The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Somethings I have bookmarked for later today:

● ZeroHedge: Q1 Bank Trading: Only Interest Rate Derivatives (Make That Goldman Sachs)

● New Yorker: Sheila Bair and the White House financial debate.

● The LA Times: Personal bankruptcies surge in Southern California
The region had the nation’s biggest percentage jump in 2008, and the number this year through April is up 75% despite a 2005 rule overhaul aimed at curbing filings by those who would benefit unfairly.

● Vanity Fair: Did the Sons Know?

● San Francisco Fed on the Jobless Recovery Redux? “Our analysis generally supports projections that labor market weakness will persist, but our findings offer a basis for even greater pessimism about the outlook for the labor market. Specifically, we suggest that the relatively low level of temporary layoffs and high level of involuntary part-time workers make a jobless recovery similar to the one experienced in 1992 a plausible scenario.

● OCC Report: Bank Trading and Derivatives Activities: Q1 2009

● Comstock Partners: Why the Economy Will Remain Weak: The key factor to consider is that the current recession was caused by a credit crisis following an artificial boom and therefore bears more resemblance to the great depression following 1929 or Japan after 1989.than it does to the series of recessions experienced in the post World War ll period.

● Bloomberg: Record Correlation Hints Herd Collapse: Investors are moving in lockstep like never before, driving up stocks, commodities and emerging markets and risking a replay of last year, when they all plunged the most since World War II.

● Reuters: Big Finance reverting to bad old ways — No sooner has the financial system begun to stabilize than Big Finance is reverting to its old ways — aggressive hiring, remuneration on steroids, wriggling out of regulation or threatening to decamp to evade tougher supervision. These are is not the rantings of some crypto-Marxist City-basher, but the considered view of one of Europe’s most thoughtful financial regulators.

● Freddie Mac June 2009: Update shows foreigners continue to dump agency paper. US primary dealers hold a record $368B of agency, MBS, Treasury and corporate debt, most of which has a maturity of less than three years.

● Karl Denniger, citing S&P mini-futures, asks, ‘where is the SEC’ on the blatant front running?

●  Scientific American: The Science of Economic Bubbles and Busts

● BBC Magazine: Giving up my iPod for a Walkman. The Beeb gives a 13 year old boy a Gen 1 1980 Walkman for a week:

“It took me three days to figure out that there was another side to the tape. That was not the only naive mistake that I made; I mistook the metal/normal switch on the Walkman for a genre-specific equaliser, but later I discovered that it was in fact used to switch between two different types of cassette. Another notable feature that the iPod has and the Walkman doesn’t is “shuffle”, where the player selects random tracks to play. Its a function that, on the face of it, the Walkman lacks. But I managed to create an impromptu shuffle feature simply by holding down “rewind” and releasing it randomly – effective, if a little laboured.”

Kenneth Rosen, of the Fisher Center for Real Estate at UC Berkeley, and Lawrence Yun, of the National Association of Realtors, discuss whether the housing recovery is stalling.

Yun is so clueless:

Airtime: Tues. Jun. 9 2009 | 2:26 PM ET

Click for video

via Bloomberg.com

Nice interactive graphic from WSJ showing a breakdown of the funds funneling cash into large banks via all manner of Treasury and Federal Reserve programs, including:

Capital Purchase Program, Troubled Asset Relief Program (TARP), Automotive Industry Financing Program, Targeted Investment Program (TIP), Consumer and Business Lending Initiative (TALF), Citigroup Asset Guarantee Program, Bank of America Asset Guarantee Program, Systemically Significant Failing Institutions, Home Owner Affordability & Stability Plan, Public Private Investment Program (PPIP) and Unlocking Credit for Small Businesses.

Click for interactive graphics

In the thought experiment we did last week, we looked at what the world would look like if the CRA was a “prime cause of the mortgage, credit and housing related crises.”

The usual suspects were unable to respond to that approach.

I have an even simpler query: Who and what was at fault in the entire debacle, from Housing to Credit to Collapse? In what order would you assess the blame?

I don’t mean a soft, squishy, this influenced that who then influenced that guy; I mean a hard list, from most at fault to the least, numbered from 1-20. When you think about all of the moving pieces, and start to assess blame both in absolute and relative terms, the actual blame of real bad guys becomes more obvious.

In Bailout Nation (Chapter 19), my list went something like this:

1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
10. Congress
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17.  The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18.  President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28.  Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
Supervision (OTS)
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk

Several names were omitted for reasons of avoiding repetition: CEOs of major banks and investment firms, the Crony Boards, the AWOL Mutual funds. While the the list in chapter 19 is somewhat incomplete, the book as whole is not.

Given the elapsed time, I might today move some of these pieces around — raise or lower some a few notches. And in the editing process, some items got moved around to for layout purposes (I had Reagan below Bernanke, but due to space limitations caused by other changes, he got bumped to the Clinton line to preserve the already written index).

Regardless, I can live with the above as my list of culprits — what does your list look like?

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Note:  I hope this will be my final CRA post for the foreseeable future . . .

