Economaton

WaMu Fails; McCain calls for LESS regulation. WTF?!

2008-09-26T05:53:22Z

Washington Mutual just failed, upping the ante. The Republican plan is unbelievable. They call for EVEN LESS regulation of financial markets?! According to the WSJ, McCain is responsible. Evidently, he’s trying to fire up his conservative base.

This stuns me. To think that that base does not see some connection between 10 years of financial deregulation and the current crisis? Moreover, they expect that nobody else does, either?

The rest of the plan is vague and equally absurd. It seems calculated to appeal in some abstract sense to armchair libertarians come next election cycle, rather than solve anything today. Some highlights:

Six Steps to End the Crisis

2008-09-26T05:39:49Z

The government bailout for private investment firms amounts to a blank check written by the taxpayers to cover their disastrous years-long orgy in Vegas. I came up with some points that I hope could both mitigate the present circumstances and avoid similar future situations.

I can only hope some legislators will read them and appropriate them as their own.

Ban OTC Derivatives. Ban them altogether. People may still trade any derivatives they like, but they must be publicly specified, exchange-listed (i.e. also available to the public at large to trade), and cleared by a well-regulated third party. This ensures transparent accounting and allows regulatory authorities to require reasonable margins. There will be no surprises in the future from masses of unmarkable derivatives hidden in banks’ books.

Brett Arends’ Call for Food Hoarding

2008-04-24T23:51:18Z

Brett Arends published an incomprehensibly crass article in today’s Wall Street Journal calling on Americans to hoard food. Not because he expects a shortage, but because “food prices are already rising here much faster than the returns you are likely to get from keeping your money in a bank or money-market fund.”

This is exactly the sort of unconscionable speculative greed that turns a bad but temporary situation into an all-out crisis and famine.

I’m not against making money; I’m against starving other people to make money. Arends has the privilege and the luxury to direct millions of investors from his perch at the Journal, and with such a position comes a great responsibility. His words move markets, and he does not appear to appreciate the magnitude of what he is doing. He is telling his readers from his comfortable environs that some faraway people in poor countries are starving, and they can make a few bucks by making it worse for them.

We are experiencing record high prices for all manner of foodstuffs. Riots are erupting around the world (not that one would know this by following mainstream US news sources.) And Arends’ advice is to exacerbate the situation by hoarding — and not even to ensure that his readers can provide for their families, but because food will appreciate 2% faster than a money market fund. He is brazenly and openly calling for food profiteering and price gouging.

This level of cynical greed is shocking, even by the raw capitalist standards of the Wall Street Journal.

The Food Crisis Is The Energy Crisis

2008-04-23T23:06:53Z

The Economist’s treatment of the food crisis, “the silent tsunami”, is as riddled with self-serving contradictions and convenient omissions as one would expect; and sadly, it is by far the most reasonable and balanced analysis to appear in the mainstream media. They cover the symptoms, but in uncharacteristic style stop digging before they reach the true root cause, our failed energy and “free trade” policies, predicated on massive petroleum imports and ongoing sacrifice at the altar of the multinational corporation. The food crisis is but a symptom of the larger disease: corporate profits now dictate social policy. We need to realign our energy policy away from merely serving the interests of large energy corporations and shift to government subsidized nuclear power, to provide cheap and clean energy for all.

Financials Frying

2008-04-15T18:50:49Z

Financial pain is lasting longer than I thought. I’m reducing my bets. I sold Merrill Lynch and Lehman and MBI and Citibank today, and I’m buying more IYT - an ETF tracking the Dow Jones Transportation average. IYT has been stunningly resilient lately in the face of high oil prices and a stagnating economy.

I also took a bet on AAPL to drop via a long put. Check out the chart. There’s a resistance zone at roughly 160, marked by the brief consolidation before January’s MacWorld selloff, by the Nov ‘07 bottom, and less strongly by the Oct ‘07 bottom / consolidation zone. Last week, AAPL bounced off of that resistance and made a nearly perfect shooting star formation on good volume at resistance. We’re snagging a bit on a minor consolidation zone from a few weeks back today, but I’m not worried. I plan to hold this put at least through earnings on the 23rd. I expect that sales of the MacBook Air will underwhelm in the thinning economy, just as its presentation at MacWorld did.

Bear Stearns’ Moral Hazard

2008-03-16T02:24:50Z

The Bear Stearns bailout has set off a wave of posts complaining of the moral hazard involved. Why should the taxpayers rescue an investment bank from its own greed and stupidity? Why should they not be allowed to fail? This is corporate welfare for the wealthy and powerful. Profits are kept private, and losses are socialized.

