Friday, May 28, 2010

Vessels of honey and granaries of corn or fend for thy self

Wall Street finished its worst month in well over a year with another down day. Yesterday’s enthusiasm over China saying it wasn’t dumping its Euro bonds evaporated on the news that Spain was having its debt downgraded again. It doesn’t much matter what China does if the Wall Street gangs are allowed to come into the neighborhoods and bust out the shop windows looking for protection money. Keep in mind that the more volatile the markets are, the more the Wall Street banks make on trading since they front load all the trades and make their money first ahead of their clients.

Who is stupid enough to buy stocks with the hedge fund managers telling their investors to buy land in the country and lots of canned goods? Well that would be your 401k manager or your pension plan, they don‘t have much choice since the plans are usually dedicated to one type of investment scheme. People don’t seem to realize they could take their money out and now that it’s down are afraid to withdraw because they would be “locking in their losses“.

Not everyone got caught up in the stock market though. It seems many church owned pension plans avoided that problem by simply not putting any significant money into funding their pension plans. Everybody from hospital workers to Christian book printers as well as the church secretary are finding out that Bernie Madoff wasn’t the only ponzi scheme in town. After decades of doing the lord’s work for substandard pay, they were counting on the lord providing a modest pension. The lord doesn’t seem to be able to manage money very well and the pension plans are shutting down.

The double whammy is they don’t even get pennies on the dollar from the Federal Pension insurance fund since churches made sure that they and their affiliated businesses were exempt from government oversight. Separation of church and state is handy when you don’t want to pay taxes or meet your pension obligations. Otherwise America is a “Christian” nation when they want to have their superstitious beliefs to be taught in school instead of science or enforcing an assortment of irrational hatreds and bigotries as the law of the land.

Of course it’s the “end times” so it doesn’t matter, right? The last time they were sure it was the “end times” they created the Dark Ages that took the better part of a millennium to overcome. The Bible does say to store two years worth of canned goods, that’s probably not enough.

Thursday, May 27, 2010

The Cavalry came over the hill flying a Red flag

The Wall Street markets turned around today on the news that the communists have come to capitalism’s rescue again. China didn’t even need to do anything but merely deny the rumors in the corporate press that they were going to dump their Euro bond holdings. You can tell who is really the world super power (better quit putting off the Mandarin lessons).

Treasury Sec Tim Geithner just spent two days in Beijing planning to convince the twelve members of the senior party committee to sign off on revaluing the Yuan to favor the US. Instead he had to discuss the Euro crisis and that little matter of the Korean War II. Geithner quoted the proverb, feng yu tong Zhou - stand together regardless of the situation. China is saying the right things so maybe China has decided not to write off the west, for now.

China doesn’t do anything that isn’t in China’s long term interest, not what will pump up the next quarter’s bonus checks. (damn communists don’t understand how capitalism works) Really the rumor that they would dump their bonds wasn’t believable, Europe is a bigger market than the US and a much healthier economy overall than the US. China is going to sell Euro bonds in exchange for what? USD’s? They already have trillions of those that they don’t know what to do with.

China’s biggest concern is maintaining a stable internal economy. They have already stopped issuing permits for most new factories that would be making export goods but they can’t easily shift to more domestic consumption. The Chinese tend to save more if they make more money, their savings rate is 40% as opposed to the US where it has been in low single digits since Reagan and is not always above zero anymore. Even a hundred years ago, before any consumer credit, the US savings rate was only 25%.

Of course in China, the people are actually encouraged to put part of their savings into copper, silver and gold coins. If the Yuan were to tank, the average Chinese wouldn’t panic. Here we don’t even have paper to cultch anymore, Americans think we are rich if our plastic is gold colored. Plastic that is issued by the same handful of Wall Street banks that do nothing useful, banks that are making billions by churning our 401k’s and sucking the value out of them leaving us broke. We really can’t expect the Chinese cavalry to save us from the Wall Street outlaws next time. Circle the wagons.

Wednesday, May 26, 2010

The Canned Goods School of Economics

An opinion columnist writing for Market Watch, a sister publication to Rupert Murdock’s right-wing Wall Street Journal confirmed that the rumors are true. The investment bankers are telling their big money clients to sell all their stocks, buy a farm in the country and stock up on plenty of canned goods. They are predicting that by the end of the year the Great Depression II will be in full swing, you won’t recognize the country and no matter who wins the election in the fall there is no fixing the system.

Paul Farrell who wrote the column and quotes investment bankers he knows from his trading days at Morgan Stanley has doctorates in psychology and law and writes on behavioral economics. He makes a perfectly logical argument that history is repeating itself yet again as it has over the last 800 years. Although I suspect he is a recent convert to the “canned goods” school of economics.

Behavioral economists have been warning ever since the Ayn Rand devotees at the Chicago School of Economics came into vogue under Reagan that the crash was coming. Their only misreading of the situation was under-estimating Alan Greenspan’s ability to create bubble after bubble sucking more and more wealth out of the middle class and making investment bankers like Paul Farrell rich.

