THE CHINESE CURSE

Nothing coming out of China these days sounds very good and hence, nothing coming out of Davos sounds very good, which, depending on how one looks at that is a good thing because in the past nothing has ever come out of this most expensive waste of time, or a bad thing as even these clowns are worried.  Seems as though no one really believes the Chinese numbers and the credit situation appears to be worsening both from the standpoint of quality and availability which, if true, is certainly bad news.  Not that any of this should come as a surprise mind you, but somehow what was always there, hiding in plain sight, suddenly terrifies everyone when someone suddenly says, "Oh, look what's hiding there in plain sight!"

Anyway, equity markets continued their dive into the gurgle tube on this and the continued realization that Mr. Bernanke's last act might be another tapering and the snoops at the ECB suggesting that all is not well with bank portfolios Over There all of which translates into the fear of a loss of liquidity which some think (me) that this was the only thing holding life together in the first place.

We have talked about the structural problems facing the Euros but yesterday it was demonstrated just how threatened they themselves feel when Brussels announced a dramatic shift in policy in regard to the all-time sacred cow of European politics: global warming.  Rather than setting guidelines for reduction in carbon emissions for individual counties, Brussels now looks to an average reduction target for all of Euroland which of course means no target at all.  The reason?  It was to cost too much and reduce economic growth to proceed in the original manner.  What's saving the world when votes are at stake.  Yesterday the mantra was that Euroland would look to China and the U.S. to do the heavy lifting economics-wise in the short to medium term; that changed today.  We're it Over Here.

Actually, the U.S. is in a sweet spot particularly as a result of energy costs.  We're lucky no doubt.  But keep in mind that the great energy boom of the past 5 years has come without any support whatsoever (Crazy Lizzy not withstanding) from the public sector--witness the no-brainer of a pipeline running where 83,000 miles of other pipelines run but denied its existence as a sop to the environmental lobby.  Nearly nine million jobs have been created in the past 5 years but we still have fewer working Americans than in 2007.  Financial regulation has reduced the availability of credit or the willingness to lend.  The U. S. is not in a good place as the leader of a global economic revival and yet we are the best bet out there.  We had best get our act together quickly which is one reason that I continue to believe Mr. Bernanke's last act will also be the last of the tapering as although it really does nothing for economic growth (as demonstrated) the result of QE not being there is too visible--down goes the stock market, and this is an election year.  Of course if we could only find a two or three year bubble that would help thing immeasurably

In his State of the Nation address next week, The Leader will look to none of these issues--or so it is reported.  Equality is the supposed vote getter and it is equality through unequal treatment that we shall get.  It should be a great speech…I can't wait.  Don't we live in interesting times?

ALWAYS THE FED

Sorry about the past few days.  I had a bit of an eye problem related to drops during an exam and couldn't see a damn.  Over Here, the political scene is dominated by ObamaCare…oops, The Leader has mandated that it can no longer be called that as of course he had nothing to do with it so all comments are to be referred to as the Affordable Care Act or, "ACA," which is morphing into Less Affordable Care by the minute.  On the financial front, the Red continues to excite.

As expected, Ms. Yellen's confirmation as Chairman is now a certainty as she received the endorsement today of a key Republican Senator--as it should be I might add as there is certainly nothing in her record which cries out for a rejection.  Having settled that, all other things about this organization remain a mystery.

One might remember that when nominated, Mr. Bernanke promised a far more transparent Fed which at the time I expressed a belief that that may not necessarily be a good thing.  Whether it is or not the transparency issue seems to have transformed itself into the belief that any governor can say any thing about anything whether it in concordance with stated policy or not which causes a God-awful confusion among the self-involved resulting in all sorts of weird and wonderful reactions in the capital markets.  For example…

Last week, Ms Yellen made it quite clear that QE III was not a target for tapering any time soon and that the easy money policy would continue for a while…or so ever one thought.  The markets swooned and this wonderful piece of good news.  On Monday, however, Mr. Bernanke modified that a bit by being not so firm on the lack of future tapering but continued to express the almost certainty of easy money.  The markets stopped to think for a brief moment but deciding that "easy" was the operative word, continued onward.  Then came today with the release of the latest minutes along with a couple of Fed interviewees that indicated tapering might just be around the corner given the strength of the economy which could well be followed by a rise in interest rates in 2014.  WELL!  Smack me upside the head why don't cha!  The DOW dropped like a stone and interest rates moved quickly upward.  It would all be a lot easier if this gang locked itself away in a room somewhere in a real-life city other than Washington and decided who was going to be their spokesman, but it looks like the paste is truly out of the tube and there's a  real chance that there will be fist fights as to who gets in front of the cameras first---Memo to Govs:  if Chuck Schumer is in the same room don't try it.  Bodily harm could result.

Lost of course is the real conversation behind all of this like why in the hell should we have QE (pick a number) at all, as three years it has proved to be all but useless as an economic tool although it does buy paper that for a long time nobody else would touch with a stick, but what is now perhaps the catalyst to another near-catastrophe as once-ended, the market will expect the Fed to turn from a $4 trillion whatever into something resembling sanity overnight. As for me…well, I can see again even if what is out there is pretty ugly.

ALTERNATIVE REALITY

Try this one on for size.  Refusing to begin tapering is the Fed's way of telling us how really awful the economy was--so awful that they themselves didn't recognize it, and the actions over the past five years have saved us all from a fate worse than death and Ben should be applauded because he got us in the right place even though he didn't (and doesn't) know where he was/is...or something like that.  I guess that makes as much sense as anything else one could come up with except that the real tale is probably something along the lines of having convinced themselves of the correctness of their actions and having realized that they haven't accomplished a scintilla of what was expected, twisting world financial and currency markets is a hell of a lot better than admitting, "Got it wrong, guys."

Most everything got covered today and well-over-bought, equity markets closed slightly down, but what a day yesterday was.  Funny, poor Ben has given The Leader the perfect answer to any question he might be asked as to why he refused to re-nominate the Fed chief:   Bernake has made so much money for the "rich" guys at the top who actually have financial assets that they can use for investment purposes that his policies have exacerbated the "wealth differential" in today's society.  The fact that by pumping out a Trillion Bucks a year has saved The Leader's butt makes no difference.  How ironic.  Rather than just having said that reviving the economy was, "Not my job," Bernanke actually tried to do something in accordance with his PhD thesis, and succeeding in the creation of the bubble of all bubbles (perhaps) whilst totally taking the pressure off the administration for the absolutely inane job they have done in not restructuring the economy while in the mean time creating more road blocks to economic growth than one could have possibly imagined five years ago.  Maybe it is time.  But the manner in which arrived is dreadful and disgraceful...but not unexpected.

