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I mentioned the 40th anniversary of the  remastered version of Exile on Main Street a few weeks ago.

Lately, I have been listening to an awesome selection of Rolling Stone Cover albums. Having heard these songs over the course of 4 decades, a little freshening up can go a long way. These 4 albums present the songs you know oh-so-well in a fresh new way.

• Paint It Blue: Songs Of The Rolling Stones: Given how freely the Stones borrowed from American blues greats, it only seems fair that these same blues players cover the Stone’s best known tunes. Somewhere between musically incestuous and ironically absurd, the covers by the bluesman (who influenced the originals) works stunningly well.

Luther Allison practically makes You Can’t Always Get What You Want his own (flavored with some of Lou Reed’s doo do do dos); Larry McCray gets funky on Midnight Rambler. Derek Trucks’ slide guitar burns thru Tumblin’ Dice; Junior Wells turns (I Can’t Get No) Satisfaction into churning swamp funk.

Turnabout sure is fair play!

Favorite cut: Taj Mahal’s Honky Tonk Women

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• All Wood and Stones: Imagine what the Rolling Stones would have sounded like if Mick Jagger and Keith Richards were gnarly California dudes, with acoustic guitars ala CSNY.

That was the totally original idea behind James Lee Stanley and John Batdorf recording — take 11 Rolling Stones classics and turned them into something the likes of which you have never heard before. They wildly succeeded.

Enchanting acoustic guitars, joyous vocal harmonies, surprisingly inspired arrangements completely rewrite classic Stones.

Favorite cut: (I Can’t Get No) Satisfaction

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• Bossa Nova:  I love these wacky, bizarre, all female covers of the Stones’ catalog. The mix of Bossa Nova, Reggae, electronica, and — dare I say it — almost Muzak — combine to create a truly unique disc.

Its an odditiy — fun, weird, amusing, but there is an indefatigable sincerity that permeates all of these covers. Sure, the breathy female vocals are pretty thin, but the amusement factor more than make up for that.

It all somehow works.

I admit, you must have a musical sense of humor to enjoy these (think Barenaked Ladies). I especially like mixing some of these covers into a playlist, and watching people do double takes, as they try to make sense of the melody they recognize, with the arrangements.

Favorite cut: Beast Of Burden and since this is a double disc, I am adding: Fool To Cry

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• Stripped:  OK, its not quite a cover album. But the Stones going not-quite unplugged presents their own catalogue in the same spirit of fresh, new takes on old favorites. Its not quite acoustic, but its about as close as the boys ever come.

Rather than use do the mega-hits — Honky Tonk Women, Satisfaction, Sympathy for the Devil, Jumpin’ Jack Flash, etc. Stripped is filled with the unjustly neglected Stones B-Sides: Wild Horses, Street Fighting Man, Not Fade Away, Shine A Light, Let It Bleed, Angie, etc. The disc contains terrific versions of many of their lesser known hits, stripped of excess production.

Favorite cut: Like A Rolling Stone

Visit msnbc.com for breaking news, world news, and news about the economy

Some items of interest:

• 4.6% Increase in Private Hours Worked Are Positive for the Economy (Economix)

• The Growing Push to Impose a Transaction Tax (Dealbook)

• Fed’s No. 2 Man Says Rules ‘Didn’t Keep Up (WSJ)

• Kass: The Decline and Fall of P/E Multiples (TheStreet.com)

• Fed Emerging Intact From Challenge to Its Power (WSJ) See also House-Senate Panel Broadens Audits of Fed (NYT)

• Why It’s Different This Time for Housing (Barron’s)

• Is this Random or significant? Stock Market vs Unemployment Claims (Smart Money)

• The Ten Most Disturbing Scientific Discoveries (Smithsonian)

• A Core Set of Global Environmental Indicators (Simple Complexity)

• 19 reasons why God torched Jesus  (Mark Morford)

What fascinating things are you reading . . . ?

I linked to an article about US spending the other day. Since then, I keep seeing a variety of telling charts about the changes in US consumer spending habits.

