Invisible Hand Smackdown: Cry me a River…

Read this and hear how the world sounds when you are utterly, completely, beyond-comprehension, “tone deaf”. Link was courtesy of Paul Kedrosky’s ever relevant (and must read) linkfest.

Listen to the sounds of their world of entitlement and presumed privilege here… unbelievable.


Is this True? If so, then ya gotta wonder…

Latest news on Sunday afternoon. Politico is stating that President Obama has expedited the exit of GM CEO as a precondition to the aid package to be unveiled tomorrow. (see Politico article here…). If so, then it raises a really interesting question with respect to the other gaping singularity of taxpayer charity once known as the U.S. banking system.

With Secretary of Treasury Geithner saying that we will need a refresher banker bonus retirement act bailout package for banks, (see the Audaucity of hopelessness here…), then will there be reciprocity for those CEOs/leadership cabals that receive aid here too? Or will the “quiet coup” of Simon Johnson related in my prior post prevail and confirm our greatest fears? That the government for the people, of the people and by the people has now become the government for the bankers, of the bankers and by the bankers?

This is starting to get really interesting…

Perhaps Another Sort of Intervention is Required…

Just read the details on the Fed’s most recent intervention in the capital markets. Another trillion dollars + thrown after bad money. All in the name of “preserving the bonuses of fat cats capital markets.” (read the excellent Bloomberg piece here…) I especially like the image invoked by the writer of Ben Bernanke playing the financial equivalent of fictional renegade special operations warrior, Rambo. I bet he gets an even better hedge fund job after he leaves his post than his predecessor did. (See article on how Greenspan joins the  hedge fund that made billions shorting the bubble Alan denies he created here…) It seems that the news just keeps flowing and so do bonuses… and the person on Main Street that has been raised with the concept of “fairness” and manners and trying to be reasonably well behaved is mystified and left asking, “How is all this happening and why doesn’t our government stop it?”

Simply put, the government and financial services are caught up in their mutual addiction to each other in the form of government enabled liquidity. While many rationalizations can be made, a free market requires the government to ensure stable regulations, reasonable controls against unfair practices and a strong legal foundation for business.  In the current scenario, it appears to me that what has happened is that the financial services industry and government have gotten caught in a symbiotic relationship that prevents these real solutions from unfolding.

How has this happened? The markets are reasonably efficient. Therefore it is very difficult to make money in the market by investing prowess. So investors seek to change the market efficient landscape so that they can make money. The easiest way for that to happen is to lobby the government to make increasingly favorable policy actions that enable continued outrageous profits.

Government leadership seems to have an incentive that once they leave office, wealth awaits them by joining the financial community. Cases in point, much of the early leadership of the Carlyle Group, one of the world’s largest private equity funds, consisted of former government officials such as former President Bush, James Baker and John Major (former British Prime Minister). In fairness, many of these former politicians have retired from active service, but they nevertheless were there and current roles (if any) are non-public. Robert Rubin, former Secretary of Investment Banking Treasury in the Clinton administration joined the board of Citigroup for the years prior to its fall in stock price, Alan Greenspan, former Chairman of the Fed during the period the housing bubble occurred has joined a hedge fund that has profited billions in trading the housing bubble correctly. And according to the previously linked Reuters article dated in January 2008, former Treasury Secretaries Lawrence Summers and John Snow have been advisors to D.E. Shaw hedge fund and Cerberus.

I have concluded that intervention is exactly what is needed. However, it may not be the type that Ben Bernanke and the cabal of government, hedge fund, banking and high finance want.  When an addict is in denial, there is a tool that can be used to help them break that denial– it is called intervention. It is a process whereby an addict’s friends and family gather around them and confront them with the facts of their addiction in the hopes that they will come to their senses and realize the truth of their dire situation. Who should do it and how or even if such a thing could happen are all doubtful from where I sit. But one thing that is certain, without an intervention, an addict must hit bottom and then decide to get better. Let’s hope that we can avoid this path.

Back to our Regularly Scheduled Programming…

Bad news for mortgages… ‘Households with negative equity or near it account for a quarter of all mortgage holders.’ – and since this is a key component of the current economic malaise, it portends badly for the future. (Read all the gory details in the article here…)

Pretty sobering statistic. Suggests that oversupply will yet drive housing prices down further. Wow. What a hangover. When I was in telecom/internet infrastructure finance during the asset bubble in 1999-2002, I was stunned at the economic shock front that was sent out. Now, I see that we were amateurs compared to the housing folks. They know how to throw an asset bubble party! Only hope that we survive the aftermath.

So, I have beat the theme of ‘economic excess’ into the ground and it is everywhere. In the press, shoe shine guys, taxi drivers, 10-box talking heads shots on CNBC… we got the message. That is good. Methinks it time to start thinking and talking about the navigation through the mess.

As one who did not play in this asset bubble, it is tempting to be angry at the collateral damage. Yet, as one astute person mentioned to me at a recent financial conference at UC Berkeley, ‘A crisis that is once in a century has got to contain within it opportunities that come only once a century. The art is to find the opportunities and work with them.’ What a wise person. Perhaps I will learn to be as wise as he.

Buying Canned Goods Now…

Another rainy day on the bay… I see the city shrouded in mist from my balcony. Seems a fitting place to watch the ‘econolypse’ unfold.

Figure 1. 10:59 am Monday March 2nd, 2009 – My Balcony


The market has unfortunately followed the standard procedure when you establish lower lows. It has continued in the same direction. As I write this at 11:05 am, the S&P500 is down 25.36 trading at $709.73. As they say, ‘That’ll leave a mark.’ (for the record, since I am committing this to print, I judge the likelihood that the market will make me look foolish(er) by days end reasonably high.)

Must reading at the NY Times (Read articles here…) The only good news here is that most of these notables are all appropriately pessimistic. Some downright dour. That is good. We may yet have a chance to take proactive measures to mitigate the worst case scenarios such as deflation/inflation, productivity collapse, massive unemployment, etc…

Now if we could only stop throwing good money after bad as we did this morning with AIG. But the government is in a bind. From an investor perspective, you want to limit your losses and not throw good money after bad. Better to lose pride than money. However, a government’s legitimacy is based upon its willingness to complete what it starts so I am guessing the government’s perspective is to carry on and see it to finish. Perhaps this why it is a bad idea to mix government support with free markets. I recall George Soros making a lot of money off of the Bank of England on this very concept.

Another Thousand Words’s market heat map… wow.



FYI- S&P500 closed below the November low and the most recent low on the 23rd of this month. I cannot say where this market goes but recall my last S&P500 matrix that this can go much lower– or higher. And that’s just the thing when you enter the fat tails of the distribution (whatever it may truly be), you just don’t know.