Thanks to Bloomberg and Fox we might now find out who borrowed what and what was provided as collateral to the Fed during the crisis we may finally know thanks to a lengthy legal battle. The Fed might continue to fight, but it may not go much further, just show us already as this data is almost 2 years old, I am sure we can handle the truth.
However, you will see that the Fed took some very questionable items as collateral or so we think. Some bankruptcy documents do show that the Fed did take some stocks and other, well, crap for collateral during the height of the financial crisis. What many people do not know is that it is against the rules for the Fed to take credit risk since it is the U.S. governments bank. These documents will either confirm or deny those rumors, but I am betting on the former, if we ever really get to see them.
Could this be the end of the Fed as we know it? I hope so because since the Fed was enacted, in secret in 1913, we have witnessed the dollar lose 97% of its value, a depression in 1920-21, the crash of 1929 leading to the Great Depression (now known to be the Fed’s fault for tightening credit), more boom-bust cycles than any other time in history, the 1970’s (really, need I say more about the 70’s? I think they introduced bell bottoms too, but I cannot prove it), the 1980 near collapse of the U.S. treasury market, the first banking crisis, Long-Term Capital, the dotcom bubble, loose monetary policy for the last 30 years, the housing bubble, the complete meltdown of the financial system, and, for its final act, complicity to destroy the dollar’s value with its current balance sheet.
Really, I cannot think of any reason why we need to reform the Federal Reserve system.
I just read a story where Larry Summers, White house economic advisor, is blaming the weather for a potentially ‘distorted’ jobs report this Friday. Seriously, we are still going with the bad weather? It must be snowing everywhere, the UK, Greece, China, the Ukraine, Dubai, etc. The data all over the world, including today’s ISM number, is rolling over and in some areas it is just plain scary. I got news for you, it has nothing to do with the weather, at all.
Over the past few weeks more and more companies announced layoffs, not a good sign, and the initial claims data went way up over the past 4 weeks. The data started to roll over before the snow hit the ground. Not to mention, but the last time I checked it usually snowed in the winter time anyhow. I realize we had a few days of snow, but nothing major and it is beyond me how snow would be firing people. I will say that the weather impacted retail sales, but not all this other data.
Let’s not forget that the vast majority of the bad weather was also in the Northeast so I am very excited how the bad weather in NY caused California to have increased unemployment figures. Never in my life have I seen such a snow job being perpetrated by the talking heads and now Washington blaming bad weather for horrible economic data. What will happen next month when we have even more layoffs and there is no weather to blame? Maybe we will blame the sunshine because people are so broke they cannot afford sunglasses… wait that kind of admits the economy stinks, never mind.
My point is that the data, well before the snow, rolled over viciously and it is the economy that is the problem. We are over 2 years into this thing, recession/depression, whatever, and we are still losing jobs, that is not good. The unfortunate part is we spend trillions only to be in a position where employment is continuing to contract. It is fair to say that the stimulus probably helped a little, but clearly it was not as big of a help as the administration claims. As an aside, it will be interesting to see if some municipalities file for bankruptcy in the next couple of weeks, maybe that is because of the bad weather as well.
It was funny to see many of the pundits spin bad data on the weather. This equates to my daughter saying the dog ate her homework. It is hard to believe the snow is to blame for higher initial jobless claims when we are in the middle of winter. However, I will concede that retail sales will be pretty horrible because of the weather, but other pieces of data, well, not so much of that weak data can be blamed on some snow.
Housing starts stink because the housing market is in trouble and even massive government stimulus is not helping. My guess is this data will probably improve in March to April because of the last minute rush to buy homes, but I would not count on that being much of a bump. What is worse is that the President wants a permanent moratorium on foreclosures which is doing no one any good and, in fact, will hurt banks that would not be able to collect or sell an asset that is earning them anything. I am referring to Obama’s demand that before a foreclosure can happen it has to pass through the re-modification process. Capitalism is officially being suspended until further notice.
As far as jobless claims are concerned, they are going to get worse as far as I can see. I am basing this on antidotal evidence of firms continuing to announce layoffs and a jump in the mass layoff indicator a few days ago. It is crazy to think employment will improve when you have blue chip companies announcing layoffs and claims are heading back above 500K a week. This is not because of the weather it is because the economy stinks. David Rosenberg calls this a Houdini recovery and he is correct. Besides a statistical recovery and a rally in equities, which is odd considering the dismal news over the past 2 weeks, the average person is worse off than they were last year. Again, unless it has been snowing for 8 months it cannot be blamed on the weather.
Perhaps it is snowing in Greece as well, that will explain their financial problems. It is true that the weather hurts certain things, but it has a rather limited impact on employment. After all, snow removal companies would probably be hiring. The weather might hurt retail sales, but with more people using the internet, me included, to shop I would not buy the soon to be claim that the weather killed retail sales. This is all about uncertainty in the world and to deny that there is uncertainty is simply crazy.
We have problems all over the place from domestic issues to possible sovereign defaults. Let us not forget we will witness municipal bankruptcies in the near future as well, chapter 9 is the more likely bankruptcy procedure. Health care reform is back and will be passed, whether you like it or not, and believe me you should be careful what you wish for because this means higher premiums for everyone. Do you really think Anthem raised prices 39% because they wanted to? Nope, it is because, I as speculated months ago, they know they are out of business in 4 years. All of these things mixed with tight credit conditions means tons of uncertainty.
