Paper Slips and Electronic Blips

So, after looking back through my latest posts I've decided that maybe I will only post once a month. I know, I know how will you go on with life with me posting fascinating finance facts only once a month, but don't worry, I have faith that you will endure.

Anyway, so today Standard and Poor's put the United States government on notice that its run away spending has not gone unnoticed. By cutting the USA's credit outlook to negative, S&P basically stated that they think the USA has a 1 in 3 chance of being downgraded (credit wise) in the future. This means that if the USA can borrow at a hypothetical 3% today with its AAA rating, in the future, that interest rate may climb to a hypothetical 3.5%, all things being equal. This doesn't sound like much of a difference, but multiply those additional 50 basis points by trillions of dollars of debt and you begin talking about real money.

What I find fascinating is that the cost of insuring US debt rose to ~95 basis points. Who is selling this insurance? AIG ;). Who is buying? If you need to cash in on this insurance, there is nobody on earth who can honor these CDS agreements. You see, if the US government defaults ("all" US government debt is priced in US dollars that the US government can print at will), then the world has crashed and paper slips and electronic blips will mean nothing. I'm exaggerating slightly, but only slightly. I guess the tin foil hat crowd could be right and we do have aliens among us. The aliens could sell the insurance and honor the agreements since their economic system should be uncorrelated to the earths finances. But, that assumes that they haven't been here long enough to become fully invested in the US / Greece / Japan / Ireland / Portugal / Spain / England / France / etc. by buying the massive amounts of debt that have spilled off the printers machines. Kang and Kodos, I beseech thee to forgive our mis-spending ways and allow us three cups of drool instead of two. All hail our Rigellian overlords. VOTE KODOS!!!!

Sobering Thoughts

Its been awhile since I last posted something and for that I apologize. (I have written things but did not post them for a variety of reasons) Anyway, with the events in Japan growing more desperate with every passing hour, my thoughts have turned toward the differences in cultures. Haiti experiences a massive destabilizing event much like Japan has just experienced and still, after close to 14 months, has debris piled in the streets.  Will Japan still have tsunami debris choking roads and building lots after 14 months? I would wager that would be a emphatic no. If the coast of California was hit by the type of wave Japan was hit by, would debris be piled on the streets after 14 months?  I would bet on yes.  Why, you may ask, do I think that in the land of the free and brave, junk would still be piled on the streets of LA after 14 months?  Its taken 10 years to dig a hole at ground zero in NYC, several buildings were to be completed by now but have yet to be started, and the Port Authority has gone through 3 or 4 directors in that time.  Would California be any different?  We are passing from an industrious country with the will and desire to get it done, to a country that needs a new study on the impact of everything and anything all the time.  One day we will be faced with something along the lines of what Japan has experienced. Will we stand up and clean up or will we study the problem till our deaths consume us?

He Made It!!!!

Whoooo! that was close. Mr. Emanuel made it on the ballot for the Chicago mayoral race. A day after he was kicked off the ballot for allegedly not actually living in Chicago for the mandated 1 year before the election, Mr. Emanuel's appeal has been heard and a judge has declared that the ballots must carry Mr. Emanuel's name until the appeal is ruled upon. This seems fair to me.  But what happens when Mr. Emanuel wins the election. Hummmmmm. The 2000 election all over again.

I didn't know Apple was based in Chicago

Bloomberg story about Rahm Emanuel's ouster as a candidate for Chicago Mayor.  At the very bottom it lists Steve Jobs as donating $50k to his election fund.  David Geffen donated $100k.  Since Mr. Jobs has left the day to day running of Apple to others, I guess he could now want to live in Chicago.  Personally, I would be in Hawaii / Australia / Vietnam / Indonesia / Maldives / any other place but cold and windy Chicago.  But apparently Mr. Jobs wants to live in Chicago so thats why he donated $50k for Chicago's mayoral race.  Do I think Mr. Jobs and Mr. Geffen care about Chicago city politics? NO! But having the former chief-of-staff of the sitting President become Mayor of Chicago, the current Presidents "home town", on your $50k could definitely open white house doors for any ideas you may have.

And don't worry. I'm sure Mr. Emanuel will get his shot at the highest office in Chicago. This is Chicago Illinois we're talking about. Hint hint. Wink wink. Graft graft. Bribe bribe.    ;)

Too Fast for Me

Does google.com still offer the best search results?  Is bing.com surpassing the almighty Google? (ok so Bing is the almighty Microsoft, but it's still the underdog)  Should we now only put one space after a closing sentence punctuation?  Whoa the questions I ask and then read about.  FYI, google.com's search results are being spammed up like Yahoo's became.  Is Google the next Yahoo? Is bing.com the next google.com? Should I put one space or two after this sentence? Who knows?