A bailout is, unfortunately, the lesser of two evils. I’m pretty sick of bailing large companies out with my tax money, but in this case, the alternative would be an economic collapse 100 times worse than the Great Depression. Bear Stearns indeed occupies a special position in the economy; they are indeed “too big to be allowed to fail”. What is lacking in the present equation is the great responsibility that ought to be required to hold such a special privilege and position.

If Bear is taking public money, then there needs to be a thorough and public investigation into the innards of their business and why they need public money to save them. Air out all their dirty laundry. The managers of Bear Stearns need to be held materially accountable for the actions that led to this point. I don’t mean a slap on the wrist for a few scapegoat “rogue traders”, I mean major public scrutiny of every single manager and department there, and major jail time for those who deserve it. The government needs to delve deep and look hard, and any wrongdoing uncovered needs to be used as an opportunity to set a severe example for other investment banks in the future. Such ought to be the price for their privileged status above the free market.

Bear Stearns Blowup

2008-03-15T23:05:08Z

Bear Stearns blew up, and the Fed is bailing them out. Their stock closed down almost 50% lower on Friday (and I picked up a few shares as a highly speculative bet.) What we have here is a form of corporate welfare — profits are private, and losses are socialized.

That is neither here nor there, however. Whatever the (lack of) philosophical merits of this system, so it is, and within it we must manage. Take a look at this weekly chart of the S&P 500. Despite the high volatility and the BSC blowup, we didn’t make a lower low last week on the S&P — though, ominously, other indices such as the NASDAQ Composite and the Russell 2000 did, and bounced back. (The Russell 2k even closed slightly up for the week.) I would have expected much more selling on the news of a major bank bailout by the government. That we didn’t close on a lower low is a positive sign.

Financials Getting Slaughtered; Transports Holding Up

2008-03-11T00:34:34Z

I’m getting sick of reading “the markets are volatile and will remain so” articles and posts, but that’s about all that can be said with any certainty about the current situation. Anyone who says otherwise is either selling something or crazy.

I’ve got slaughtered the past few days. I have a large position in financial stocks, based on my earlier calls for a bottom. Financials, as you know, are getting crushed. However, I also have large positions in gold and in Euros, which are also depressed. This is new. Previously, down days in equities were always offset by gains in gold and Euros. The past few days, however, it looks like the money is moving into Treasury bonds and oil. I have a small bond position, and I won’t touch oil since it’s insanely volatile and speculative relative to anything else. Some transportation stocks are weathering the storm nicely. Is it too late to get in?

Obama the Populist: Realign Globalization, Save the Middle Class

2008-03-02T20:39:33Z

The Economist’s weekly repartee arrived with an article on “Obamanomics” entitled “ Hope and fear: Democratic economic policy sounds worryingly populist“. It’s unfortunate (though not exactly surprising, given the source) that policies construed as “populist” — that is, for the benefit of the populace at large, as opposed to in the interests of the elite — are condemned on that account.

The majority of The Economist’s well-heeled readership lives in a bubble world of trust funds and investment banks, prestigious degrees from ancient universities and well-paying jobs arranged by Daddy’s friends. They, and the similarly fortunate friends and relatives they surround themselves with socially, evidently have little concept of what it’s like to live from paycheck to paycheck without any safety net, to live in constant fear that one’s very livelihood will one day be outsourced overseas or obsoleted by technology. Though this grim reality applies to the bulk of the country’s population, it is but a foggy and distant concept in their minds and worldviews, vaguely liked with dirty words like “liberalism” and its even more depraved cousin, “populism”; contemptible doctrines that despise the hard work and self-reliance that they credit for their own positions in favor of a welfare nanny state that coddles work-shirkers — nevermind that the vast majority of those so fortunate to live in the upper echelons are not there by virtue of either hard work or self-reliance in any sense other than their own imaginations and politics.

AAA Banking & Finance Interest Rates Are Rising?!

2008-03-01T00:00:47Z

AAA banking and finance interest rates are higher than they were a month ago, despite massive interest rate cuts and Bernanke’s bluntly stating his willingness to provide whatever amount of liquidity the banks want. From Bloomberg’s rates and bonds of today, February 17th:

	CURRENT	1 MONTH PRIOR	3 MONTH PRIOR	6 MONTH PRIOR	1 YEAR PRIOR
Federal Reserve Target Rate	3.00	3.50	4.50	5.25	5.25
1-Month Libor	3.12	3.31	4.81	5.50	5.32
3-Month Libor	3.08	3.31	5.06	5.51	5.36
Prime Rate	6.00	6.50	7.50	8.25	8.25
5-Year AAA Banking & Finance	4.32	4.02	4.53	5.20	4.95
10-Year AAA Banking & Finance	5.47	4.97	5.33	5.67	5.18

This is not a good sign.