JP Morgan agreed to a fine of $920,000,000 today while admitting they had done wrong.  Lot of zeros isn't it.  Wonder if they pay bonuses at the SEC?  Try as I might, I don't feel less at risk this evening.

Class football reunion this weekend.  Unless it's REALLY important you shall hear no more from me until Monday.  Elections in Europe...watch the tape.

DIDN'T HAPPEN

Didn't happen Friday either so I broke the same promise two days on the trot.  Last week was all politics and I don't write about politics...well, hardly ever.  Today is about politics as well but with a very real financial bent; who is going to be the next Chairperson of the Federal Reserve.  We have two perfectly lousy front runners, Janet Yellen, the darling for west coast females and females all over the United States and Larry Summers hated by many females for suggesting quite innocently that females were perhaps not suited for the "hard sciences" whilst the President of Harvard.  Now the winner of this doggie race is going to be Yellen as the Leader will never make a decision running counter to his base or the gender politics of the day.  In fairness, Yellen is probably the safe choice for in addition to being the Vice Chairman of the Fed (continuity, old boy) she is probably the staunchest supporter of Bernanke's soft money policy which every one recognizes is the only thing holding the stock market up and, by extension, the economy up which basically stinks unless you consider growth under 1% as being OK.  Unfortunately, while Summers has never seen a market he really understood or tried to understand, Yellen has never seen a market.  As an academic, joined by the hip to the Fed economist she makes Ben look like a gunslinger away from the hallowed halls.  Conversely, Summers is far more fully versed in fiscal theory and would be a major pain in the bum to The Leader and his gaggle of near-incompetents and is generally on the right track except for the fact that he has been such a major pain in the bum all his life that nobody listens to him because they just don't like him.

Perversely, none of this really counts for anything because the problem is hardly at the Fed but squarely in the White House and in the divided Congress which simply is incapable of finding a direction in which to lead.  Where the next Fed governor will matter, however, is in the continued debate as to financial regulation and it is here where from my standpoint I would be much more comfortable with Summers who, while also clearly a political animal, is a far more pragmatic one having grown up at the feet of Bob Rubin and Bill Clinton---the King of all pragmatics.  With Crazy Lizzy Warren with tenure in the Senate running around out there it would be nice to have a few adults somewhere in the wings.  Think of it; the Chairperson of the Federal Reserve owing a Big One to Nancy Pelosi...kinda makes your blood run cold. don't it?

Anyway, the govs get together this week to yak at each other that the employment number is Friday (I think) and it appears that the two slugs on the Left and Right coasts are going off the front page for a while, so maybe there will be something we can write about otherwise we may have to delve into the "Phony Scandals" that have the White House so scared out of their wits.  I mean, these are really hard times.  I keep looking for something dramatic as a result of the Detroit Bankruptcy but other than the expected tightening in the Muni Market, nada.  I mean this is a big thing and yet it seems to have been taken in stride.  Perhaps that's a good thing indicating stability and confidence in domestic markets.  I hope so.  Surly, it couldn't be that people are not paying attention.  One thing hanging over this, however, is the interest rate environment which could play havoc if there is a steady rise.  Which is another reason why we get Yellin.  She and Ben are determined to prove that their idea works.  With her, the QEs go no where for a while.  I remain unconvinced.

AH BEN, COME ON

 Nothing.  That's what I got out of the Chairman's testimony today.  Nothing.  Nada, a Big, Round Goose Egg.   And that's what I'm going to get tomorrow.  What the hell this guy has against bloggers I don't know.  After all we're people too.  As a result, the markets acted as though somebody had died.  Nothing there as well.  The only good thing that came out of three hours of testimony was The Chairman's response to Maxine Waters, (who has to be the dumbest person in shoes in the history of the Congress), which after 3 minutes of babbling, and a long pause inquired, "Was there a question there?"  Laughter all around.  The Chairman covered by blaming the sound system--which, admittedly, was questionable all day--on an inability to hear but before more hilarity broke out the chairman of the committee mercifully moved the proceeding forward.  A precious moment.

While that was going on, at another location in our Capitol, Jacob/Jack proclaimed that Dodd/Frank had saved the financial system--or words to that effect.  Given the fact that this disgrace of Congressional action remains mostly not in affect, Jacob/Jack confirmed that he is fact an idiot which most of us had suspected.

In fact, the only thing of consequence and possible importance that occurred all day was the minutes from the Bank of England which revealed that by unanimous vote their version of Quantitative Easing would not be expanded in the foreseeable future.  My, it is surprising at times what a new Governor can do as it was well-known that his predecessor was fully in favor of an expansion.  The vote was unanimous which was also a bit of a surprise.  Is sanity beginning to prevail again?  Time will tell in the case of the Old Lady but I am less confident for the future of Our Mob as these theorists, as I have repeated over and over, want to see their theorem proven.  There's a Nobel in there some where.   Oh, economic numbers today, particularly those concerning housing, were lousy, but Stockholm has been there a long time and will be.  You can get one even if you're dead, although it's probably not the same I would imagine.

Here in the fly-over zone it is hot and humid.  Nothing is going on here either.  Wish that Royal Baby would arrive so the girls will have something to talk about over the back fence.  We're hoping for tomorrow as #2 son was born on that date--in London no less.  Rule Britannia.

HE DID IT AGAIN!

Most importantly, however, the Triplets turned six and had a birthday party that lasted three days; three kids, three days.  Makes sense.

What makes no sense is Mr. Bernanke who, despite sage advice from this quarter and others, simply can't stop running his mouth and just shut up.  He did it again yesterday explaining that the real Fed policy is to keep interest rates low until time eternal but to perhaps (or was it probably) scale back on QE III (or is it IV) by the end of this year.  Proving that easy money has always been the driver of this stock market it started up after-hours last night and finished up over 160 points today for a new world's record for the DOW.  Yea for everybody...except bond traders who got absolutely killed, FX traders who were properly long the dollar and got absolutely killed, places like Brazil who had to raise domestic rates (a reversal of form) in the face of lousy economic numbers, and Euro ministers of finance who watched the yield on their bonds rise thereby threatening to put a serious hurt in their budgets which, if anybody has missed it, are somewhat important in holding that entire mess together Over There.  It's not that Ben wants to create havoc, it's just that unlike Jim Baker ("the dollar is your problem") who grew up in the real world, Mr. Bernanke is simply doing what any good academic does which is to follow his own models right down the gurgle tube without a thought (or care) in the world as to how their applications might affect others be they correct or incorrect in the end.  Don't say I didn't tell you.  But after losing a billion or ten here and there, we now have clear guidance and the nano second traders can get back to screwing the little guy and we can stop worrying about fundamentals for at least six months.  It's so much more easy this way.