I was around for the birth of the wide variety type of internet.  I remember being amazed by the vast amounts of information that I could get from the web.  I remember printing out hundreds of pages on race vehicle dynamics from a site that had diagrams, formulas, small pictures, stories, and examples, worried that the site might disappear  the next week like many sites I had found previously had seemed to do. I remember going from 12.4(?) to 28.8 to 56.6k speeds and being astounded by what the increased bandwidth could do, let alone the speed when trailrunnings work installed a ISDN line into our home. WOW!!!  So its with a little reluctance that I see the relevance of websites, and all the info contained there in, being relegated to a 2nd class structure of information delivery. First personal blogs, then Facebook, and now Twitter have become the defacto(sp?) delivery "device" for information. I'm not dissing, as it were, on Facebook and Twitter, but I do quietly long for the days of more than 140 character information streams. Many interesting bloggers are getting bored and reducing their posts, while their readers are now checking on so and so's Facebook/Tweet status. Oh well, it must mean I'm getting old.

What do these two paragraphs have in common you may ask? Well, its the speed of change. I have gone from researching junior high class reports with the use of a paper encyclopedia, to having the worlds information at my fingertips. I have seen the substitution of two spaces after a sentence to only one space. And the search giant who defined a new generation of internet info gathering, has now become the hunted whale, still formidable, still swimming, still destroying Ahab's boat, but now with a few spears piercing its skin and a new boat closing in. I have more to say, but you probably didn't get past the first 140 characters. :)

Holidays Shmalidays

I love general holidays in the US.  No, its not that I get to stay home from work (what work?).  Its the flood of announcements that come gushing from the PR departments throughout corporate america.  Today's big announcement?  Steve Jobs is stepping back from the day to day operations of Apple to focus on his sketchy health.  What does this announcement by Apple have anything to do with the holiday you may ask?  Only that if it was a normal trading day, Apple stock would be pummeled and the general market would most likely end lower.  Releasing this announcement on a holiday allows people to step back, assess the situation and hopefully make a rational decision about the company and not the man running it.  Of course you can still trade the market on a "off" day by using futures, but who's counting.  My totally unsolicited and purely theoretical theory is that Apple will sell off Tuesday morning and then flatten when all the bandwagoneers are through jumping.  The stock will then climb higher but will not reach its current level for ........ oh I don't know, 6 months. ;p

Speaking of press releases, whatever your thoughts on Wikileaks (I will not be giving my opinion on Wikileaks at this time), I'm surprised that Bloomberg does not have this story on its front page as of 10:45am.  Does this mean I need to go to Yahoo Finance to get my finance fix.  Even my "home town" news channel has the story on its front page.  Please tell me its not so Bloomberg!  Hummmmmm, maybe Mayor Bloomberg is on the "list" and doesn't want his news organization spreading the story that there is a "list".  Big Corporate Media conspiracy theorists converge!  Maybe Steve Jobs is on the "list" too? :)  Cheers!

PS -SARCASM ALERT!!!!- Just found this pop up at the top of Bloomberg.  Really the same people screaming that a barrel of oil is as rare as a pink striped hippo are now saying don't worry, there's no need to increase the production of oil, supplies are above the five year average.  Its a good thing they're being paid all that money to talk their book and run our country. (and finally one more set of parenthesis - No I don't buy into the idea that GS is a vampire squid out doing the Lord's work for the enrichment of the leisure class while enslaving the workers of this once proud and prosperous nation.  Or at least I don't believe all of that ;)  )  SARCASM ALERT ENDED!!!!

What do you Know ....... dovetailing

As soon as I posted the last post, I came across and article about Brazil's Real appreciation against the dollar.  Never have I had my last two posts nicely dovetail into one another.  Cheers!

OK, so I need a new closing phrase other than the oft used "Cheers".  People do know that that show left the air over a decade ago :p

Tilt

I have been visiting a new site called Financial Times Tilt, or Tilt Financial Times.  Basically its a emerging market  financial site (did you really think it would be anything but a financial or motorcycle site???) with news from the front lines of the different emerging markets.  News and analysis not filtered through New York.  Supposedly. ;)

As of last Tuesday you could get a Tilt Pro account for free.

