New York Post: Change For The Worse

I am sorry I even read this article from the NY Post:

WASHINGTON - Buried deep inside the massive spending orgy that Democrats jammed through the House this week lie five words that could drastically undo two decades of welfare reforms.

The very heart of the widely applauded Welfare Reform Act of 1996 is a cap on the amount of federal cash that can be sent to states each year for welfare payments.

But, thanks to the simple phrase slipped into the legislation, the new "stimulus" bill abolishes the limits on the amount of federal money for the so-called Emergency Fund, which ships welfare cash to states.

"Out of any money in the Treasury of the United States not otherwise appropriated, there are appropriated such sums as are necessary for payment to the Emergency Fund," Democrats wrote in Section 2101 on Page 354 of the $819 billion bill. In other words, the only limit on welfare payments would be the Treasury itself.

"This re-establishes the welfare state and creates dependency all over the place," said one startled budget analyst after reading the line.

Is Obama showing his true colors? I hope not.

I have been giving the President the traditional honeymoon because I legitamately wish him well. I would wish any new President well but Obama bears the extra weight of being the first black president and it is important he succeeds.
This past week has raised my hackles. The administration repeatedly spews protectionist rhetoric. The democratic party is sponsoring a dangerously irresponsible bill taking the secret ballot away from labor elections depriving all workers of any privacy in expressing his or her views. The only reason to disallow secret ballot is to be able to exert pressure on those who do not support leadership. As a thought experiment imagine the democrats reaction had President Bush advocated doing away with the secret ballot in presidential elections. This bill is a travesty, if union members support this they are cutting their own throats.
The stimulus was going to be about infrastructure and tax reduction because they were badly needed in the first case and have a quick effect in the second. Instead Pelosi gives us a relatively small infrastructure plan and a potpourri of political pork. Money for the endowment for the arts is popular in San franccisco, no doubt, but it stimulates nothing but the evening gown and cocktail wiener industries. The bill is an orgy of traditional vote buying, not a job creation plan.
Obama should encourage his own party to kill the bill and demand Pelosi step down in favor of someone competent. In fact someone just not up to the job would be an improvement.
I hope all these stumbles are just part of finding his footing as a new president. if not Mr. Obama will have revealed himself as Jimmy Carter and we will all have learned at very great cost that community activist is not sufficient excutive experience for the most important job in the world.

Right now Mr Obama is behaving like the far left liberal that ran against Hillary Clinton and not like the centrist who defeated Senator McCain and nothing like the president elect we saw for two months. President Obama needs to recenter and soon. I wish him success but I am using tight stops.

Update: Related article from David Brooks at the NYT

In a fateful decision, Democratic leaders merged the temporary stimulus measure with their permanent domestic agenda — including big increases for Pell Grants, alternative energy subsidies and health and entitlement spending. The resulting package is part temporary and part permanent, part timely and part untimely, part targeted and part untargeted.

It’s easy to see why Democrats decided to do this. They could rush through permanent policies they believe in. Plus, they could pay for them with borrowed money. By putting a little of everything in the stimulus package, they avoid the pay-as-you-go rules that might otherwise apply to recurring costs.

But they’ve created a sprawling, undisciplined smorgasbord, which has spun off a series of unintended consequences. First, by trying to do everything all it once, the bill does nothing well. The money spent on long-term domestic programs means there may not be enough to jolt the economy now (about $290 billion in spending is pushed off into 2011 and later). The money spent on stimulus, meanwhile, means there’s not enough to truly reform domestic programs like health technology, schools and infrastructure. The measure mostly pumps more money into old arrangements.
Click here to read the rest

Bank Lending Falls In Australia - First Since 1992

From Bloomberg:
Australian Lending Declines for First Time Since 1992

Jan. 30 (Bloomberg) -- Australian bank lending unexpectedly
fell in December for the first time since 1992 as borrowing by
companies slumped, increasing pressure on the central bank to
cut interest rates next week to ease a squeeze on credit.

Total loans provided by banks and other finance companies
declined 0.3 percent from November, the Reserve Bank of
Australia said in Sydney today. The median estimate of 19
economists surveyed by Bloomberg was for a 0.5 percent gain.

I say go for a cut of 1.5% i am still short those rates.

Second example of protectionism from Democrats in 9 days

Barack Obama took office on January 20 and we have had two instances of protectionist action already. First was Geithner's China currency manipulation comments, and now legislation mandating steel used in infrastructure spending be made in the U.S. I undeerstand the motivations behind these moves but they are playing with fire. Mr. Smoot and Mr.Hawley thought they were being reasonable too. Obama better find a waay to get real leadership in Congress because Pelosi and Reid are hacks that will hold President Obama down like anchors.