These are my 6 favorites:

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High Income Spending Splurge

Source: Bundle

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Spending Habits: Wealth, Age Group cohorts

Source: Econompicdata

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“Ratings firms fear litigation more than they fear regulation because past regulation efforts haven’t “been that draconian.”

-Scott McCleskey, a former Moody’s compliance officer who has testified before Congress about the industry.

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Of all the various contributors to the financial crisis and economic collapse, none loom larger than the Ratings Agencies. They were the prime enablers of the entire crisis, allowing global asset managers to purchase all manner of junk paper due to their triple AAA rating. Had these various securitized RMBS been rated properly, i.e., reflecting their true value and risk factors, most of the crisis would have been avoided.

The big 3 ratings agencies have escaped much blame, liability and scrutiny for most of the post-crisis period. As Columbia Law School professor John Coffee noted, the credit rating agencies have been “essentially liability proof and it’s not because they’re infallible.”

Until now.

There is a new move afoot to slap ordinary liability on rating agencies for the results of their ratings:

“Credit-rating firms are a big step closer to facing a harsher liability standard on their work. But it could take years for courts to decide what the planned rules mean.

A panel of Senate and House lawmakers negotiating final details of a financial-overhaul bill agreed this week to allow investors to bring legal action against credit-rating firms that “knowingly or recklessly” fail to “conduct a reasonable investigation of the rated security.”

The new standard, if passed into law, likely would make it easier for investors to sue the ratings companies, such as McGraw-Hill Cos.’ Standard & Poor’s and Moody Corp.’s Moody’s Investors Service, which for long have enjoyed near immunity from liability for ratings gone awry.”

Some of the problems of this legislation are obvious: Defining what is a “reasonable investigation” is far too ambiguous, and should be more clearly defined by Congress.

More importantly, the proposed rule changes do not impact the past actions crimes of the ratings agencies — namely, the charge of selling their ratings to the highest bidder. But for this legal Payola, most of the crisis would have been avoided.

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Source:
Legal Fights Loom Over Ratings-Firm Liability Rule
JEANNETTE NEUMANN
WSJ, JUNE 18, 2010  
http://online.wsj.com/article/SB10001424052748703650604575313153186936336.html

The only guarantee of the day is that we’ll see the biggest trading volume of the week solely due to quadruple witch expiration and the S&P quarterly rebalancing. Outside of that, the only discussion of note is the upcoming release of the individual European bank stress tests. Ahead of them over the next month, 3 month Euribor rose to the highest since Oct ’09 today as bank nerves have yet to be calmed. Austria said they will release the results of their test next Friday and there is talk that STD and BBVA, the 2 largest banks in Spain, actually scored the highest of all the large banks in Europe. Both stocks are up 2.5%+ and the IBEX is higher by 1%. The problem though with Spain is the rest of their banking system, particularly the smaller Caja banks. Spanish 5 yr CDS at 224 bps is lower by almost 20 bps and at the low of the week. An aside, the Shanghai index quietly fell to within 2 pts of its lowest level since Apr ’09.

Peter T Treadway, PhD
Historical Analytics LLC
THE DISMAL OPTIMIST

June 18, 2010

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“Because of statistics
I can dig out the deepest secrets
Because of statistics
I am not alone any more, I can play in the numbers
Because of statistics
I can re-arrange the stars in the sky”

- Love the Motherland, Love Statistics
by Wang Jiaowei, a statistician in Shandong Province

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The Global Bears on the Hunt

Several prominent global bears – hedge fund managers Jim Chanos and Hugh Hendry among them – have concluded that China is engaging in a major misallocation of capital that will not have a happy ending. Overinvestment in basic materials and infrastructure, lack of profitability of the state owned companies that dominate the economy, death of the export model, and a major real estate bubble are among their concerns.

