Thursday, April 28, 2011

Obama and the Race to the Bottom

The results of the President's economic policies are becoming plain to see. The economy is mired in stagnation; inflation is picking up; and new unemployment claims are surging. The national debt is reaching catastrophic levels. The Fed is printing money to finance purchases of new debt (they bought 80 percent of the newly financed deficits for the past eight months). The most absurd economic policies in American history are bearing fruit. The economy is a total mess.

Obama often speaks of "the race to the bottom." Now we know what he means. The American economic engine, once the envy of the world, is now a joke, and a bad one at that. Obama's policies have strangled the private sector and broken the finances of the federal government.

So what is Obama doing now? He's beginning his re-election campaign. Wonder what part of this record he plans to defend?

Keep talking, Ben: US Dollar update

Listening to the Flamin' Groovies as the dollar burns. $USDXThu Apr 28 14:06:14 via web

This is what's going down. Here's the weekly chart on the dollar index:

Wouldn't be surprised to see a new low on the index shortly, followed by a consolidation period and a months-long rally in the USDX. That seems to be the pattern, anyway, over the last several years. We'll be watching.

Sunday, April 24, 2011

New music on Trader Rock

New stuff on Trader Rock, the full-time rock n' roll jukebox:

I've posted some new music and documentaries for your listening and viewing pleasure. New jukebox selections from David Bowie, Kate Bush, OMD, Joy Division, The Move, The Smiths, Suede and more are featured in our latest posts.

You can also take advantage of continuous play rock with the Trader Rock YouTube playlists; all our hits are compiled in sequential order for non-stop rock n' roll fun. Perfect for those who want to rock out at night, or while you work (researching, trading, etc.) at your desk! 

Enjoy, and check out our links section for more great music blogs & online radio resources.

Wednesday, April 20, 2011

Wealthtrack interview with James Grant

Grant's Interest Rate Observer founder, Jim Grant sits down with Consuelo Mack for an interview on WealthTrack.

Topics include: the rising cost of living and commodities, the US dollar's decline, and the Federal Reserve's targets for "desired inflation". See what Grant has to say about all this, and more, in this discussion.

By the way, I don't think anyone who caught Grant's interview or Michael Burry's recent talk on America's financial condition was surprised by S&P's recent warning on America's AAA debt rating. Only the timing of the outlook revision might have come as a surprise, and even that may have been telegraphed to market participants earlier.

Related articles and posts:

1. Jim Grant and John Hathaway chat with Charlie Rose.

2. Jim Grant's latest interview with King World News.

3. Lew Rockwell and Jim Grant discuss Austrian economics, gold standard.

Greek Restructuring -- Sooner or Later?

It is interesting to see folks saying that if the Greeks restructure their debt (meaning a partial default on their debt) that a financial Armageddon will soon follow. Since restructuring or some type of default is inevitable for Greece, I guess there must be a financial Armageddon in our future. Last week the IMF suggested that the Greeks must restructure within 12 months and now more voices have been added saying essentially the same.

What those who worry about the coming Armageddon don't seem to get is that "restructuring" or a "partial default" is inevitable for Greece, Ireland, Portugal, Italy, and Spain. Indeed, one should add Germany and France to that list since their governments and banks have backstopped the former countries with bailouts in the past 24 months.

What is wrong with a default or partial default by Greece? Nothing. Those who have made bad loans to Greece should lose money. Is there any reason that they should be insulated from their bad decisions and the losses should be spread to those who did not make bad decisions? That's the problem with bailouts. They transfer wealth from those who made good decisions to those who made bad decisions. Why is that a good (or fair) idea? The answer is: it isn't.

Lending money to people who can't possibly pay it back is stupid and will eventually result in loss. Call it financial Armageddon or whatever you will. It is inevitable. The Western European plains are soon to be littered with defaults, partial defaults and restructurings. There is no way to avoid it. You may as well plan for it.

Saturday, April 16, 2011

Michael Burry talks "Big Short", America's future at Vanderbilt

Michael Burry, the Scion Capital founder and subprime speculator profiled in Michael Lewis', The Big Short, talks to Vanderbilt students about his now-famous subprime CDS short trade and the perils of America's financial future in this video lecture.

Last week on Twitter, I retweeted DDI's notes on Michael Burry's talk, which gave rise to hopes that video of this talk might soon be available. Indeed, that video is now here and it has been making the rounds over the last few days.