From Reuters:

U.S. House approves 'Buy America' steel measure

WASHINGTON, Jan 28 (Reuters) - The U.S. House of Representatives
on Wednesday approved a controversial "Buy
America" steel provision as part of an $825 billion package
to help pull the U.S. economy out of recession. The provision
requires public works projects funded by the bill to use
only U.S.-made iron and steel.
House leaders included the language despite strong objections
from the U.S. Chamber of Commerce and other business
groups which said it would set a bad example for
other countries considering their own economic stimulus
plans.

Dubinsky: Who pays for the Stimulus?

Andrew Dubinsky posted the following table:

I wanted to know who will PAY for the stimulus. I have heard numbers
tossed out such as $6,700 per household, but not all households pay the
same taxes. Most households pay nothing at all. So, I took the
breakdown of who pays federal taxes by percentage of income and then
looked at how many people that represents.
(hat tip Instapundit )

Gold Sparkling for David Einhorn

Bloomberg:

Jan. 28 (Bloomberg) -- Greenlight Capital Inc. founder
David Einhorn, 40, is finally taking his grandfather’s advice.
The $5.1 billion hedge fund is buying gold for the first time
amid the threat of inflation from increased government spending.

I agree with Mr. Einhorn. Gold is moving up against almost everything recently. No major central bank wants a strong currency right now as they fight inflation. Competitive devaluation is the most powerful mover of gold prices over the long term. Should the public latch on to this idea we could see a stampede like like 1980. Gold $3000 anyone.

Tim Price takes lessons from the 30's and Murray Rothbard

Tim Price of The Price Of Everything draws lessons from the great depression and Murray Rothbard in this post.

One exerpt:

But the savaging of fractional
reserve banking is only a small part of the message of Rothbard’s “America’s
Great Depression”. Contrary to the received wisdom that interventionist
government (under, Rothbard points out, the administration of Herbert Hoover
for some years before Roosevelt took the presidency) ameliorates and
foreshortens a dismal business depression, Rothbard suggests that the very
intervention so clamorously called for (both then and now) actually extends
and amplifies
it:

Condell:Shame on the Netherlands

Pat Condell

Bespoke: Country Indices in 2009

From Bespoke:

2008 Financial Crisis Was Good For Chicago's Trading Firms

From Chicago Business

Gold breaks out in EuroCurrency terms.

Reckless and Dangerous Talk Out The Administration

From Bloomberg:

Geithner Warning on Yuan May Renew U.S.-China Tension

Jan. 23 (Bloomberg) -- Timothy Geithner’s warning that
President Barack Obama believes China is “manipulating” its
currency may trigger renewed tensions between two of the world’s
three biggest economies.

This a dangerous path to go down. this gives incompetent congressmen license to activate protectionist measures and then we will see a global economic disaster. Here is the first example:

“What they can’t work out diplomatically we can work out
legislatively,” said Representative Charles Rangel of New York,
who chairs the House Ways and Means Committee, which has
jurisdiction over trade issues, in an interview. “The committee
has been saying for years” that China has manipulated the yuan’s
value, he said.

Way Cool!!

Fast Company:

Wireless Electricity Is Here (Seriously)

This is just too cool and it is also the reason for optimism about the future. Recesssions are temporary but human ingenuity , when allowed to flourish is infinite.

President Barack Obama and American Greatness

The unique greatness of America is on display today. Barack Obama was sworn in as President of the most powerful nation in the world today. President Obama acquired this role through peaceful elections between contentious political parties. A peaceful transfer is rare in history even in small nations. For the leader of a great and powerful nation to calmly surrender power under the law, to a political opponent is a miracle, yet it happens regularly in the United States.
I stand proud that we as a nation can set this example for the world. I also wish great success to our new President as he takes on the burden of that high office.

The Ouroboros, Deflation, and 2008

The Ouroboros, Deflation and 2008

2008 was disastrous but fascinating year in the financial trading marketplace. I recall no period with such widespread misunderstanding of market conditions and policy needs. The problems that devastated the markets began to reveal themselves in late 2007 when two Bear Stearns funds collapsed because securities they held could not be sold. Then Libor rates exploded as banks began to take a look at their own portfolios and became suspicious of the portfolios of other banks and stopped lending to one another. This was misinterpreted as tight money so the Fed responded with rate cuts.
But the real cause was a slow realization that bogus triple A rated mortgage securities based on mongrel pools of thousands of subprime mortgages mixed with prime mortgages were grossly mis-rated by ethically challenged, fee seeking, rating agencies. The asset class collapsed and thus seriously impaired bank capital ratios. But not until Bear Stearns failed was this widely recognized. Solvency was the problem not tight money, and that is why Fed rate cutting was not generating any result. They were treating a virus with an antibiotic.
The Ouroboros pictured above is a mythical creature that eats its own tail and is generally used to represent eternal recurrence. But it also represents a system consuming itself, and that is what we have. Inattentive regulation of new securities fed by greedy and over confident investment bankers led to a massive over leveraging aided by loose policies under the Greenspan Fed. Collapsing asset values in the huge mortgage backed securities market turned leverage ratios of 40-1 backward and bank and hedge fund equity consumed itself.
Fear began to spread and the 3 week period surrounding the seizure of Fannie and Freddie and the bankruptcy of Lehman set off panic in the public and in institutions. Margin calls triggered wave after wave of liquidation of positions and equities, commodities and corporate debt all plummeted. Game over.
The reason central banks always fear deflation more than inflation is deflation is self sustaining. Rational behavior by the individual to increase liquidity is a disaster for the economy which is losing systemic liquidity. The central banks are relatively powerless to stop the feedback cycle until the panic subsides and the fear begins to dissipate. The actions they can take are too slow to take effect for the results to dampen fear quickly and thus the Fed and Treasury appear inept. That was 2008.

