Sunday, December 28, 2008

 

The 16th Game

Congratulations to the Miami Dolphins for winning the AFC East Division after finishing 15 games out of first in 2007. That 15 game turnaround is probably a record.

Last year many Dolphins fans were rooting for the Giants to beat the Patriots on the last game of the season. This year many in the Patriot camp were hoping the Jets would beat the Dolphins in the last game of the 2008 season.

Dolphin fans received some criticism for being so negative in 2007. I trust the same people who spoke ill of the Dolphins fans last year felt the same about the Patriots and their fans this year.

Friday, December 26, 2008

 

The Risk of Hyperinflation 2

I love when I am ahead of the curve, in this case, the yield curve. Right now everyone is in a race to the lowest interest rates since the...wait for it...Great Depression. Investors just want to get their money back so they are willingly lending the Federal gov't money for 30 years at 2 1/4 %. Does that make much sense? Well no it doesn't. But fear is driving most investment decisions today.

The Fed has a very specific strategy. A strategy they have used in the past. Lower interest rates and force investors out of safe instruments like U.S. treasuries and into stocks, corporate bonds, and real estate. The problem is no one wants to borrow money to buy a depreciating asset. So the investing class will sit on its hands until prices stop falling. That is where we are now. Waiting for the bottom and all the Fed's efforts will do little but prolong the inevitable deleveraging.

For any doubters out there, please note the last paragraph of the committee's communiqué: "The Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities . . . and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. . . . The committee is also evaluating the potential benefits of purchasing longer-term Treasury securities."

In other words, the Fed went for it, corroborating the view that many of us have held for some time: that when push came to shove, the central bank would let nothing stand in the way of printing any amount of money and monetizing anything required to fend off the ill effects of the collapsing bubble.


What will happen after asset prices are cheap relative to income? This is where my fear of hyperinflation comes in. All that liquidity that the Fed is pushing into the economy could be the fuel for a massive inflation a few years from now.

By convincing investors interest rates will remain ultra low for a long period, the Fed has made them willing to lend to the U.S. government for up to ten years for what is a paltry return.

There are two risks. First, the massive rise in bond prices and compression of yields has come in the secondary market. The U.S. Treasury has not yet succeeded in placing much of its massively expanded debt and new requirements for next year at such low levels. But given the panic-driven demand for default-free assets, officials should not have too much difficulty.

The bigger one is that the Fed is misleading investors into the biggest bubble of all time. Bernanke is making what learned economists call a "time-inconsistent" promise to hold interest rates at ultra low levels for an extended period.

As I have said, the dollar and long term treasury rates will signal this inflation first. This will not happen until asset prices have bottomed but the Fed better stay on the ball.

There's an unwritten sequel to this story: The Fed will be exceedingly slow to remove that liquidity. Thus, whenever the economy stabilizes, at whatever level, the rate of inflation seen shortly thereafter will be quite substantial, I would guess.


If the Obama administration begins its massive public works projects at the end of 2009 that will be just about when they are not needed. Massive gov't spending and massive monetary stimulus will be the fuel for massive inflation. We would be better off letting home prices fall another 10-15% and being done with it in 2010. Of course, letting markets work out of this problem on their own has not been Washington's modus operandi for a long time.

P.S. Bill Fleckenstein is offering free access to his main website over the hollidays. He is also decided to close his short focused hedge fund. Again, I like being ahead of the curve, I just hope that I am not too far ahead.

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Wednesday, December 24, 2008

 

8 Predictions

In case you were not hearing enough bad news.

Tuesday, December 23, 2008

 

Around the Horn of Plenty

Big Money goes around the infield.

The Yankees signed first baseman Mark Tiexeira to an 8 year, $180 million contract.

If he plays every inning he will make $15,432.10 per inning. Sounds like a lot but the guy at third who will be occasionally throwing him the ball makes $18,861.45 per inning.

In 2008 the AL Champion Tampa Bay Devil Rays paid $29,782.57 per inning for their entire team.

Monday, December 22, 2008

 

A Second Mortgage Disaster On The Horizon?

Please watch this report from 60 minutes. I know that my ranting and raving over the years about the bubble economy having inflated assets has had the opposite effect that I wanted, ignore the loon and keep on making buckets of money on the bubble. Now that the worm has turned it is a little discomforting to find so many mainstream media outlets agreeing with me.

Just remember, the best time to sell is when the trumpets are blaring and the best time to buy is when there is blood in the streets. We will survive this and there will be many blood in the street moments. Be patient.

 

Fight On, Blago

Blagojevich is not fighting for the people of Illinois right now but he is doing good for our state. The last thing I want to see right now is for him and this scandal to go away. The longer this drags on the greater the chance of exposing more of the colony underneath the rock that is covering the reality of Chicago and Illinois politics.

