What does it all mean?

The SIGTARP has apparently gone and illustrated the ways in which is government is propping up home prices in the US.

As an investor, why would I buy something when I know the prices are being artificially inflated?

Further, why is the government using tax dollars to attempt to force me to overpay for a home?

As a renter, shouldn’t I be entitled to the same tax rebate as a home buyer? Is it not effectively a tax on all renters in the US?

Unfortunately, I guess stupid, overlevered property owners are a larger voting block than rational thrifty renters…

UST Fed, Housing, UST

Ahh Marla… ever the lady.

Origins of an American Kleptocracy

Although I was about a year earlier on it…

Thought for Friday night

Fed, Politics, UST Fed, Housing, Zero

The Fed and the Treasury bailed out the large banks last year to the tune of several Trillion dollars.  The banks and their minions went from zeros to heros in about 6 months time.   Strangely, the banks haven’t increased their lending.  In fact, they’ve done the exact opposite by squeezing borrowers with new and improved credit card rates up to 29.99%.

So where did all that bailout money go? Judging by some of the banks’ quarterly reports, mostly prop trading and speculation since that’s the only place they can make a buck.

Want to know why oil is pushing $80+ with no end-user demand in sight and storage facilities at max capacity? Taxpayer-backed Speculators masquerading as Investment Banks.

Bernanke says that we need to save more to fix the global imbalance.

‘Admittedly, just as increasing private saving in the United States is challenging, promoting consumption in a high-saving country is not necessarily straightforward,’ Bernanke said.

If everything is so flippin’ hunky-dory, suck some liquidity out of the system and start paying savers SOMETHING instead of ripping them off to bail-out the losers!

Paying 1.2% and Charging 29.99% ???

Remind me again why they got bailed out?  Was it so they could run around and gouge their customers?  Or maybe so they could threaten and extort more cheap capital from the captured Washington geniuses?

Sometimes I feel like I’m in the Twilight Zone and I’ve woken up to find the world has gone mad, but everyone is treating me like I’m the crazy one.  I guess it’s ok because in the end, Washington will reap what its sown when they realize they’ve gone and re-empowered the psychopaths on Wall St.  Basically guarantees we get a W-shaped recession.

Uncategorized Bailout, Banks, Fed, GS, lending

The banks have largely started to decry additional regulation or restrictions.  They’ve threatened (and I use that word quite intentionally) that if there are additional strictures, they will be forced to reduce lending.

Let me make a few things clear:

1. The banks lend because that’s how they make money.  They borrow cheaply from the Fed or depositors and lend at higher rates.  Hopefully without too much of a duration mismatch (pdf link), but that has actually been at least one source of their problems.  Otherwise, they’re just speculators (a post for another day).
2. When the Fed drops the overnight rate to 0-0.25% and institutes a policy of paying interest on excess reserves, it has impaired the fundamental reason for banks to lend: profit.  Since banks can now earn a risk-free return with absolute liquidity while not lending, they have a reduced need to do so.  They also have no need to pay interest on deposits since they have more liquidity than they know what to do with.
3. Banks can’t force people or businesses to borrow.  Right now, there are basically ZERO marginal borrowers because the whole world is over-leveraged.

If the Fed wanted banks to lend, they would reduce some of the liquidity programs and stop incentivizing the banks to sit on what liquidity remains.  To the extent that additional regulation would require leverage limits at the banks, it’s true that some lending would be reduced.  Massively increased leverage levels was what allowed the banks to lend with such reckless abandon.  So, yes, if we return to a world with Glass-Steagal and leverage limits for ALL banks, lending could be reduced.  However, this is not a bad thing (despite legislators’ protestations to the contrary).

We need to deleverage as a society because excessive debt has clogged our economic engine.  You can’t fix it by borrowing more money.  Hopefully the US Government will figure that out as well.

EDIT – Barry Ritholtz, after REALLY stinking up the joint on GS bonuses, posts reports largely the same analysis I just walked you through as done by John Mauldin.

Banks Banks, Fed

People always say that the Fed or other Central Banks can’t control where the liquidity flows when they cut rates.

I think we can safely say that when you cut rates to bail out the Banking industry, you inevitably blow a bubble in GS Executive Bonuses.  Too bad the Fed can’t call such a surgical strike  on the unemployment rate…

Or did I miss something?

(nod to DMB)

Uncategorized Bailout, Banks, Fed, GS

There are a few schools of thought it seems about whether we’re facing inflation or deflation. You can cross-categorize them by the time-frame they address. I’m not going to get deeply into the debate because I think it’s been discussed ad nauseum almost everywhere else. Personally, I think the Fed has done everything it can to reignite inflation, but we’re well-past the point where the Fed can single-handedly fill the gap. And even when you add in all the additional Federal spending and the liquidity from the other central banks, I still think the wealth destruction and necessary de-leveraging will overwhelm this coordinated attempt. The best they can do is try to soften the landing a little bit.

At the end of the day, US consumers don’t need more credit… they need better wages. Until real wage growth returns to the United States (and I’m not too optimistic in this department), neither will inflation for domestically produced goods. Unfortunately for many, it is certainly possible that inflation will return for many foreign goods (including petroleum-based auto fuel) prior to that wage growth. Realistically, most of the new money “printed” by the Fed has gone to recapitalize the banks and assist the credit markets. It will not make it off their balance sheets in any meaningful way. To wit, the demand for credit is declining. Until we reach a more sustainable level of societal leverage, you can expect more of the same.

Uncategorized Fed, Inflation, USDollar

since I last posted. Obviously things have gotten a little wooly since then. Of course, when I started this blog, I figured some people would read and comment, but that apparently takes more marketing acumen than I possess.

As I suggested here on Seeking Alpha, the market was highly oversold and due for a bounce. Little did I know all hell was about to break loose.

I caught a decent amount of the bounce, but frankly was underinvested. I’m still waiting for my pullback to add some more long exposure. At the rate this thing is moving, I’m not getting that shot. Even before today, I was desperately looking for some place to put more money to work and I couldn’t find one. Leave it to the Fed to spoil the party.

With today’s announcement, the Fed has crystalized a trend that I saw forming last week. I was worried about the fact that as the equity markets were rising, the dollar was falling.  I sent my observation to a buddy at a hedge fund.  He didn’t seem too concerned.  Then today, BANG!  The Fed drops $1T in future purchases on the market.  The dollar index dropped 2+% after the announcement.  It was the third largest drop in the index since 1970.

You do the math:

S&P index     – up 2.09%
USD index    - down 2.6%

What does this mean?  Basically if you were fully invested in the S&P today, you actually lost money on a relative purchasing power basis… about a half of one percent of your wealth went up in smoke today.  The S&P had the best performance today among the three major indexes in the US.  If you were tilted more towards the others you lost more.  If, sadly, you were sitting on a lot of cash today, you just got stone cold smoked by the Fed.  2.6% of your relative wealth just got vaporized.

Who were the big winners today?  If you held 10-year treasuries, you made out like a bandit.  If you held gold or silver either through an ETF or physically, you made out a lot better. 

Strange times indeed.

Quantitative Easing Fed, smoked, USDollar