Why the markets are not down 200 points, I do not know. However, it appears that Goldman Sachs was a huge buyer or S&P 500 futures yesterday, according to Zero Hedge reports, which made this a futures driven rally, check out the trading between 3 and 6AM for more weird futures action. I do not want to spread conspiracy theories, but all I am saying is the markets are trading very odd right now. I am still very bearish, how could anyone be bullish with the horrible data we have seen as of late? This is not 1 week of bad data, but 2 months worth of bad data and the market ignores it, weird.
Bad things often happen to good people, but why would anyone take advice from a guy who is bankrupt? Lenny Dykstra famously lost his house and fortune last year in a very public bankruptcy and at one point the judge ordered a trustee to take control of Dykstra’s assets because Lenny seemed a bit, um, well, aloof. Lenny claimed that he got bad advice from a mortgage broker and was a victim of fraud. I do not know if the allegations are true or not, but one thing I do know is that you do not buy a house you cannot afford, he clearly could not afford it, and then claim fraud.
Lenny famously wrote for the TheStreet.com under the watchful (?) eye of Jim Cramer who had nothing but praise for Lenny. That is, of course, right up until his bankruptcy hearing when he was quickly and quietly let go from Cramer’s outfit. You would think after such a public display of horrors Lenny would simply just go away to rebuild his life somewhere, but that is not to be. Apparently Dykstra decided that he needs to get back up on that horse and has started a website to sell his top picks.
The service for Lenny’s top picks range from $899 to $1548 a year, depending if you pay monthly or all upfront. For this service you get access to Lenny and a signed baseball as a value add proposition, ever hear of Ebay? Regardless, his website mainly brags about his baseball achievements and his prowess as a deep in the money option player, but you have to pay to find out how good he is. What his site leave out is the facts regarding his own personal financial problems.
While I could never hold a personal financial issue over someone’s head or a string of bad luck, maybe he was a victim of fraud, but to omit such information is sketchy to me. If he was so good at picking winners, he boasts a track record of 140-0, how could you lose your home? I honestly wish Lenny the best, but why anyone would trust his picks or why he would omit his public financial problems is just dirty pool, in my opinion. Everyone is entitled to make a living doing what they do best and, in this case, perhaps Lenny should go back to something baseball related instead.
Everyone remembers the aftermath of 9/11/01 and how horrible those days were, but what sticks out in my mind, after the obvious, was what happened after words. The President said to get out and shop, and boy did we, but the thing most do not recall is what the auto industry did to boost sales, 0% financing. This was the beginning of the end for the auto industry simply because how can you ever raise financing costs after you go to 0%. The demand that 0% financing created meant that the automakers would have a heck of a time raising those rates and they needed the sales. It essentially created a major problem for the industry which help speed its way into bankruptcy.
We are seeing the same thing happen in housing with all the government help being injected into the market. We have tax credits to encourage buying, but we also see what the market looks like without those credits, see recent home sales data, and we have the Fed lowering mortgage rates like mad with QE. What happens when/if these programs stop? It will get ugly, just like when the automakers tried to stop 0% financing. If you do not let the markets work their magic, i.e. stop malinvestments, the pain is just prolonged. GM and Chrysler should have gone out of business a few years ago but that 0% financing helped keep them around, however it could not stop the inevitable.
The mistakes made by the automakers are being made by the government with the housing market. Homeowners already enjoy a ton of tax breaks, mortgage interest deductions, property tax deductions, etc. and the last thing they really needed was a tax credit to buy a home. It has helped, the data shows that, but the problem is these programs have to end and then what happens? As we have seen already, with limited data of course, is that housing does not move without that tax credit. Sure we can blame the weather or whatever external force we want, but that is ignoring the obvious, housing wants to go lower. That leads me to believe that more tax credits are on the way and QE is a permanent fixture at the Fed, see Japan.
When you incentivize buying to such a degree you create a major problem for yourself, or the country in this case, as you boost expectations on false hope. Once you remove those incentives and reality sets in you are stuck with doing nothing, clearly something government does not want to do now, or let the market sort things out, what should happen. Because the government has created false hope for a housing recovery they have created more problems than they solved. The sales we do see now are false demand, meaning it is only there because of the rich incentives, which means that many economists and market participants are creating strategies or projections around numbers that are not real. The fact is that without a natural housing recovery the economy cannot recover.
While the insane 0% financing hastened the decline of the automakers into bankruptcy, in my opinion, the government is simply slowing the fall of housing or kicking the can down the road a bit. The good news is that at least the incentives will not cause the government to go into bankruptcy, well on their own at least, but it is an enormous waste of money. The government should step back and stop what they are doing and the Fed needs to stop its QE program. If neither stop and they continue doing this the next leg down will be ugly and, the reality is, we do not need more incentives to buy houses, look at the tax breaks you get now. False demand creates false hope which lures investors into investments they ordinarily would not buy. When that false demand and hope disappear those investments decline in value, investors are being suckered.
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