Right now I think I have a mild migraine.  Only the third or fourth one I have ever had.  :(  Should I twitter and facebook this fact?????

The FED goes to Crazy Town

Great discussion and stories about the basic question of "What is money?".  This is a topic I have thought about quite a bit lately.  Is money physical?  Is money psychological?  Is money real?  When and where does money end?  Is money trustworthy?  Is money "magical"?  Download it in MP3 format to listen on your iPod thingy while you run, or walk, or ride a bike, or drive your car, or ski, or take a hike, or .......

 By the way the FED got within pennies of "spending" all of the mandated $1.2 Trillion buying MBS's.

Where I should be is different than where I am

If I hadn't decided that my employment situation was untenable back in May, I may not be here now.  No not dead or missing, but not here setting in front of my computer typing this out.  You see, as I type this, the biggest off road race in the northern western hemisphere is happening right down south of the USA.  Baja to be specific.  My plan was to hook up with a local or semi-local team and become a crew monkey, drink getter, designated drive, etc. but since I would be paying my own way this became much harder when the cash flow slows to a crawl.  Oh well, I was only counting on a 50/50 shot at it anyway.  Maybe next year or the next or the next or the next ..............

Indecision 2010!!!!

The biggest election since the last one and before the next one just finished up.  What can I say?  Well a whole lot.  During these indecisive times I often think back to a time in my life that I had to deal with state level politicians and the wonderment (not the good kind) I beheld.  Double talk, lies and power plays were the name of the game.  Everyone needs to have the opportunity to push a publicly beneficial law or resolution through the morass that is our legislature.  Even at our state level, the idiocracy is amazing and disheartening.  Only then will the vast majority of the public realize what a system composed of amoral and broken people we send to represent us, does.  Now don't get me wrong, not all legislators are corrupt lier's, only the ones who hold any and all power.  Even then there are exceptions.  The State Senator who represented my district (think of the holiday in the middle of February and no its not my birthday) ALWAYS dealt in a fair and honest manner.  Because of this I will vote for that Senator as long as they stay in office or I live in their represented district.  If more people had this opportunity to see the real person behind the slogan, I think that the idiocy would be driven from office and good people with a REAL concern over their districts welfare would be elected.

I must admit I have a slight subversive streak.  In races that are already decided I sometimes vote for people that may upset the status quo by garnering more votes than was expected.  This way the perception of a multi-party system stays intact and might just give pause to the winner(s)/party(s) and their possible extreme views.  Till next time and the biggest election since the last one and before the next.

Lego Makerbot Oh Yea!!!

I'm a big Lego fan.  I'm also a big MakerBot fan.  Combine them and I think I have gone to heaven.  See what heaven looks like here.

The TIPS of the iceberg

One of the funnest things about writing this blog is I get to come up with AWESOME! blog titles.  Now I have never been a great fan of TIPS (Treasury Inflation-Protected Securities) because of the nature of the way the "inflation" component is calculated.  Unfortunately the inflation number the government uses can be manipulated and cajoled into showing what Washington wants to see and not actually whats going on.  In the past this has usually taken the form of showing a lower inflation number than is actual.  This has helped get politicians re-elected by a public inferring low inflation rates with good fiscal stewardship of the country.  Because of the lower than actual inflation figures, the treasury pays a lower interest rate on TIPS and buyers of TIPS receive a lower real yield.  But now the tables are turned.

For the past couple of years the USA, and to some extent the world, has been slightly deflationary.  Now, I want to be clear, deflation is bad.  People stop spending money because next week the price will be lower than today.  While its good for our individual pocketbooks, it can devastate a consumer economy based upon inflated asset values (houses).  At the moment the Fed is contemplating a strategy to pump more money into the economy and thus drive up inflation.  Increasing the inflation rate drives up asset prices and thus will keep the housing market buoyed, keeping bank balance sheets healthier, increasing money velocity, and finally getting you to spend what little savings you may have today to avoid paying more next week.  This strategy may now also encourage the government to report higher than "normal" inflation numbers to show that its policies are working and hopefully for them (not so much for us) get them re-elected.  This will be good for TIPS and the buyers of TIPS.

This is just a working theory and does NOT constitute investment advice.  As I stated earlier, I have never been a fan of TIPS because of the potential for manipulation of the inflation number and thus the interest rate the number setter pays.  TIPS can be a relatively cheap way to buy inflation protection that doesn't include a lot of market risk if held to maturity.


