Bondknowledge

William Buiter in today’s FT says it all ( http://blogs.ft.com/maverecon/2009/01/can-the-us-economy-afford-a-keynesian-stimulus/ ):

First, the fiscal policy actions pursued thus far by the Bush administration, but even more so the policy proposals leaked by Obama’s proto-administration are afflicted by the Keynesian fallacy on steroids.  They appear to exist outside time, with neither the long-run consequences of the actions like to be implemented over the next couple of years, nor the history that brought the US to its current predicament, the initial conditions, being given any serious attention.

How can so many people be doing so bad a job? The group think and the cronyism is simply too much and will end badly. The US cannot spend its way out of this problem (if it could, why not spend $1trillion or $2trillion? why not do it every year…better yet, why not just end taxation alltogether and just deficit finance everything?…OK, maybe that last one isn’t such a bad idea…at least not such a bad idea comparatively).

I hate to be the bearer of bad news, but stocks are going 50% off from here…real estate is taking a huge hit from here…deflation is coming (then in 10 or 20 years probably inflation, but that’s another story). Save your money.

Since I took a vacation from posting, the world has gone to hell.

My favorite quote of the day, from some guy named Markman at MSN:

Shoveling cash at undeserving banks is just what you would expect from
bureaucrats who didn’t have to earn that money in the first place –
and who will be out of office before the plan blows up.

Oh, and Merrill Lynch bonuses are down 50% from last year. What a crock. My tax dollars are going to bonuses to employees of an enterprise that is losing money hand over fist. What’s worse in my case is that they are essentially a competitor of mine. My tax dollars are going to fund and subsidize my competition. It’s not right. It’s not fair, and I ain’t happy.

This is the biggest bank robbery in history…only this time it’s a robbery by the banks.

Out for the summer!

An Unbearable Burden

so, help me figure out why this is OK…the Fed is guaranteeing 30 billion dollars worth of Bear collateral…JPM wanted to buy Bear for $2, or it would supposedly go bankrupt…they agreed to the $2, just to make things easier, keep it all out of bankruptcy court…yada yada. Except today we find out, it’s really ‘worth’ $10 per share…so, presuming that’s true, what is the Fed doing in the deal at all, and what are they doing suggesting the original $2 price tag? I guess I can just call them next time my credit card company calls me for dough.
Methinks it stinks.

Update: excellent article by John Hussman. Money quote: “The Fed acted not to save a bank, but to enrich one.” Ouch. http://www.hussmanfunds.com/wmc/wmc080324.htm

So, the Fed lowered the Fed Funds rate (overnight rate that banks charge each other) from 3.00 to 2.25% yesterday, and there was much rejoicing in equity land. A few more ibanks didn’t go under, and the rejoicing reached fever pitch. The dow was up 400+ points…the Treasury market did a little selling (maybe thinking that this Fed guy is crazy…he’ll do anything!).  2 Year Treasuries have backed up to 1.60%, and the 10 Year is back to 3.48%…rates that are hardly suggesting even the whiff of inflation, but something closer to deflation.

Now, deflation doesn’t tend to be too good of an atmosphere for stocks. People don’t spend (they don’t have the money!) as joblessness increases…so, it’s as if the Fed is creating yet another mini-bubble…or maybe just keeping the old bubbles going. They keep bailing out or subsidizing banks and various other leveraged lenders, keeping visible values artificially high. Yet, when the rocks are exposed (hello Bear Stearns), we see that the value just isn’t there. There’s still plenty of medicine to be taken.

Surprise, surprise. CPI came out an unchanged for both the headline and core readings (core does not include the more volatile food and energy components). Expectations were for both to rise about 0.2%. Makes it much easier for the Fed to cut rates yet again at its next meeting on March 18th. Markets currently have a 75 basis point cut priced-in, which would bring overnight rates down to 2.25%