The Times this morning was all excited that it appears that the regulators Over Here and in the UK are about to agree as to who should be looking after whom in regard to American subs operating Over There and visa-versa.  That kind of left me wondering whether or not we had an agreement prior to the time the world came tumbling down and I distinctly remember having my bum hauled over to Threadneedle Street more than once to explain what was going on which means I guess we did: they watched us and we watched them and people used to talk to one another.  This is better I suppose because Great Minds have been working on this for years now.  No Dumbos like Paul Volker, Chet Feldberg Terri Checki or Brian Quinn to worry about.  Real Geniuses at work today.  I felt so much better after reading the article.

Another wonderful event of the past couple of days was the Euros agreeing on a joint set of rules by which the gazillion national banks Over There are to be governed along side the awful Basel III accords with one set of rules.  Flush with success, next came an agreement as to how failed banks were to be wound up,  and it passed unanimously...except for Germany who figured out early in the game that it was German money that would be used in this, God's Work.  Not on lads, the Volk would not stand for it, which of course makes the previous agreement pretty much useless.  While this was going on, Italy stopped functioning because Burlesconi told his guys to butt out of the legislating job, Spain was going no where but down, the Greeks...well...the were being Greek and the French were waiting for August so that they could do nothing at all.  The triplets, on the other hand, organized their own birthday parties quite well...then again, at six years of age they are a bit more mature.

A BURST OF REALITY

Our central bankers finally figured out that they had well and truly buggered it over the weekend and this morning began to take steps to undo what had been done to the markets' psyches by sending out Billy the Dud from the New York Fed to explain and sooth troubled waters.  In so doing they double buggered it because a worse choice could not have possibly have been made; but that is a story for another time.

The only thing to talk about today is the ten year which closed at 2.55% an astounding yield above Friday' number.  This is more than a big move...it is a scary move indicating that there simply isn't a bid out there and God knows what that means should this market be as leveraged as it has been in the past, and believe me when I say that I have no idea whatsoever whether that is the case.  It is entirely possible that we could lose a player or two in an environment such as this and if that happens the fall-out will indubitably be international in scope.  So keep your fingers and toes crossed that enough people saw this coming and we ride out the storm, but could have been avoided of course with a bit less naivete on the part of Ben and the boys but a contributing factor had to be The Leader's absolute dismissal of his Central Bank head in public, on television, on a talk show no less. I have been critical of Mr. Bernanke's policies but from all reports he is a good and decent man.  No one deserved that kind of treatment from this street thug of a President.  I wouldn't be surprised if Mr. Bernanke felt he had to say something otherwise all of his credibility and influence would have been destroyed when--unfortunately--given the state of market sentiment silence would have been best.

We now find us in a situation where there is no one either on the monetary or fiscal side with any credibility to undo this market volatility; we must simply wait for it to subside and hope that there isn't a major blow-up as a result.  Of course The Leader, looking at a real mess, has decided to go forward with a major speech on the environment tomorrow as though there are 10 people out there who care and which will almost certainly have the result of reducing business confidence even further--especially if he capitulates to the left wing of his party and kills the pipeline.  Call me a grave digger but I'm surprised there are not more speaking out as to the present state other than Krugman whose effort in the Times today had to set new records for stupidity in the face of markets.  I think this is really bad with a good chance that it gets awful.

Meanwhile, Over There, they are really going to try to send Silvio Berlusconi to jail.  Of course there will be an appeal process that may outlast the Octogenarian but in the mean time his preoccupation with his freedom from a political standpoint, "It's a no good," as Massimo would say. Italy will come adrift again in a month and Greece is already there.  European cooperation is breaking down again with the only good news being that Angela's elections a a month closer the outcome of which is the only thing that counts any more.  And of course there are the Chinese.  Three sagas on at once.  This is really going to test my expertise with the remote channel changer.  Keep tuned.

IF IT WASN'T SO SAD...

...but it is what it is.  The funny thing is Ben and the clucks that surround him were actually surprised at the reaction to the comments of Wednesday.  The reason for that is what I have been trying to get across for over a year: these are academic economists who have absolutely no understanding of the mentality of markets and, apparently, little desire to learn.  What they have discovered in the past few days is that for years, the entire economic framework of the WORLD revolved around easy money.  Any hint at a change in policy--a policy that has been ingrained in three generations of Fed leadership--is likely to cause panic which is exactly what happened.  Amazingly, this guys mob agonizes over every word in a press release while at the same time attempting to remain "transparent."  Memo to the Fed:  Sometimes...indeed, most times when the subject is so explosive, forget transparency AND JUST SHUT UP!  You don't understand your audience.  A lot of people lost a lot of money over the past couple of days.  If you think that is good for the economy...well, what can I say.

In my view Bernanke actually didn't intend to signal any real change in policy, and when this becomes better understood, I suspect the equity markets will recover somewhat.  But the 10 year closed today at a 2.51% yield and that is not going to come screaming down very soon.  Why do I care about that?  After all, we are still at historically low rates.  But consider this for a moment; interest rates have moved with extreme rapidity over the past two months.  Because of the low rates, a huge portion of the financial activity over the past few years has focused on the accumulation of debt and a goodly portion of that debt is secured in some way or hedged with financial instruments. Every one of those instruments are presently undergoing a repricing which can have unknown consequences in specific areas of economic activity or across a broad spectrum.  Now the whole world hates banks but if we are all to bow at the altar of transparency, banks are among the most transparent of institutions; there are regulators who have yet to be born that will spend their entire lives looking at banks.  The problem is the banks aren't the ones doing the lending.  These days it is what we call the "shadow banking system," every thing from hedge funds to pension funds that are the players.  And if one of these animals gets caught on the wrong end of a trade or winds up short of collateral or discovers a hedge they thought secure is hedging nothing, you will have no warning, it will go toes up   l i k e   r i g h t    n o w.   Not to mention the fact that the repricing of assets is kinda what happened in 2007?  Think any of the 12 year olds trading interest rate futures at a financial institution near you has any institutional memory of that period in history?