Be sure to check DDI's post for comments from the Q&A (Burry's thoughts on farmland and capitalist innovation in Silicon Valley) that might have been edited out (?) of this video.

Burry's talk adheres to a script early on, but as he warms up near the second half of this presentation on the causes of the housing collapse and the financial crisis, the vibe is a bit more loose and the information presented is excellent throughout.

Watching this clip, I get the feeling that we are witnessing a first-rate historical commentary on the pre and post-crisis environment. If economic historians don't look back to Burry's talks, or Tom Woods' analysis of the crisis, they'll be doing everyone a huge disservice.

If you want to know a great deal more about Michael Burry's investments and his views on America's current cultural and financial condition, check out our posts in the section below. Lots of valuable info, including an unedited Bloomberg interview transcript, will be found here.

Related articles and posts:

1. Michael Burry: macro star? (Bloomberg interview transcript) - Finance Trends.

2. Michael Burry bullish on farmland & gold (Bloomberg) - Finance Trends.

3. Michael Lewis on Charlie Rose: The Big Short - Finance Trends.

Why Bail Out Bondholders?

Debts continue to rise in the US and in Western Europe. The so-called bailouts of Greece and Ireland simply enable those countries to get deeper in debt and continue the fiction that some day those debts can be paid off. They can't.

Over the next sixteen months, more European countries will be added to the bailout list: Portugal first, then Spain, and then attention will focus on Italy. The purpose of a bailout is to enable a country to continue to expand its debt. Is that a good idea?

Isn't it time the lenders took a loss. Why are we protecting the lenders? The lenders are sophisticated, highly paid folks, who took a risk that is not working out. They should get burned for their mistake. Why bring the taxpayers into the picture and continue to increase debt levels that everyone knows will never get paid.

It is time for a "workout," as they say in the finance world. Lenders and borrowers need to sit down at a a table and "work out" a new repayment schedule -- a schedule that will inevitably lower debt levels and force the lenders to restructure their way into losses. This is going to happen anyway. Why not start now, instead of pushing policies that simply increase debt to even higher levels and perpetuate the myth of eventual repayment.

Capitalism can't work unless you let it work. Let it work.

Friday, April 15, 2011

Interview with futures trader, Peter Brandt

Mercenary Trader has been posting segments of an in-depth interview with Peter Brandt, trader and author of the recently published, Diary of a Professional Commodity Trader.

As I recently started reading Brandt's new book (which I'll try to review in the near future), and have been following him on StockTwits, I'm interested to hear more of his thoughts on trading and risk management.

You can check out the first few sections of MT's interview with Peter Brandt here at Peter's site, and check in with either blog for the forthcoming final part.

Tuesday, April 12, 2011

Update on the S&P 500 $SPX

This SPX daily chart should serve as an update to our February post, which highlighted a new weekly high in the S&P 500.

Since that time, we've seen some chop in the stock market as the SPX worked below, and back above, the magic line around 1,311. We saw an 85+ point rally off the March low near 1,250 on the S&P and have since sold off from the rally highs in early April.

Here's an updated view of the weekly S&P 500 chart:

As we enter the 1st quarter earnings season, I'd like to highlight two posts from Joe Fahmy and Olivier Tischendorf on the current state of the market.

As you'll note from their updates, neither trader is in a mood to put on new positions here. Rather, they remain in a patient "wait and see" mode as they gauge the strength of this market. Check out their thoughts in the links above.

Yellen and Dudley

Academic economist Janet Yellen, now President of the San Francisco Federal Reserve Bank and Bill Dudley, long time Wall Street (Goldman Sachs) economist, now president of the New York Federal Reserve, have both chimed in on inflation in the last 24 hours. They don't see it coming. The Fed, in their view, should continue to expand its balance sheet to historic levels, effectively printing massive quantities of new dollars. Why?

Well, in their collective view, the economy is still weak and the incredibly surging commodity prices will soon be reversed. Maybe they should be trading, not running FRS banks. Their views and analysis show the poverty of economics as a science. Both Yellen and Dudley are staunch supporters of President Obama. He doesn't see any inflation coming, so neither do they. It's that simple.

Once again, the Yellen-Dudley theme is that government knows best. In this case, the government's agent is Ben Bernanke, whose famous utterance in 2007 that housing prices were justifiably high based on sound economic fundamentals, still echoes as a reminder of how little economists know about the economy.