Thursday, December 18, 2008

 

Dump Internet Explorer

A friend of mine told me a Russian joke which goes like this. It was common for the gov't to set production goals based on 5 year plans and it was also common for the factories to pick up production towards the end to meet their goal. A cigarette factory was trying to do just this when they found themselves in a year with a severe tobacco shortage.

The head of the factory asked his underlings if any of them had any suggestions. One young man said that his cousin who lived in the Ukraine said that there was planty of supply near him but there was a catch. It was in the red zone near Chernobyl. Since they had no choice the boss sent his men to the Ukraine to get the tobacco and they made their quota in time. To be fair the factory printed a label on the cigarette which said, "Ok, this time we're really not kidding."

For Microsoft I.E. users, this time we're really not kidding. (Via Hot Air.)

Diego: Chernobyl is not that bad, just ask the KIDDofSPEED!

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Wednesday, December 17, 2008

 

Bailout Madoff

Wish I had thought of this first.

With the financial markets already in a state of panic and the global recession expected to worsen in 2009, we can ill afford to allow the financial institutions, charities, and rich idiots that entrusted Bernard Madoff with their money to go bust. As for the widespread contention that since Mr. Madoff committed fraud he deserves to go to jail, do not think of Madoff as operating a ponzi scheme so much as a Strong Armed Perception Fund (SAP Fund), and don’t think of him as breaking the law so much breaking new ground in the arena of fictitious returns.

In short, there needs to be a new bailout effort entitled the Criminal Reprieve Assistance Program (CRAP) to provide ingenious criminals like Madoff the tools required to help kick start the faltering U.S. economy. By investing $100 billion with Madoff so that he can start-up a new and improved SAP Fund and make current clients whole, the CRAP would immediately help restore confidence in the marketplace. Concurrent with the Madoff bailout pieces of CRAP could also be used to expedite the release of jailed mortgage brokers so that they can help stabilize the collapsing U.S. housing market by doing what they do best - underwriting crappy mortgages.

What we have failed to learn time and time again is that the Madoffs’ of this world take risks that ordinary investors do not, and only when these criminals amass enough capital and clout does the average investor stand to benefit. If adopted the CRAP can effectively flush out the safety-crazed attitudes of investors now taking root and allow unlawful innovation and the temporary perception of wealth to flourish once again. It goes without saying that the only alternative if the CRAP sinks and Madoff doesn’t get bailed out is financial Armageddon, millions of jobs losses, and another Great Depression.

 

The Risk of Hyperinflation

I am not very worried about this right now. There are very few signs of this although there are some things on the horizon that might make this a possibility. First, the gov'ts response to deflation has been to throw copious amounts of money at the problem which is not really a solution at all. Our problem is that asset prices are too high relative to income and they must come down. Making more money available will not cause rational people to buy those assets. Low rates of interest are not really much of an incentive to buying assets that are falling in price. The only solution is to let prices fall because the Federal gov't does not have enough money, i.e. credit, to buy enough assets to stop falling prices.

Ahhh, but the Federal Reserve does have enough printing presses to "create" the money some may say. Well not really. They can try and create credit but they can't make people use it. They can create make work jobs and build infrastructure but that does not add to the productive capacity of the economy. What they can do, perhpaps, is to trash the dollar and the credit rating of the U.S. treasury. The thing is I can't imagine how we would ever get to that point. Every investor, saver, everyone who has a vested interest in not seeing the U.S. turn into Argentina will be watching the dollar and watching long term interest rates. A falling dollar and rapidly falling U.S. treasury bond prices are the harbingers of hyperinflation. When that starts to happen there will be plenty of screaming, enough even to give the One pause.

So far, I have felt pretty good about not buying a house since my wife and I moved back from Russia but we are approaching a time when a home will be necessary. Our growing family will not sit well in a two bedroom apartment by 2010. By then I expect to be able to find something at least as cheap as now. In this case I will not be too early.

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Wednesday, December 10, 2008

 

Struck?

NO, I am not struck. I am just glad that this is getting some national attention.

"If you read all 72 pages of the indictment, you just can't help being struck by the money-grubbing nature of the governor and his mania for money. He had schemes within schemes to extract cash from supporters, cronies, and companies who wished to do business with the state."
None of this surprises me. The only new idea floated in all the reporting so far on Blagojevich is that perhaps he is insane for being stupid enough to talk on the phone when he knew he was under investigation. Other than that, nothing new.

It will be interesting to hear just how awful he sounds on the recordings if they are made public.

Via Instapundit, Eugene Volokh asks some good questions:


But my sense is that political deals of the "I appoint your political ally to X and you appoint me to Y" variety are pretty commonplace, though perhaps done with more subtlety than seemed to be contemplated here. Should these deals indeed be treated as criminal bribery? Have they generally been so treated? What if the deal didn't involve appointment-for-appointment swaps but vote-for-vote swaps or vote-for-appointment swaps — e.g., "if you vote the way I want you to vote, I'll vote the way you want me to vote" or "if you vote the way I want you to vote, I, the Speaker of the House, will make sure that you're appointed to the committee chairmanship you always wanted" or "if you solidly support me during this Congress, I'll appoint you to the Cabinet"?
I think this is business as usual in Illinois and to some extent elsewhere.