PS Sorry for the clunky writing.  The brain and finger connection is kind of weak today.

If I were a ........

If I were a -blank- (I won't actually type the word since it would be red flagged some where in some computer in some antiseptic data farm) I would carry out a plan specifically designed to bring chaos to the financial system of this country.  Why?  Because of grandstanding ****** (I told my wife I would try and be nicer to ****** in the future, so the *'s are my way of starting off on the right foot) politicians who have yet to vote to replace the empty spots on the Fed's Board of Governors.  Mostly this lack of voting comes down to one man and his quixotic tilt against financial reform.  Yes the Fed has problems, yes the Fed didn't "see" the credit crisis coming (you realize few people did and then usually only within narrow terms), yes the Fed could be a wanton world dominating hegemony of the richest families on earth ;), but they are needed to stabilize the idea of a stable financial system.  senator shelby (no need for capitalization because its not deserved) has blocked and cajoled the Senate from voting on filling the empty seats in a quest to block needed reform and supervision of the broad financial system.  Its not about the person nominated to the board seats, but about personal power and the next election.  Why must these politicians play with the future of the US by being ****** and potentially harming the very core of this country.  shelby will not be hurt by a failure of Fed governance, you and I will.

What difference does it make whether the politicians do or don't vote to fill the vacant seats you may now be asking?  The Fed needs a quorum of 5, they now have only 4.  This lack of "quorumness" disables the Fed from doing anything that might help or (I'll give this to shelby) hinder the US in an emergency.  In a financial crisis, such as oh I don't know; European default, 9/11 replay, China meltdown, California falls into the ocean, everything East of California falls into the ocean, etc. the Fed can't do anything.  Thats right nothing.  If it passed any emergency resolution to help stem the collapse of the world's best economic system, even with its many, many flaw, those resolutions could be tied up in court seeking to decide whether those same resolutions are legal while the US falls into a deep, deep economic pit of despair.  For those wishing to destroy the Fed, that is an ideal situation.  Make the Fed useless in a crisis, makes the Fed useless during "normal" times.  All of this doesn't matter much in times of relative stability, but has the world been stable lately?

















PS ****** means idiot / idiot's  :)  

Supply / Demand - Demand / Supply

You don't need Econ 101 to know that the greater the supply, with a steady demand, the less the price.  Well in China they are bucking all the supply / demand rules.  Housing is a topic often discussed at dinner parties (I really don't know if thats true since I don't go to dinner parties) especially after going through the last three years (raise your glasses to the 2nd anniversary of Lehman Bros collapse and the assimilation of Merrill Lynch).  Because of the prolific housing market talk espoused by talking heads on the ole TV and the various bloggers using the written word to deride and debase the USA's housing market, most are somewhat aware of the demand housing speculators played in the meltdown of 2008.  Apparently China needs to allow more words and visions (as in Tele, not as in psychedelic mushrooms) to penetrate its airspace so the 2nd, 3rd, 4th, etc. home buyers learn from our mistakes.  When you have rising prices and skyrocketing supply somethings gotta give.

See more here.

Whoa there White House horsey

OK lets see if that embeds its self into the blog.  What is the vid about? you ask.  Well its about the bank bailout, financial reform bill and you.  


First off it starts with the line that goes something like this, "if you bought your home at the top of the market, you had to read and sign "complicated" mortgage documents before you got keys to the house.  These "unintelligible" docs came from the "big" banks".  Well no they didn't.  The docs came from the shadow banking system.  The big banks bought the mortgages from these shadow banks (they are called shadow banks because they are outside the normal deposit/investment/commercial type banking establishment), packaged them up and sold the cash flow to others (pension funds, retirement funds, endowments, etc.).  Now it took time to match and package these loans into larger chunks of gooeyness, so when the music stopped, the big banks held mortgages that quickly declined in value and thus quickly destroyed the balance sheet of the banks.  So because I couldn't afford the  million dollar house on my field hand wage and the "big" banks had "complicated" (I have yet to see any mortgage document that doesn't spell out the terms of the contract in high school english) language in the mortgage contract, its now not my fault for signing a contract that I apparently couldn't understand.  Woo Hoo, off scott free again.


Now don't get me wrong, I'm all for less complicated ways of communicating ideas.  The part about simplifying the language of credit cards, student loans, etc. is defiantly a step forward, but when does the part about ending financial naiveté start.