There ought to be a rule that when you don't know anything about the future don't do anything that might make things worse. If that were the case, Ben Bernanke would be joining the ranks of the unemployed, instead of setting up future problems for the struggling American economy. His cheerleaders, Yellen and Dudley, should go back and do some research to justify their political leanings instead of sounding off about things they know nothing about. All we have learned from their pronouncements is that they both still worship at the shrine of Obama. We've learned nothing about the future of inflation from either of them.

Monday, April 11, 2011

What will historians say about us?

Great quote from Umair Haque:

I have a hunch. The puzzled historians of the 23rd century will say: "Why did they let sociopaths, crooks, and narcissists run their world?"Thu Apr 07 16:48:22 via TweetDeck

Friday, April 8, 2011

Sound and Fury ...Signifying Nothing

The budget impasse is a lot of drama over very little. A $ 40 billion spending reduction shows that neither political party understands the depth of the US's national debt problems. It will likely take a failed treasury auction before the politicians on either side of the aisle understand how serious the US situation is. We are not that far from a Greece debacle or a Portugal debacle....and the European Central Bank is not available for our needs. Perhaps Obama should go ahead and take his Virginia vacation this weekend as planned. He doesn't really understand what's going on anyway.

By contrast, the victory in Wisconsin for Scott Walker is a true victory for fiscal sanity. Things look brighter in Wisconsin, but they remain pretty dim for the US taxpayer.

Thursday, April 7, 2011

Hedgeye on government shutdown

Must read note from Keith McCullough at Hedgeye on the government shutdown:

"Finally, we’re here. This week we’re finally going to see US Professional Politicians face the door that’s closing on their conflicted and compromised careers of debt-financed-deficit-spending. This isn’t the time to give into their fear-mongering. This is going to open he door for a generational opportunity in America. This is great news.

On Friday, the stop-gap bill to keep the US Government open for business expires. With $14,272,778,776,442 in US Debt + another $55,800,000,000,000 in unfunded Medicare and Medicaid liabilities, I say shut these politicians down. The biggest risk to America today isn’t what’s happening in the Middle East or Japan – it’s the 112th Congress..."

Keith just linked to this Monday research note on Twitter and I had to post it here. Hope you'll take a moment to read it and pass it along.

Tuesday, April 5, 2011

Michael Steinhardt talks Buffett, America with CNBC

Legendary hedge fund manager, Michael Steinhardt has a few things on his mind and he shares them readily in this interview with CNBC.

A few highlights from Steinhardt's chat with the CNBC crew: 

  • Hedge fund management is not the elite business it once was. Managers today content with low double digit returns, versus emphasis on true performance and 25%-40% annual returns in Steinhardt's days.  
  •  Asked if he could repeat his performance today, Michael demurs, "I don't know". He notes that magnitude of funds involved in hedge funds is much larger today. Emphasis has shifted to making money off a large asset base, as opposed to performing for your investors. 
  • You don't have to do what everyone else is doing. You do need to understand the way in which your perspective is different than the world's (your edge).
  • Steinhardt is concerned about savers (old folks and retirees) getting shafted by near zero interest rates and inflation. This is a terrible situation for Americans.
    • Buffett's carefully crafted PR persona and his philanthropy-in-one-fell-swoop approach are "worth reflecting on". 
    • Superficially, the United States is doing okay. Steinhardt looks at the inflation picture, the valuations in the stock market, and America's economic strength and its cultural standing in more depth.
      Seems a lot of the comment surrounding Steinhardt's interview today focused on the Buffett side of the equation (especially given the forum; CNBC is Buffett ass-kissing central). 

      While it is interesting to hear someone publicly question Buffett's "PR" persona and his philanthropic gestures,  I'm actually more interested to hear Steinhardt's take on the economy and the reality of inflation, as well as how that affects the average person in America today. 

      This rich guy gets it - why do all the pointy-headed academics have such a hard time voicing these simple truths (maybe because they're paid to do the opposite)? 

      Friday, April 1, 2011

      Finviz 1 month futures performance chart

      Keeping it short and sweet. Here's a chart snapped earlier today, showing the 1 month relative performance view for futures tracked by Finviz

      Natural gas, silver, and live cattle lead the gainers column. Cocoa, Nikkei, and orange juice futures put in the worst performance over the past month. 

      Looking over the full chart, it seems that livestock and energy (crude oil, nat. gas) had a pretty good month, while softs (orange juice, sugar, coffee), metals, and grains tended to be laggards in March. 

      Who knows what April will bring? One thing's certain, we'll be watching.