2009 will be quite different. The panic has ended, though it could reignite, as positions were largely liquidated by leveraged funds and institutions before year end. Furthermore the natural optimism of a new year, the extraordinary optimism attached to the incoming Obama administration, and finally some effects of the massive monetary stimulus initiated by Fed and Treasury programs put in place beginning in August should coalesce to create a more positive psychological environment for investors. This will be a year where sentiment will be more important than ever.
At Infinium we have always believed personal psychology is the most important component in success. This year group psychology will be just as important. Three trillion plus dollars was pulled back in to money funds and probably equal amounts to bank accounts and other non market exposed mattresses. Will confidence or greed for yield be enough to start dragging that money back into the market? Or will continuing negative economic news and ballooning unemployment maintain a level of fear that continues to depress money velocity? That is the pivot point for the market and the economy. The positive in this for us is continued volatility and opportunity for intelligent risk taking and edge collection.

Big Themes
Reflation trades still good. The central banks will continue to fight deflation longer than necessary and now fiscal stimulus will be in place as well. Trading opportunities will exist in short versus long rates, spreads between treasury and investment grade and high yield bonds, forex crosses; also individual stocks and equities that benefit from or are harmed by specific pieces of stimulus legislation.
Country Indices outright or spread based on differentials in growth estimates or policy proposals and national financial solvency.
Commodity trades will be more differentiated than last years correlated boom in the first half and even more correlated crash in the second half. Examples are: precious metals as the only not currency specific trade, grains on weather and carryover. base metals and oil on rising demand from infrastructure projects fueled by government stimulus.
Politics will play a much bigger part of the action because of a new administration and one sided Congress rather than just bluster surrounding the election contest. Infrastructure companies, utilities, autos, healthcare and pharma are all likely to be heavily affected by legislation. Type and quality of fiscal stimulus proposals will push the debt markets around. Geopolitical policy will move currency, debt and country indices.

Specific Themes

Some I favor now.
Infrastructure stocks that operate worldwide based on stated stimulus plans in the US, China, Mexico, Brazil, and India, Europe likely.

Precious metal are the currency alternative in an era of competitive debasement of paper currency. Platinum is outperforming.

Strong balance sheets versus cash poor companies.

Fed will hold short rates low to press for shrinkage of quality risk spreads.

China relative strength

Long corporate and high yield bond funds outright ( these have had a big move during last week) and spreads of etfs of different underlying quality and maturity length

Conclusion

I do not expect nearly as much high correlation or so many enduring trends as 2008 because I believe positions are smaller and there will be more crosscurrents among trading instruments. I do expect significant opportunities for the alert. Surprises are likely to come from geopolitical conflict, legislative proposals after the first quarter, state and municipal finance, and crop failure, failure of large European banks tied to credit default swaps.


Fire away criticism is welcome. (except about my weight)

UKTelegraph: History sill show that George W Bush was right.

A terrific article about the departing president with which I am in general agreement.

History will show that George W Bush was right

The American lady who called to see if I would appear on her radio programme
was specific. "We're setting up a debate," she said sweetly, "and
we want to know from your perspective as a historian whether George W Bush
was the worst president of the 20th century, or might he be the worst
president in American history?"

Obama and the Democrats start changing the rules for banks. Your business to come later.

From Bloomberg: I was alerted by Jim Cramer of CNBC

Obama Takes Aim at Last Reason to Own Bank Shares: David Pauly

A preview of government health care

As Glenn says this is a preview of what government health care will be like.  reminds me of the pregnant Canadian women who was told the firs hospital room available for a delivery was 10 months out.

from Megan Mcardle

FT: Beware Commodity Index Rebalancing

FT/Alphaville presents this valuable information about rebalancing of commodity indices that leads to some position changes by large institutions.

Beware, commodity index rebalancing ahead

this activity may explain some of the recent price movement in gold and crude oil.

Gateway Pundit on Franken Stealing A Senate Seat.