It would be easy to assume that the only reason a Rupert Murdock publication would be telling such a “truth” would be sway the election in their favor but maybe they are simply trying to build some credibility with the villagers before they come to visit the castle with torches. “We didn’t create monster that destroyed your village, it was the other guys”.

Is a crash coming? Of course it is! Is it coming right now? Maybe… The credit spreads like the Libor are heating up again as they did in 08. Banking and corporate finance could freeze up again very quickly since nobody has any real confidence in the system. It wouldn’t be a good idea for Obama to go around saying “ the fundamentals of the economy are strong” like McCain did.

Obama’s contention that the Financial Reform bill is good legislation is about as dumb. FDR resisted calls to declare martial law and pushed reform instead but things move much faster now. You can’t wait to buy canned goods until the President declares an emergency.

Tuesday, May 25, 2010

Government doesn't work but there sure is money in it

World markets were down 3% or more Tuesday and Germany is poised to widen its ban on the naked short selling of stocks. "Naked" refers to the selling of bets on stocks that you don't own or have access to as opposed to normal short selling where you bet on stock you actually own and this amounts to a kind of insurance against losses. Before Reagan anything like naked short selling was called fraud on par with bank robbing, now derivatives of this type are the backbone of the financial services industry.

The DOW opened down 200 points and stayed there most of the day until having a last minute rally. I'd bet a Federal Reserve note to trillion in naked shorts that this so called rally was market manipulation by the Wall Street banks to try and ward off any talk of a crack down on their practices. You need to keep in mind that the big banks are posting billions in losses on banking operations each month but
still show a net profit in the billions from "trading" operations. If forced to operate like legitimate banks their bonuses would be right out the window for years at best. In all likelihood none of them would even be solvent if they were forced to eat their losses.

President Obama met with Senate Republicans for the first time in well over a year and one Republican described the meeting as forceful. The reason given for the visit was to try to line up support for various reform legislation before the break. Some Republicans didn't care for somebody like Obama putting them on the spot; Sen. Pat Roberts (R-Kansas) told reporters, "He needs to take a Valium before he comes in and talks to Republicans," "He's pretty thin-skinned." and Sen. Sam Brownback (R-Kan.) described the meeting as "testy," Obama is also reported to have clashed with Bob Corker over the financial reform bill and with McCain who didn't like it when Obama reminded him that Obama's approach to immigration closely resembles McCain's from three years ago.

No word if Obama raised the very real problem of Republicans still holding up hundreds of Obama's sub-cabinet appointments with most not even having had committee hearings. This keeps much of the government in the hands of embedded Bush appointees that were converted to civil service jobs in a sort of scorched earth policy as the armies of darkness retreated from Washington post election.

In fact ever since the fanatical rule of the Reaganites who greatly expanded the Federal government loading it up with revolving door corporate types and party hacks there are few people in government who aren't beholding to the Republican party or corporate interests. The only agency Clinton made any effort to reform was FEMA and Bush made short work of that by putting a heck of a horse lawyer in charge.

When conservatives say government doesn't work they mean they make sure it doesn't work, except for them.

Monday, May 24, 2010

Learn from the Dragon

The Euro went to new lows on the news of Spain having seized one of its savings banks. This reportedly led to the sharp drop of the NYSE at the close but there are other factors like China indicating it will go ahead with revaluing the Yuan. This would be to the advantage of the real US economy and not to the advantage of Wall Street banks or the DOW 30 companies that do 60% or their business outside the US. Pundits are predicting a shift from the Dollar as a safe haven to the Yen if China goes ahead with this so you can expect the wild swings in the markets.

Some pundits are pushing the idea that if China were to allow the Yuan to float on the market it would go down sharply rather than rise against the USD. China has reportedly been spending 200 billion USD annually to maintain the exchange rate they want and you would think they would know exactly what would happen or rather they would just make it happen (2.5 trillion in currency reserves gives you clout).

The only people with more money are the Wall Street banks, who have unlimited funds to apply to their vision of the world thanks to a blank check at the Federal Reserve. One of the on again, off again provisions of the Financial Reform bill was supposed to slam the vault door shut for these banks if they continue to act as investment banks. It could be that China has been waiting to see if any of this reform really happens, they know fully well how dangerous Wall Street banks are and aren't going to waste their Yuans on a fool's errand.

The collapse of the Euro and the draconian cutbacks that are being proposed for the middle class of Europe also has China worried as Europe has been an even bigger market than the US. Their trade is heavily concentrated in the PIGS countries that bought into the Chicago School of Economics snake oil. This neo-con paradise did away with their own industries in favor of Wall Street's easy money from privatization of the commons and exotic debt instruments.

China's leaders aren't stupid, they know Wall Street engineered this. They even made off with a few billion from Chinese state industries, this was a mistake. Prompt refunds were demanded and gotten from the Wall Street banks, China deals harshly with people who screw them. A practice we should adopt for our own survival.