Dogfish @ 4:04
“If that happens, then we turn their entire country into green glass…”
No. You’re missing my point. There’s no way that Iran is going to attack us if their “fingerprints” are going to be on the bomb. My point is that the government could get one of their terrorist minions to do it. Put a few nukes on a barge and send it down the Hudson river. The Iranian government would then deny all knowledge of it.
(Most likely they would go after Israel first).
June 15th, 2009 at 5:07 pm
@ DL
I understood your point, I just think you’re underestimating the capability our of intelligence and defense agencies to know about and/or trace that back to the parent country that sponsored such action:
http://www.iaea.org/NewsCenter/News/2002/10-17-722025.shtml
We’re often led to believe we are at imminent risk to justify further spending and actions to secure ourselves. War on Terror, see also TARP, War on Drugs, Global Warming, mass shootings (which seem to always happen in gun-free zones), etc, etc, etc.
I don’t doubt that Iran is pursuing weapons, but I think they are doing so more as a defensive power play and as a balance against the other nuclear power in the region rather than anything approaching aggression. They aren’t that stupid. But they also saw how we treated Pakistan and India after they announced their nukes (after secret development programs)… The rules change substantially once a country is “in the club”, it’s just getting in the club that is the problem. But we can’t forcefully keep technology away from them without significant blowback down the road. At best, all we’re doing is pushing more countries towards the BRIC countries, and guaranteeing that this will be the Chinese century, if that isn’t the case already. At worst we would be guaranteeing major attacks on American soil. And it will be our own short-sightedness, fear, and greed that brings that about. Human nature at it’s finest.
Rogue nukes are indeed a concern, but in most cases they are not a justification for preemptive action, in my opinion (But then again I’m not much of a hawk). If you do believe it’s sufficient cause for preemptive action, then I would question again why Pakistan and North Korea are not at the top of the list instead of Iran, since both of them actually *have* nuclear weapons, whereas Iran is at least several years away. Could the difference in how we’re approaching them have something to do with the natural resources of those three countries?
June 15th, 2009 at 6:34 pm
“Using” our nukes, in anything other than a MAD mode, carries its own backlash. We will have supplied those we bomb with their very own supplies of dirty bomb materials — in large quantities. Nukes are not very practical except as a doomsday weapon.
June 17th, 2009 at 12:18 am
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