Gateway Pundit :

Shameless. Dems Steal Minnesota Senate Seat From Coleman

Go read it because it will make you want to puke. The Minnesota democrats have been taken over by people who believe the ends justify all means and only they know the proper ends. Every decision of import in the Minnesota ballot recount has gone in Franken's favor. Twenty five counties now have more votes than voters.

The Pelosi Doctrine: What’s good for her is good for the U.S.

This headline is stolen directly from the DC Examiner but I love it.
click here for the article

The Pelosi Doctrine: What’s good for her is good for the U.S.

This headline is stolen directly from the DC Examiner but I love it.
click here for the article

Jeff Saut Weekly

Investment Strategy by Jeffrey Saut

As for the “here and now,” our hedged “long” positions in the major
market exchange-traded funds (ETFs) are now showing decent gains and we
are raising stop-loss points appropriately. Meanwhile, our unhedged
long positions in the iShares MSCI Japan (EWJ/$9.63) and the iShares
MSCI China (FXI/$31.11) have not only broken out above their respective
December closing “highs,” but their November closing “highs” as well,
and hereto we are raising stop-loss points. As for the closed-end
municipal bond funds recommended three weeks ago, both BlackRock
MuniHoldings Insured (MUE/$9.60) and Nuveen Insured Dividend Advantage
(NVG/$11.60) have experienced rallies that have reduced their discounts
to net asset value by nearly 50%. While we continue to like the
strategy of buying distressed debt, we would now be more price
sensitive given the fact that the Treasury Bond complex broke down last
week, implying higher interest rates. Interestingly, while we don’t own
it, the Market Vectors Agribusiness ETF (MOO/$29.46) has closed above
its November/December closing “high,” which should help our
recommendation on 8%-yielding Archer-Daniels convertible preferred “A”
shares (ADM+A/$38.27). We continue to like the agriculture theme and in
addition to Archer-Daniels offer for your consideration Bunge’s
7%-yielding convertible preferred (BGEPF/$68.00); both issues are
followed by our correspondent research affiliate.

Uncle Jay recaps 2008

http://www.unclejayexplains.com/media/UJ%2012-22-08.wmv/

Here Theyt Be Dragons

thanks to Kaushik Gala for pointing out this article in the New York Times. If the Times would stick to reporting like this it would again be worthy to call itself a great paper.
The article on risk management by Joe Nocera is a superb description of the failure of Wall Street leadership to protect shareholders and investors. CEO's on wall street firms are almost always salesmen with a commanding presence and compelling optimism rather than knowledge workers with a deep understanding of the strengths and weaknesses of product offerings.
The Times article is 10 pages and I urge you to read it all.

Given the calamity that has since occurred, there has been a great deal
of talk, even in quant circles, that this widespread institutional
reliance on VaR was a terrible mistake. At the very least, the risks
that VaR measured did not include the biggest risk of all: the
possibility of a financial meltdown. “Risk modeling didn’t help as much
as it should have,” says Aaron Brown, a former risk manager at Morgan Stanley
who now works at AQR, a big quant-oriented hedge fund. A risk
consultant named Marc Groz says, “VaR is a very limited tool.” David
Einhorn, who founded Greenlight Capital, a prominent hedge fund, wrote
not long ago that VaR was “relatively useless as a risk-management tool
and potentially catastrophic when its use creates a false sense of
security among senior managers and watchdogs. This is like an air bag
that works all the time, except when you have a car accident.” Nassim
Nicholas Taleb, the best-selling author of “The Black Swan,” has
crusaded against VaR for more than a decade. He calls it, flatly, “a
fraud.”

The Hollow Republicans

This article from Veronique de Ruy pinpoints Bush's greatest failure and the betrayal of the GOP party by the Republican leadership cadre.

from Reasononline

Some people still seem to think Republicans take a hands-off approach
to regulation, probably because the party is always quick to criticize
the burdens regulations place on businesses. But Republican rhetoric
doesn't always match Republican policy. In 2007, according to Wayne
Crews of the Competitive Enterprise Institute, roughly 50 regulatory
agencies issued 3,595 final rules, ranging from boosting fuel economy
standards for light trucks to continuing a ban on bringing torch
lighters into airplane cabins. Five departments (Commerce, Agriculture,
Homeland Security, Treasury, and the Environmental Protection Agency)
accounted for 45 percent of the new regulations.  read more

The Bush team has cleared the field for enormous spending by the new admisnistration. The abdication of responsibility for fiscal restraint and advocacy of small government has destroyed the credibility of the party. The one faintly positive consequence is Obama faced with all the pressure any president feels also carries the unfair burden of "proving" his race to be up to the job. Thus the Obama administration may have to act as the responsible oposition to the Democratic Congress. I didn't vote for the President Elect but I fervently hope he is a great president but he is going to need to be.