Hyperinflation Nation starring Peter Schiff, Ron Paul, Jim Rogers, Tom Woods, Gerald Celente, and others. Prepare now before the US dollar is worthless

More videos here: http://www.youtube.com/user/InflationUS

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China called for a new reserve currency, again. This killed the dollar, again. One can assume that China is unhappy with Bernanke and the status quo FOMC Communiqué.

Income increased 0.3% due to tax rebates and increased entitlements, including unemployment pay. Most economists and pundits trumpeted the income gains as sign of economic recovery, green shoots.

They are remiss or deceitful. Wages & salaries DECLINED 0.1% in May. Personal income
increased $167.1B but ‘private wage and salaries’ DECLINED $12.4B in May (-$0.7B in April).

The BEA: Personal current transfer receipts increased $162.6 billion in May, compared with an increase of $59.1 billion in April. The American Recovery and Reinvestment Act of 2009 provides for one-time payments of $250 to eligible individuals receiving social security, supplemental security income, veterans benefits, and railroad retirement benefits. These benefits boosted the level of personal current transfer receipts by $157.6 billions at an annual rate in May. These payments are classified in “other” personal current transfer receipts rather than in old-age, survivors, disability, and health insurance benefits because they are not benefits paid from the social security trust fund.

Ergo, 97% of the income gain in May is due to government largesse/welfare. Is this the sign of economic rebounding, or green shoots?

The saving rate jumped 6.9%, the highest rate since Dec 1993, but the gain is a temporary event unless Obama administers more welfare.

Let’s have some fun with Keynesians! For decades, the Fed and academicians have believed and taught the wage growth is the number 1 fuel for inflation – the old ‘sticky wages’ concept. If income surges, isn’t it inflationary, no matter how it is derived? If wages growth is inflationary, so is income growth from government largesse…Isn’t Obama practicing ‘trickle down’ from the government economics?

CNBC: Mounting Jobless Claims Force States To Borrow Funds Fifteen states have depleted their unemployment insurance funds so far, forcing them to borrow from the U.S. Treasury. A record 30 of the country’s 50 states are expected to have to borrow up to $17 billion by next year, said Rick McHugh of the National Employment Law Project, a nonpartisan advocacy group. “We are setting the stage for big pressures for states to restrict eligibility and benefit levels,” McHugh said. “Those type of restrictive actions undercut the (Depression-era program’s) economic and social stability purposes.” [This would kill part of the welfare state.]

The LA Times: Personal bankruptcies surge in Southern California The region had the nation’s biggest percentage jump in 2008, and the number this year through April is up 75% despite a 2005 rule overhaul aimed at curbing filings by those who would benefit unfairly.

The Great American Bubble Machine; Goldman Sachs: “Engineering Every Major Market Manipulation Since The Great Depression” With a subtitle like “From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they’re about to do it again” run, don’t walk, to your nearest kiosk and buy Matt Taibbi’s latest piece in Rolling Stone magazine. One of the best comprehensive profiles of Government Sachs done to date. Speaking of GS, they sure must be busy today, now that Bernanke is about to be impeached and take the fall for all their machinations.

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they’re about to do it again

Zero Hedge: Goldman Sachs Principal Transactions Update: Back With A Vengeance
Just released NYSE data indicate a 50% ramp up by Goldman’s principal Program Trading unit. Whereas the prior week saw Goldman trading only 631 million principal shares on the NYSE, the most recent data indicate a massive rise to 977.8 million. Also notable is Credit Suisse’s doubling in principal program trades to 586 million from 245 million. Zero Hedge is compiling materials to demonstrate the phenomenal gamble CS is taking by being the largest holder of the ETF-underlying pair trade. The ensuing implosion, once the market loses the invisible futures bid, will likely destroy Switzerland’s second biggest bank and likely take down the country with it.

Probably most notable is the screaming increase in overall program trading, from 30.7% of all NYSE volume to 40.4%! Virtually every broker saw their Principal PT operations double week over week: seems like everyone is brokering those ETF trades now. Poor SPY and IWM are being mangled 10 ways from Sunday nowadays.

Ambrose Evans-Pritchard, Telegraph: China’s banks are an accident waiting to happen to every one of us China’s banks are veering out of control. The half-reformed economy of the People’s Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December. Money is leaking instead into Shanghai’s stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump…

The regime is so hellbent on meeting its growth target of 8pc that it has given banks an implicit guarantee for what Fitch calls a “massive lending spree”. Bank exposure to corporate debt has reached $4,200bn. It is rising at a 30pc rate, even as profits contract at a 35pc rate.

Six months after China became the 3rd biggest economy in the world (and now the most important country in the world right now IMO), trading in Yuan continues to grow and it has major implications for the US$ looking out long term but the process will be slow and steady rather than anything abrupt. Today Hong Kong and China announced an agreement to settle trade between the two in Yuan in transactions beginning in July. A PBOC Governor said China’s FX reserve policy is “always quite stable,” implying that the US$ will still remain the reserve currency for a while but the Yuan will grow in stature. Chinese stocks rose to a one year high for a 4th day ahead of two key manufacturing PMI #’s tomorrow. Copper is at a two week high. Euro region economic confidence rose to the highest since Nov coming in two points more than expected. Weak economic data weighed on Japan. US Payrolls on Thursday cap a busy week for economic data beginning tomorrow.