Which brings us to China.  The Chinese have figured this out and are going to stop it.  That is what 20% (reported) overnight rates are about.  They are prepared to kill some people in order to bring the explosion of credit back in line and it is their "shadow system" that is going to suffer.  The central government holds immense stores of financial ammunition and I am constantly told by He Who Is In The Know that they can handle it.  HWIITK is not often wrong and I can't remember the last time I was brave enough to voice even the slightest of questioning of His assessment.  This time I'm not certain.  They had better get this right but there may be things out in their neighborhood that not even the Chinese do not see.  The Black Crane(or is that Japanese)may be lurking.  The next week is going to be very dicey.  I'm resting up this weekend for Monday when the battle begins anew.

DIRECT FROM THE NSA

"Hello."

"Ben. Ben?  It's me, Barry."

"I'm sorry. Who is this?"

"Benny, Benny, it's Barry...ah...Barack...ah, you know the President."

"Oh, right.  What can I do for you Barry?"

"It's Mr. Pre...oh, never mind...Benny what were you thinking yesterday? You damn near brought the whole house down."

"Did I?  Gee I didn't think that would happen.  I was just trying to smooth out the batters box for Janet when she takes over at the end of the year.  Give her plenty of options, you know what I mean?   I mean it was just a little lab test we were running to see how the markets would react.  Nothing serious.  Got a lot of good stuff but you know, not all of it is what we thought it might be.  Do you think some of our models might have been wrong?

I don't give s *&%# about your models!!  Jacob/Jack tells me everything is in the crapper and may stay there.  THAT'S what I give &^%$#% about.  Your models can go to hell.  They don't believe me when I tell them the war against terror is over.  How do you expect them to believe me when I tell them we're doing better economically when the DOW is down 500 points, the 10 year--whatever that is--is somewhere it's not supposed to be, the dollar is up so our exports are going to suck, the Euros think I'm an idiot, the Russians laugh and the Chinese wont even talk about things I want to talk about, and now THIS!?  What did you do?  How do I explain THIS?!"

"Blame Bush?  After all he appointed me."

"You know, that might work."

"But then again, you reappointed me."

"Oh shut up for once."


Just a little (very little) attempt at humor but today was really not a good day.  If there was any question that the past year or so was a bit of a Potemkin village the Bernanke remarks or following the Fed meeting set off a chain of events that certainly gave support to that belief.  One need but open one's window on the most beautiful of days to hear the cries of 'I told you so" emanating from the financial canyons of the East as some real blood is being spilt in the investment community.

It is a bit of a perfect storm as well as the news from China is not good at all what with tales of the overbought and the overbuilt  coming from every where.  A good friend who has just returned has remarked that they have a hell of a problem which he believes they will overcome but not without a great deal of pain.  Ominously, however, he added that this time it is no slam dunk.  Credit is becoming unavailable from the banking sector, squeezing the small business man who must turn to the shadow banking sector for liquidity into which cauldron slides any notion of transparency.  The numbers, which were always more than suspect are now non-existent making the one economy which more or less has kept the global wheels turning for the past five years is now in neutral or reverse.  The Fed punch bowl may no longer be there and the Chinese one may be running dry,  No, not a good day.

HOW'S THAT AGAIN?

The fed met for the last two days and the Chairman showed up precisely on time to explain what was going on. It sounded something like this.

"Thank you.  We have met for the past couple of days and have reached the conclusion that things have continued to improve although not at the pace we would like to see but we feel better as to where we are and we may feel better at the end of the year but we are not sure we will.  In the mean time to insure that we can feel better at the end of the year we are going to keep continuing what we have been doing for five years in regard to interest rates and for over a year in flooding the world with money along with out new ally, Japan, unless and until the unemployment rate reaches 7% at which point we may cut back on purchases but not change interest levels because that is still going to take an unemployment rte of 6.5% which if all of that happens without any interference, we might be out of the woods by 2015--then again we might not.  I'll be happy to take questions."

"Mr. Chairman, Charles James here.  Could you explain what it is you just said?"

"NO."

"Mr. Chairman, can we derive from your remarks that you a planning to taper?"

"You can...or you can't.  Your call."

"Mr Chairman, many believe that President Obama in effect fired you in an interview earlier this week.  Might one conclude that this end of year timing coincides with your...ah...retirement and you have clearly decided that this takes you off the hook?"

"One might conclude that; I certainly would not, but one might...indeed YOU might, but not I."


As this was going on the markets concluded that the Fed would declare victory and begin the tapering process with the stock market closing down over 200 points.  Of greater note, the ten year yield shot up to 2.31%, an incredible 80bp move in slightly over a month, and yet Bill Gates says he was a buyer earlier in the day with a prediction of an end-year 1.90% yield.  I'd keep the kids off the street for a while.  This neighborhood is getting scary.

THE MADMAN

I had a cocktail--0k, may it was a touch more than A cocktail--with Mad Max after hours one evening in New York.  Max was born a trader and most--if not all--traders are nuts.  Max was born close to insane but he was and is a great trader.  He's had his ups and downs, especially when he was trying to maintain the GDP of two Colombian provinces all by himself about 30 years ago.  He quit that as a result of a slight disagreement with an associate over payment for quality which ended up with Max  on the wrong end of a TEC 9 which instilled instant religion and a belief that his then present course might be bad for his health.  But that's another tale.  Max and Glenfiddich remain close friends, however, and Max was never one not to share his friends.

"Charlie, I've been in this business almost 40 years and I have never seen nothing like this.  This is Loonie Tunes, an absolute Walt f----- Disney production."

"Wow, coming from you that's saying a lot.  having trouble making a buck?"

"What!  Are you nuts!?  This is the easiest it's ever been.  Charlie, I've been really rich a half dozen times and pissed it all away but this time...I've never made so much so easy in my life.  Bernanke should run for God.  He'd win in a walk.  I absolutely love the man!"

"What!  you love the Fed?  Since when?"

"Since he ended markets.  Come on Charlie, don't b.s. me.  You've been around long enough to realize that the guy took all the fun out of it.  He tells you what he's going to do, he tells you for how long and he even tells you how much!  And this is to 'stimulate growth and job creation.'  Well, he aint done s--- with that but man has he stimulated wealth on the Street!  Charlie, you can't miss; you absolutely cannot miss and when money costs nothing---NOTHING--you can gear it up over your head an laugh.  Look at the banks...Morg, Citi, Goldie.  They're coining it, man, just coining it.  'Course they'll do something stupid along the line--they always do--but for now it's ride the gravy train."