Frankly, they offer a compelling case. But unfortunately they have to be guessing, perhaps more than normal. China is a country like no other. Being half-capitalist, half -socialist, it fits no conventional model. China’s statistics, as compared with those released by say the United States, are sparse, manipulated and unreliable. Moreover, the country operates in a language the rest of the world can neither read nor speak. It is said John Paulson knew the mortgages in the portfolios he shorted right down to their zip codes. Macro economist-bears like Gary Shilling had been able to analyze American mortgages in great detail for years prior to the 2007 crisis. Available data on Chinese mortgages isn’t remotely comparable.

At the same time they are groping with less than adequate statistics, the global bears may be underrating the some things that cannot be modeled: The singular desire of China’s citizens to work hard and their obsession with improving their material lot. And, to use the terminology of Martin Jacques in his marvelous book When China Rules the World, the fact that China is a unique civilization state which in my opinion gives it tremendous advantages at this stage of its economic development.

Excepting the Tibetans and the Uyghurs, absent are the racial, religious, regional, caste and language differences that complicate economic decision making and upset public order in countries such as India (although the Indians might argue their diversity is a source of strength.) China, contrary to the views of some skeptics, is not about to disintegrate. Han China, so its own mythology teaches, has a five thousand year history as a civilization. Periods of order have been punctuated by periods of disorder. China is just emerging from a two hundred year period of disorder. A relapse to disorder will not be tolerated by its populace or its rulers.

Confucianism, Legalism, Daoism, Buddhism and Communism have each inserted themselves into the Chinese DNA over the centuries, each building on its predecessors. The intellectual giants who shaped the West, be they Aristotle, Adam Smith or Thomas Jefferson, don’t figure at all in this process. No Chinese emperor, and there have been emperors for thousands of years, would have sided with Google.

But luckily for investors and the world there is the global consumer culture. China may have missed Aristotle, Smith and Jefferson but it has not escaped from Louis Vuitton and the whole phalanx of global consumer brands. The most important “ism” infiltrating the Chinese mind today is consumerism. The current Chinese fascination with and knowledge of European luxury brands – which never ceases to amaze Western observers –is indicative of an overwhelming desire to become rich and enjoy the “benefits” of modern civilization regardless of the costs. The Chinese government’s claim on legitimacy rests on its ability to bring these benefits to its people. If authoritarianism serves this end, that trumps all. The government’s decisions will be guided by this fact and its mistakes, including those pointed out by Western observers, will be corrected. Consumerism, not Soviet style overinvestment in heavy industry or Communist propaganda, is what the rulers must deliver. Luckily, that is just what the world wants out of China as the export model is dead. The current American obsession with doing more with less – a product of debt deflation – is regarded with pity and a sign of weakness by the average Chinese.

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I (Invictus) posted here about a debate in which David Rosenberg squared off with Jim Grant about whether “bonds are for losers” or if, as Dave likes to quip, “bonds have more fun.”  At the time of the debate the 10-year was hovering around 4%.  At the time of my post it was about 3.4%, and is currently around 3.20%, give or take.

Among the bond-bullish arguments Rosie makes is an analysis of the $68 trillion household (and nonprofit) balance sheet and what, exactly, households (and nonprofits) own (all this data is captured in Table B.100 of the Fed’s Flow of Funds report, released last week).

Here is a pie chart showing the relative insignificance of treasuries and munis on the household balance sheet:

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For some historical context, below is the percent of treasuries plus munis as a percent of total household assets for the last 58 years.  It bottomed at the end of 2007 and has been on the rise since.  So the argument can be made — and it’s one that Rosie makes — that although there has been plenty of supply, there should be sufficient demand to soak it up.  Parenthetically, I’d note that demographics — back to that aging boomer population — lend support to the argument that demand for treasuries should remain adequate (as coming higher tax rates argue for support of the muni market).

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Adding a question to those who insist that bonds are in a bubble and that interest rates must go up:

Below is a chart of 10-year Japanese bonds (JGBs) for the past eight years, which is all the Ministry of Finance website has.  Why is it a foregone conclusion that our experience must be different than theirs?  Seriously.  What are your thoughts?

10-Year JGB