Peter Boockvar

Managing Director

Equity Strategist

Miller Tabak + Co.

Office: 212-370-0346

I’ve run out of patience with tired memes and discredited claims by fools and partisan.

The rhetoric of those pushing nonsense on the public in an attempt to confuse rather than illuminate  — the phrase is “agnotology” –  only serves to aid the lobbyists working on behalf of the Banks and Investment houses to maintain the status quo.

All is well, nothing to see here, move along.

Well, its time to put up or shut up: I hereby challenge any of those who believe the CRA is at prime fault in the housing boom and collapse, and economic morass we are in to a debate. The question for debate: “Is the CRA significantly to blame for the credit crisis?”

A mutually agreed upon time and place, outcome determined by a fair jury, for any dollar amount between $10,000 up to $100,000 dollars (i.e., for more than just bragging rights).

The nonsense rhetoric blogged about has no cost to those pushing these discredited memes — but interferes in the societal attempts to understand how these problems arose and then how to fix them. Perhaps this will help clarify the issue by forcing those with partisan agendas to stand behind their claims.

Which of the many “CRA was a major factor” proponents have the courage of their conviction to step forward?

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UPDATE 2:  June 29, 2009 1:15 pm

John Carney, you seem to be missing the point of this (apparently this is a theme with you) of what PUT UP OR SHUT UP means.

My goal in clarifying the actual causes of the crisis is SO THAT THEY CAN BE FIXED SO IT DOESN’T HAPPEN AGAIN.  It is not to support a now discredited ideological belief system or try to rescue the tainted legacy of Phil Gramm. It is not because I want to engage in polemicals or rhetorical debate — it is because this is important stuff.

Any well educated jackass can engage in abstract rhetorical debate. I wanted someone who lives and dies financially on the strength of their intellectual world view.

In other words, you must be THIS TALL to go on this ride. Rather than dismiss your inability to meet the requirements out of hand, let’s start this way:  I put my list of top 30 causes of the crisis here; Why don’t we start by you putting out your list of causes at Business Insider?

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UPDATE:  June 29, 2009 11:41 am

John Carney has Tweeted a request for a financial backer– but what “put up or shut up” actually means is put up your own money and have some skin in the game (like I will) or shut up.

As much as I would like to take a $100k from his backer, the phrase isn’t “raise a $100k from  some putz and debate me.”

If Carney can come up with something of comparable (non-monetary) value, we can discuss . . .

Scientific American takes a look at the “worst economic crisis since the Great Depression,” from the perspective of reassessing how financial markets work relative to how people make decisions about money

The Science of Economic Bubbles and Busts:

“Even people who do not use illicit drugs or get shot in the head have to contend with the reality that some of the decisions cooked up by the brain’s frontal lobes may lead them astray. A specific site within the prefrontal cortex, the ventromedial prefrontal cortex (VMPFC) is, in fact, among the suspects in the colossal global economic implosion that has recently rocked the globe.

The VMPFC turns out to be a central location for what economists call “money illusion.” The illusion occurs when people ignore obvious information about the distorting effects of inflation on a purchase and, in an irrational leap, decide that the thing is worth much more than it really is. Money illusion may convince prospective buyers that a house is always a great investment because of the misbegotten perception that prices inexorably rise. Robert J. Shiller, a professor of economics at Yale University, contends that the faulty logic of money illusion contributed to the housing bubble: “Since people are likely to remember the price they paid for their house from many years ago but remember few other prices from then, they have the mistaken impression that home prices have gone up more than other prices, giving a mistakenly exaggerated impression of the investment potential of houses.”

Economists have fought for decades about whether money illusion and, more generally, the influence of irrationality on economic transactions are themselves illusory. Milton Friedman, the renowned monetary theorist, postulated that consumers and employers remain undeluded and, as rational beings, take inflation into account when making purchases or paying wages. In other words, they are good judges of the real value of a good.

But the ideas of behavioral economists, who study the role of psychology in making economic decisions, are gaining increasing attention today, as scientists of many stripes struggle to understand why the world economy fell so hard and fast. And their ideas are bolstered by the brain scientists who make inside-the-skull snapshots of the VMPFC and other brain areas. Notably, an experiment reported in March in the Proceedings of the National Academy of Sciences USA by researchers at the University of Bonn in Germany and the California Institute of Technology demonstrated that some of the brain’s decision-making circuitry showed signs of money illusion on images from a brain scanner. A part of the VMPFC lit up in subjects who encountered a larger amount of money, even if the relative buying power of that sum had not changed, because prices had increased as well.”

Fascinating stuff . . .

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Source:
The Science of Economic Bubbles and Busts
Gary Stix
Scientific American Magazine, July 2009

http://www.scientificamerican.com/article.cfm?id=the-science-of-economic-bubbles