"Best thing is he's got half the world doing the same thing.  You know the Japs, they're great at copying stuff?  Well, that little guy Abe's done him one better.  They're printing money 24/7!  Never seen anything like it!  And you ask, 'you still goin' to keep this up?'  "Hai" the little guy says so you short Yen and buy the Nikki tell yourself what a genius you are."

"Until he stops."

"Until he stops."  And then my friend you had better get somewhere else or better yet be someplace else.  This ain't for Wusses, Charlie, because it can move really, really fast but it's easy while the trade is on.  And my man, IT'S ON!"

"And does the Fed stop?"

"Sure, sometime. But not now.  They've convinced themselves this is going to work because if it doesn't the model or whatever the hell they use is wrong and of course these guys are never wrong.  But I see something out there that wasn't there before.  The trading range has widened.  Not a lot but it's not like 3 months ago.  People worried?  Maybe.    Inflation?  Who knows.  But no question it's different.  The talk about Bernanke pulling back is trader talk.  Couple of guys talkin' their book.  Don't believe it.  Not going to happen, not now.  And all the good news on the economy?  Yeah, here, we're doin' fine but what's it like where you are now?"

"It's better, even I can see it.  But good, much less great?  No, not by a long shot.  Real estate is better but that's because nobody's built a home in 5 years; and no body's planning on doing so."

"Funny isn't it.  All this easing crap is supposed to help the little guy but who does it help?  ME, and I'm no little guy!  Nobody in this joint is a little guy!  We all love Bernanke...and Abe and all those jerks in Europe!  One way traffic all over the world!  Charlie you got to get back in it, it's fabulous."

"Max, the problem is when I was in it, I always ran into you and that didn't work out too well."

"It did for me!"

"Yes Max, I remember."  But seriously, are you in long?"

"Hell no!  I'm too old Charlie.  I've made a ton the past couple of years, more than I really need.  Kids are grown, don't have any more alimony to pay..."

"Really!?"

"Oh, I didn't tell you?  Yeah Kristen got remarried around Christmas.  Nice guy.  I call him my husband-in-law.  Anyway, I could dump it tomorrow, hedges and all.  What do you think?"

"Max, I just don't like it.  We've seen this before...hell we saw this just five years ago.  You said it yourself: it's one way traffic.  These guys don't learn aything.  If I be thee, I'd sit back and watch for a while, then again I'm not you."

"No you're not Charlie, but you've been around a long time.  I'll think about it.  Another drink?"

"You buying?"

"When haven't I?"

"Max you are a gentleman.  You are crazier than a bed bug but a gent."





Max called about three hours ago.

"Charlie.  Go down to the booze shop."

"What for?"

"There's a case of Glenfiddich waiting for you.  I  closed out Friday.  Thanks for the advice"

"Aw Max, that wasn't advice, that was just..."

"You want the Scotch?"

"Yes."

"Shut up then.  Bye Charlie."

HOME IS THE SAILOR

The boys were right.  We found the Blue Marlin, a little beauty of about 100 pounds.  One jump and it starts swimming right at the boat.  Didn't get a good look at it but I said to myself, "Self, the way this fish is acting tells me it is a very nice Sailfish.  Go easy with it."  So I do and it gets about 50 yards off the stern and it goes crazy; four jumps in one direction, turns on a dime for five jumps the other way and I pull the hook.  Idiot rookie mistake.  They don't call it catching.

Anyway, other than The Leader's administration being caught in two monstrous lies to the nation as a whole, last week was pretty quiet except that my confusion was somewhat righted by the dollar doing what I thought it should do and that is strengthen against the Euro.  But was that the normal course of events or half the street believing that Bernanke was signaling in a speech on Friday that QE III (or is it IV) was coming to an end?  This guy is getting that Greenspan in confusing the hell out of everybody but appearing far more jovial in so doing.  What ever happened to that transparency thing?  No, take that back, I being too hard on the guy, and while this guessing game was going on the Yen fell solidly to 100 against the dollar.  That's 18% sports fans in five months, a huge move and one that appears to be having the desired effect, certainly on the export sector of the Japanese economy.  But Jacob/Jack was on top of things.  He promised to "keep an eye" on whether the Japanese were devaluing for competitive purposes or to improve domestic economic growth.  Honest to God he really said that.  I hope he hires a blind man to do it for him; it's a wonderful thing to hire the handicapped.

We had another big yuk this morning when the former joke writer for Saturday Night Live, now turned U.S. Senator, Al Franken, announced that he had fixed the problem of the rating agencies.  You see, Al seems to think that they might be conflicted as they are paid to rate by the guy who is issuing debt.  Really?  Well, his solution is to create another governmental agency as a subsidiary of the SEC whose job it would be to assign the rating function among the agencies who would then get paid on the basis of some kind of performance  related structure.  As we all know the Federal Government is completely non-partial and is never subject to outside pressures.  It is also immensely hard working and used to dealing in the time frames of the global market place.  Al will fight on this front if it takes all winter.

Now we've tilled this ground many times before but it might be worth while to ask once again for what do we need these rating agencies?  Well to help investors properly evaluate credit risk, you say.    But isn't it the job of the investor to protect himself?  If you can't evaluate the risk, don't take it!  This kind of dumb-ass thinking is what got us into trouble in 2008 and if you think about it, what got the Cypriot banks into trouble in 2011.  Needing income, they purchased Greek Bonds big time.  And why not?  As the head of one bank put it, "There was no risk according to the EU.  Capital requirement on sovereign risk was 0.  That's what we were told."  That's the modern day version of Walter Wristen's famous, "Countries don't go broke."  Walter was as smart a banker who ever lived: the countries survive, they just might not pay you back.

We would be in a hell of a lot better place if we stopped making official the ratings of the agencies and require and expect the buy side to do the job for which they are being paid: to evaluate the risk to themselves of the instruments in which they invest.  If the wish to hire an agency, fine.  But, if the buck stops with the investor, it is guaranteed that the issuance will become far more secure overnight because if not, nobody will buy it and Mr. Sellside, you're wearing it.  And that folks is what we call The Market.