Tuesday, December 09, 2008

 

Senate Seat Sale

Does this really surprise anyone? I understand that Blagojevich may have been careless in his ways but this seems like business as usual to me.

 

Hall of Fame

Ron Santo had this to say on the the Veterans Committee (a 64-member panel made up exclusively of all living Hall of Fame players that votes every other year on players from 1943 and after) MLB Hall of Fame selection:

''It's a travesty,'' Santo said, according to the Chicago Sun-Times. ''When I saw nobody got in again, I go, 'Whoa, this is wrong.' They can't keep going the way they're going. They've got to put a [different] committee out there.''

"It'll be eight years now that they've voted and not let anybody in. And personally, I feel like there's a lot of guys that should've been in, not just me," Santo said, according to the Chicago Tribune.

However, Hall of Fame chairwoman Jane Forbes Clark noted that the goal of the two-stage veterans' process is not to elect someone every time they vote, according to the Sun-Times. ''The process was not redesigned with the goal of necessarily electing someone, but to give everyone on the ballot a very fair chance of earning election through a ballot of their peers,'' Clark said, according to the report.

Clark is right here. You either belong in the Hall or not. That goes for all Halls of Fame as far as I'm concerned. The playing around with votes is joke in my opinion. As an example, some players have a better chance at getting in if there are no obvious selections in a given year because voters seem to give them more attention. That is ridiculous.

However, in Santo's defense I think he belongs in the Hall. I suspect the recent selection of Joe Gordon has more to do with his playing for the Yankees than his stats.

Monday, December 08, 2008

 

Common Sense Conclusion

I'm not sure how much time was spent on this 'study' or how much thought was put into it's conclusion but it all seems pretty simple to me. "If people could cut down on their portion sizes, this would be the single greatest way to combat the creeping obesity epidemic,"

Obesity Epidemic? That sounds ridiculous. Some people have an easier time managing their weight than others, I'm not posting to voice anything negative about overweight people here. I'm just pointing out the obvious.

If you are obese then eat less and or exercise more, preferably both. Or don't do either. It is your choice.

Sunday, December 07, 2008

 

A plan to survive the Obama years

Every strong Republican president who succeeded in protecting America has allowed Americans to become complacent about national security, thereby opening the door for weak Democrats who allowed enemies to threaten and attack America without penalty. Obama will be no different, and Americans will have to learn again that there can be no economic security without national security.


He doesn't mention that Democratic presidents have left economic messes for the next Republican to clean up, which was the norm until now. I consider this a bipartisan mess in part because neither party has figured out, beyond a few individuals, that this mess was caused by an easy money policy at the Fed. When will a prominent Republican step up and criticize the Fed?

I wonder how long the honeymoon will last when unemployment tops 8% next year?

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Saturday, December 06, 2008

 

Schism Complete

A new Province of the Anglican Church in North America, a rival province to The Episcopal Church USA complete with a provisional constitution and nine canons, was birthed today with 700 churches and 100,000 church-going members. A formal ratification of the constitution and canons will take place in a provincial assembly in six months in Bedford, Texas, at St. Vincent's cathedral in the diocese of Ft. Worth.

It is historic and unprecedented, said Pittsburgh Bishop Robert Duncan moderator of the Anglican Communion Network. "It is an extraordinary day for us. We have reversed 40 years of Anglican history and years of division among The Episcopal Church and the Anglican Church in Canada. Today we bring together 11 jurisdictions in Canada and across the US. Today marks 5 years of labor and attempts to come together."



Friday, December 05, 2008

 

Moscow Never Sleeps


 

1 in 10

One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter as the world’s largest economy shed jobs and real estate prices tumbled.

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Tuesday, December 02, 2008

 

Red vs Blue

Or Cardinal (Red) vs "True Blue"

I think this is a good idea and would like to see more of it: "The last time the Trojans and the Bruins both wore home jerseys -- the Trojans in red, the Bruins in blue and gold -- was in 1982, when the schools shared the Los Angeles Coliseum. "I just thought it was a really cool tradition," (USC coach Pete) Carroll said. "

This violates NCAA rules which requires the visiting team to wear white. USC would be penalized two of their three time outs per half. Unless there is good reason for this rule I hope they make an exception or get rid of the rule completely. Are there color blind issues? That could make sense. An important note, UCLA coach Rick Neuheisel is in favor of the idea.

A few years ago the Dallas Cowboys and Denver Broncos played on Thanksgiving and both wore their vintage uniforms, Cowboys in blue and Broncos in orange. The NFL approved it. I'd like to see more of that if there are not good reasons against it. College basketball does it often. Illinois and Wisconsin recently played in orange vs red which was a little too close for viewers but the players said they had no problem with it. I'd restrict the color match ups to those with a little more contrast.

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