The next part "banks will be prevented from growing so large that they put the entire economy at risk if they were to fail".  Um no.  I'm no math whiz, but what I see happening now and then is that the dangerous banks got bigger after the bailout, and this legislation does nothing to change that. JPMorgan + Bear Sterns = bigger, Bank of America + Countrywide Financial(shadow bank) + Merrill Lynch = bigger.  No where in the prostituted financial reform bill did it address the breakup of these government sponsored shotgun weddings.  In fact, the bailouts gave a competitive advantage to the TBTF banks by conferring that moniker upon them.  By being TBTF you no longer have to worry about risk, profits, customer service, etc.  All you need to focus on is getting bigger so that you become even more integrated in main street economies and more likely to be bailed out further down the road.


And finally you can rest easy by knowing nothing you did (even though the house payments constituted 120% of your monthly income) is your fault.  "you can rest a little easier knowing that your home, your family and your future will be protected from the irresponsibility of others."  When you repeat the "others" be sure to look in the mirror America.

Wow it gets even better

This is an unlocked link to the story about Russia's wheat "friend".  How much did this cost the "friend" in bribes.  I'm frankly astonished, but can't find much more on this story as of now.

So Way Way Back When....

OK maybe only a couple of hours ago I blogged about wheat and the dramatic climb in prices.  Remember I said something about shorting/selling and how some of Russia's "friends" would probably like to exit their long wheat position with a profit.  Three words + a tild + a percentage: Wheat down ~7.5% today.  Those are some good friends.

Edit see brief synopsis here

So Way Back When.....

OK so not that far back.  On June 7th I posted a chart which contained a list of different items along with their returns.  See it here.  I then expounded on sweet sugar.  Well sugar has climbed ~20%, but that isn't the real story.  The story is wheat.  Back around then, wheat was going for ~$4.45 bushel (depending on the time frame, market, etc.) and the outlook was a little gloomy for wheat prices and the farmers who grow wheat.  Well with a drought in Russia and a ban of Russian wheat exports (with a little help from some "friends"), wheat has reached new heights.  As of now, according to Bloomberg, wheat is trading at ~$7.55 - $7.70 a bushel depending on the time frame, market, etc.  That equates to a return of ~ 69% - 73%.  Not bad and quite dwarfs the return on sugar.  Let's see what happens when the "friends" of Russia decide to close out their long wheat positions and Russian exports start back up.  Can you say crash.  Can you say short. At the moment every grain elevator operator in the world is trying to get in on the action and sell at what are historic prices.  The best line I have seen regarding this shocking rise "The markets wheat themselves".

Another question to ask is "who does this affect"?  It will affect the consumer who buys the loaf of bread.  It will affect the chip manufacturer who makes the chips.  It will affect other commodities (sugar?) when the price stabilizes.

So let's say that the nightly news is all a bubble over the rapid rise in the price of bread (pun intended - I couldn't resist), along with the increase in the price of chips.  The consumer, seeing the nightly news reports with the headlines "Wheat Crisis 2010 - Is the World About To Starve?" or "What You Can Do To Protect Your Children and Widowed Mother From The Coming Wheat Crisis Catastrophe", thinks it's a valid reason for a $1.00 bag increase in their favorite chips. The consumer decides that since the chip company is not price gouging but passing along a perceived valid increase, then its not that bad to pay the extra dollar for the salty goodness.  But see, the news doesn't report when the price declines.  The chip makers count on the short attention spans of the chip addicts and slowly respond by lowering their prices gently over time until it stops at $0.50 higher than before the "wheat crisis".  The chip addict thinks its great that the price has declined, and the chip maker is happy to pocket the extra $0.50.  Hedge fund "friends" are happy that they found a way to capitalize on the suffering of millions by unloading an unprofitable position using government manipulation (bribes, payoffs, equity, etc.).  Everyone comes out happier than before. (SARCASM)

Anyway, time to end the tirade.  I received an answer to a question that has held me up, so back to reading fascinating government prose on SWPPP.

I bet walking and chewing gum will be outlawedl next.

Wow the financial IQ of this country is defiantly on a downward trend if we need to be reminded of what is and  isn't legal with respect to this list of illegal activities. **** What do you mean I can't steal someones identity and use it to buy the mansion on the hill.  I mean come on, this is a free country after all. ****  DISCLAIMER all text between the **** **** is SARCASTIC.  Where's that sarc font when I need it.