DITTO

Well, what more is there to say following yesterday's piece.  Ben finished his bit up on the Hill in grand style, the markets loved him and indicated that they could care less about the sequester which apparently everyone seems to have figured out is meaningless and Italy has been reduced to the status of Greece; an annoyance but not much else despite the fact that they are a real country but not to worry, the ECB will take care of them.  Heck, they even raised 8 Billion Euros across the curve and only paid 4.84% for the 10 year.  A rousing success.  So, let's take it up 175 on the DOW today and feel good about things.

It's the central banks that are doing it and as the saying goes, "Don't fight the Fed."  If you're a bull, that's just fine, but if you were paid to worry as I was for a long time, to me the current situation means I become more concerned with "even risk" which to put it into the current vernacular, the return of the Black Swan.  What's that?  Well that's the problem, you don't know or even think about it until it arrives and as a result the effects are greatly enhanced, but there seem to be the belief that if there is nothing on the horizon, it's full steam ahead.

Except it isn't.  The remarkable rise in equities is occurring as a result of Central Bank action resulting in an absence of alternative investment opportunities, high net corporate profits but with little or no top-line growth, continued cash hoarding but corporates of all shapes and sizes and no volume.   It's as though some people need something to do rather than acts of real conviction.  Then again, those folks are making a lot of money lately which isn't a bad thing.  Does it end?  Of course, all things do but the question is when and how.  What is absent from this extraordinary world wide creation of money is inflation which has surprised a lot of people including your buddy, Charlie, unless you throw in food, gasoline and some other stuff that everybody knows doesn't count.  But fair is fair, we started off with this standard and I guess we are stuck with it.  Fact is however, if the Big I ever does show up things will get ugly really quickly and the undoubted rise in interest rates will pose an enormous threat to solvency on a number of fronts.  But until then, "Lassez les bon temps roulet," as they say in The Big Easy...in the 9th Ward.


A little while ago I got on the case--and rightfully so--of Prof. Steven Davidoff of THE Ohio State University, on the subject of the Argentine bond dispute and the Foreign Sovereign Immunities Act.  Prof. Davidoff is back in the Times today with a cracker of an article on the proposed tax on trades of financial instruments which the Euros, led by France, are about to make happen despite the protests of the Brits and the United States.  The article traces the origins and histories of this idea and the implementation, in various formats, of the same.  It is  a very good article and I commend it to you.  Interestingly, it points out that if history is any guide such a tax has to be imposed everywhere as if there are jurisdictions which do not employ it there will be a natural migration to those garden spots.  More interestingly, Prof. Steve points out that Canada, today held up as the paragon of financial planning and implementation has already rejected such a tax.  Huuuumm, wonder what Sen. Chuckie Schumer thinks of that?  One hour and ten minutes to Toronto from LGA, Chuck.  Check it out.  It's on the right side of the Lake.  No snow, and really nice people.

GENTLE BEN...AGAIN

Over Here, the stock market got great housing numbers, good confidence numbers and Ben Bernanke.  As a result it came roaring back, shrugging off yesterday's news, Asia's performance and a stinko day in Euroland.  But make no mistake, it was Bernanke who, in pledging that the cookie jar will remained stuffed, was the cause of it.  He remains firm in his resolve that his policies are the correct ones.  On the subject of the EU, whilst troubling, he made it quite apparent that he had little concern.

Over There, the mood was, if not quite somber, certainly muted.  There will probably be no government in Italy as Berlusconi and the comedian announced that they will not work with anyone and no one seems to want Monti any where near them as the feeling is that will be the kiss of death.  Now no government in Italy might be considered by some a good thing, but not the chance of contagion from the mood of the Italian populace concerning austerity.  If that spreads to the rest of Europe there may be trouble ahead.  Memo to Euroland:  it will.  Almost immediately, Germany began warning that the early steps taken by Monti to rationalize the Italian State should not be reversed and suggested to France that stronger measures should be taken to make more productive its industry while at the same time supporting the austerity program of the EU.  You can imagine how that was received.  Spain is clearly looking closely at the Italian results for with an unemployment rate of about 25% the rumblings the government already faces over its austerity program could be moved to a full throated roar in conjunction with the Italians.  I think there is genuine consensus among the leaders of Europe that austerity must be continued but the Italian "thing" (as it is being now-called) could make life very difficult and should Italy reverse the Monti approach, as moderate as it may have been, all of the threats to the Union seen last year will probably reemerge.  Angie, unfortunately, has very little wiggle room.  The Volk can read the tea leaves and they seem to be telling a story of a strong possibility of more bail outs and a push back by the Southerners against the good German traditions of frugality, hard work and savings...not to mention that if needed it will be the Volk's cash that gets used.  They don't like that.

Massimo pointed out this morning that Thank God we have the election of a new Pope coming right up as that will shut up everyone in Italy until that process is completed as the politics surrounding this are the dreams of Italian pundits and Italians.  He's probably right.  I must say I am surprised with the lack of real interest or concern--save for a few trading hours yesterday--that this country is showing over the events Over There.  Then again, we have always been a nation to whom the price of hamburger in Kankakee is more important the possible dissolution of a political union of 350 million people...should it come to that.  But as long as we have Ben, I guess things will be OK.  Or at least that's what the stock market thinks.  It gives me great comfort.

WHEN DOES ONE START TO WORRY?

The Fed released the minutes of its January meeting today which was not warmly received by the stock market boys.  If there has been a clearer indication that the remarkable performance of the indices up to this point has to a great extent been the result of easy money, what happened to today should prove that if there was one don't expect another.  Indications that the current round of pump-priming by the Fed may not end when unemployment falls below 5% but might well end much sooner, drove the DOW down by over a 100 points at the close, despite the fact that the hints in the minutes were relative mild.  Nevertheless, coming so soon after the definitive statement to the contrary made by Bernanke himself in just the last quarter it rattled investors nerves.

Despite what certain politicians and talking heads keep yelling us, the latest signs have not been good.  Unemployment is relatively unchanged.  Housing starts announced today were way down.  We are looking at the sequester which appears will occur and which has done far more to reduce confidence than the fact indicate and to which economists have applied ridiculous figures of economic harm.  Europe is not looking good at all including Germany which is the bell-weather and even Asia is showing severe signs of slowing.  All in all, not a good economic picture worldwide.

Unfortunately, The Leader  and his team are doing nothing to help things.  The sequester, of which we spoke yesterday, has been turned into a doomsday scenario from a major irritant by Obama's intentions.  [Correction:  the amount involved spoken of in yesterday's offering as being $60 billion should have actually been, "in excess of $ 80 billion".....I regret the mistake].  The Leader has made it clear that the cuts he will make are those that will have the greatest effect on public opinion and be the most visible.  In short, they will be politically motivated.  Unfortunately, that will impact consumer confidence the most which means his entire strategy must be to blame all of this on the opposing party.  This is not the way to run a railroad and even if successful could result in a true pull back in economic activity which could put the U.S. in recession as early as the second quarter.  If that occurs...well, there will be plenty to think about in regard to future actions.

Over There, Massimo called today just to confirm that he had been correct and the Berlusconi had picked up a good deal of support and it was not too soon to start think about what kind of coalition it would be that governs Italy for what he believes will be a "brief time."  That says he, will be the worst of all worlds as that will cause the rest of the Euros to believe that Italy is ungovernable.  I'm afraid he's correct which I'm afraid will cause a serious upheaval in the money markets causing a lot of the gains in bond yields and especially in confidence to be lost.  The Pope's last day is the 28th; Italian elections are the 28th; the last day without a sequester is the 28th.  What me worry?  Nah, not until the 27th. at least.

A CHRISTMAS CAROL

Job growth in the United States has been dead for four years.  You must understand this or nothing that follows will make any sense...oh hell, nothing will make sense anyway.

Yesterday, the Chairman of the Federal Reserve decided to cast his lot with the "Maintain Employment" of his dual mandate to the exclusion of all else and set out a marker as to what unemployment number he will find to be acceptable in 2015...he didn't make clear whether it was to be January, 2015 or December.  The number was 6.5% and we are going to get there by printing money by God until the printing presses break! $85 billion a month beginning right now in QE 4...or 5...or...whatever.

What Mr. Bernanke does not realize is the he is about to be visited by three spirits...yep, you guessed it: the Spirits of Economies Past, Economies Present and Economies Yet to Come.  Briefly stated (you have to read the book), he will realize that he has been flooding the country--and the world--with dollars for four years now which is a tale of another catastrophe, having believed as he truly believes now that his actions have saved all involved, he hasn't done a damn thing.  Well, that's not quite accurate: he has earned the enmity of every other central banker in the world for damn near wrecking their monetary plans and fostering inflation as "Bernanke Dollars," unable to be used at home because of a dreadful fiscal enviornment and uninvestable at anything much above 0%, slosh around the world looking for a home.  As for economic and job growth?  Well, it's looking like the fourth quarter is about to come in at less than 1% which is a bit of a problem as Ben's own boys tell us that unless we get a job growth rate of 200,000 a month we cannot reduce unemployment and we can only get that if the economy grows at more than 2%.  Hummm.

Now if this is true, the Spirit of Economies Present is going to have what I would call an eye-opening chat with Ben.  I called a couple of my smart Economist friends (couldn't reach my Really Smart Friend, Larry) and my neighbor who has a Chair at the U and they started babbling on about something called Okun's Law (never heard of it), and when they got finished I was beginning to wonder if Ben had not heard of it as well.  Anyway, what I got out of it is that for the unemployment rate to fall by 1%, the economy would have to grow at 3% and nobody I know is projecting anything like that.  So it looks as though what Ben may be doing is adding a substantial number to the national debt without getting much in return...I think.

What I do know, however, is a bit about yields and if we are to have an inflation rate of 2.2% and a growth rate of anywhere near 3% for all this to work it's going to be damn hard to maintain yields at present levels which is what the QEs were all about.  In fact, I would say it's going to be impossible which raises the question of what does the Fed do when this specter appears above the horizon?  With a balance sheet then approaching $5 Trillion, the institution is being set up for a Hobson's choice if unemployment is not at 6.5%.  But the the Spirit might also mention to him that since 2008 the improvement in the jobs number has been a result almost entirely of people exiting the work force rather than job creation, so hey, why worry?  Just keep on doing what you've been doing.  When we get to the point when the only people who have a job will be those at the Fed, we'll have won.

And the Spirit of Economies Yet to Come?  Alas, I am a mere observer not a Spirit who can for tell the future.  But throughout Mr. Bernanke's tenure, he has been singularly unconcerned and uninterested in external events and has been fortunate in not having to deal with any after the debacle of 2007-08.  Mr. Bernanke and his supporters are working in a "clean room"--a perfect university laboratory environment--unconcerned with  exogenous events or even the consideration of the chance of the same.  They are brilliant undergraduates not yet exposed to the reality outside their lab walls.  But the Spirit will probable tell them that one day they will meet that mythical beast called the Black Swan.  They will not believe it.

ANYONE WITH A BRAIN, PLEASE STAND.

This really happened today.  Down in Atlanta, Bernanke was speaking to some bunch called Operation Hope which is organized to get more folks into home ownership, you know, that old "American Dream" stuff that starts and ends at home ownership leaving out most of that fuzzy affordability stuff in the middle.  Seems as though Ben is upset at the banks claiming that they have raised their standards so high that it difficult for prospective home owners to get a mortgage and hence, no fulfillment of the dream for you today my friend.  Now the sight of a regulator telling those whom he regulates to lower their standards is pretty rare...like never seen before.  We've seen Congress do it with predictable results but Congress is composed of politicians who are, by definition, craven and stupid.  Regulators have allowed it to occur being fradie-scared at what the politicians might say about them but have never really publicised the fact. Then here comes Ben, and while Ben is down in Atlanta trying to pry open the hearts and wallets of the bankers, his guys up in D.C. announce that they have told the 30 largest banks to get ready for another stress test with part of this one assuming a 12% unemployment rate.  12%  Say WHAT?  You want me to have capital for a 12% unemployment economy?  Well, hell, I don't need a stress test for that.  I'LL JUST GO ALL CASH AND NOT LEND A DIME TO ANYONE YOU MORON!  HOW DOES 100% CAPITAL SOUND TO YOU?

Things aren't much better Over There.  Europe officially went double-dip today with riots in Athens and Madrid along with a few other little dust-up in other financial garden spots.  The German special finance minister to Greece managed to state in public that it takes 3000 Greeks to do the work of 1000 Germans which nearly got him killed by a mob whilst walking from one building to the next, irrespective of the probable accuracy of his assertion.  Spain was told to hurry up with their bail-out demands before it's too late for the EU to do anything about them and Angie and Chrissie threw hissy-fits at each other as to whether Greek debt held by EU members should be forgiven.   And while all this was going on,  the British Press got ahold of a secret EU report that purportedly would reduce the payments from Brussels to the UK by 25% over the next seven years at a time when the Brits are half out the door already.

Honest to God you can't make this stuff up.

Anyway I called Massimo about his morning shocker of the other day.

"OK, the Greek banks take down the issue, go to the the Central bank who buys it from them and ships them right off to the ECB in Frankfurt.  Right?"

"Bravo, Charlie, ma you leave out one little thing."

"What?"

"The vigor...viga...vichett.."

"The vigorous?  What the hell are you talking about?"

"Si, the vig...that's it!"

"WHAT?!"

"Oh Charlie, tu es proprio Americano.  In between, everybody takes a little...well...not so little piece.  Wonderful business, no?"

"You mean they discount it every time?"

"Sure Charlie, who knows?"


I'm telling you, you can't make this stuff up.

I THINK I GOT IT RIGHT

Certainly, there was nothing reported today to make me think otherwise.  What I still can't figure out is why the popular press and the talking heads got caught by surprise when about 5 minutes of thought would have identified the scenario.  Despite what others would have you believe, banking is about people...just like most events in the world.  Why would a very wealthy guy (an assumption) agree to the Chairmanship of Citigroup having been called out of retirement without the thought that he was planning to make it into his own image?  To fail in the attempt?  And why did no one investigate his background and past actions and not come to the conclusion that it was altogether likely that the course being steered by the bank's then-present management was about to change?  I am constantly surprised by the lack of acumen demonstrated by those who present themselves as experts in the world of finance.  It's about the people folks; it's always about the people.  Know them first and then look at the numbers.  And in that vein, watch to see if the new management is successful in retaining the key people needed to make this change in direction work.  I'm betting that it will and frankly that will be good for the industry.  Maybe with the success of Citi the rest of the industry will "'stop doing the stupid things" as Mr. O'Neill is fond of saying.

The cops and the Feds in New York today announced the arrest of some guy for Bangladesh who was planning on blowing up the New York Fed in a sting operation undertaken by the NYPD.  Idiot.  All he had to do was watch Ben and his boys do the job for him over the next few months with the enthusiastic support of Billy the Dud on Liberty Street.  CPI was up 0.6% last month, the second consecutive such monthly rise.  That puts consumer costs in the 10%+ annual range which is beginning to look a lot like Argentina.  Ah, you say, but the core rate is only 0.1%, and to that I reply an old guy like me on a fixed income says, "Core, schmore.  I gotta eat."  What the policies of this central bank have done to the elderly in this country is surely a crime.   O'Neill for Fed Chairman?  A "stop doing the stupid things" monetary policy?  Not a bad idea.

Meanwhile, across the pond, the big shot  two day event starts tomorrow, and Frankie H. has already announced that it will ratify all that has been agreed on the bonding of Euroland over the summer and plan the implementation of the same by year end.  Forgive me, but I seemed to have missed part of that and are therefore in no position to comment.  What will probably occur is Greece getting a few more Euros to get them into next year, Spain will jaw-bone on what they will NOT have to do to get a bail-out and Angie will continue to talk nice-nice and say nothing allowing the ECB to set the agenda.  Kinda like "leading from behind?"  In advance of the pow-wow, market commentators have waxed poetic at the decline of bond yields across the southern tier.  Nothing like a put to the ECB to put steel in the spines of investors.  I'm beginning to wonder: is the Citigroup affair the last thing I will ever get right?  I think I'm going to head out and buy a bottle of whiskey on such a scary thought.  By the by, is whiskey part of the CPI or part of the core?  Anyone have the answer?

DOES INTELLIGENT LIFE STILL EXIST?

The weekend and this morning actually brought a revelation: there is intelligent life out there.  Starting Friday afternoon, a few commentators began saying things like, "Hang on, what does this new Fed action really accomplish and are there any downsides?" Rhetorical questions both as the answers were stated as being, "not very much," and "there could be quite a few."  The great unwashed (with the possible exception of Little Paulie Krugman) have begun to figure this out; the Fed isn't the problem nor is it the solution, but if they continue the debasement of the currency it will have startling negative effects not to mention the inevitable inflation (thank God food and fuel don't matter) followed by rise in interest rates when the markets finally say, "enough already!"

Did you know that the deficit has grown by almost 7 TRILLION dollars since 2007?  It is hard to fathom such a figure.  At yet, interest rates have come down because of the safe harbor offered by the U.S.  Safe harbor?  In a political sense, yes, but should interest rates rise (the 10 year is up to 1.84% from 1.46% a few months ago) even in the face of operation twist and now QE III the cost of servicing this Hydra will become unimaginable.  And yet, on goes Mr. Bernanke with nary a dissent from his colleagues.  And now people are beginning to notice but notice in time?  I fear not.  Be it the truth or not Mr. Bernanke is now being perceived as having cast his lot with the administration and if the perception remains past the election the institution, in spite of whichever party wins the White House, is probably forever and fatally damaged.  And with reason.

As if this was not bad enough a result, there is even a worse one waiting in the wings.  My generation has been severely damaged.  Oh not me, I'm OK--not great but OK--but if you are retired and on a fixed income with no defined pension plan(s) you are in bad shape unless you have considerable wealth.  You've probably lost a bundle in a stock oriented retirement plan (although the markets have come back) you are scared to death of the stock market and rightfully so, you earn nothing from a bank and bond yields probably don't cover the cost of living unless you don't eat and don't buy petrol which of course the government doesn't think you need.  In short, you are not a happy camper.

The other guy who isn't happy are those members of our society called money managers which means they invest other people's money either by way of large co-mingled funds or through personal contact with their clients.  They get paid in the first instance by the increase in the size of the asset pool they manage and in the second instance by the size of the pool itself.  Now I'm weird; everything I have--more or less- is in energy or in one bank stock (at a very low entry price) but old folks are not like me.  They want and need safe, conservative investments and today, safe, conservative investments yield nothing.  Or to put it another way, nobody gets paid, neither the investor nor the investment manager.  And therein is the biggest danger of all.

I was with my son's father-in-law this weekend and ran into a friend of the latter's.  Retired, ran a small business for almost 50 years, knows nothing of "high" finance but thrifty and cautious as only a small business man could be.  And yet, upon receiving a cold call from a guy at a recognized investment firm, he was ready to write out a check for $200,000 because this fund the cold caller was touting returned 8.87% last year.  200 large on a COLD CALL! Why?  No interest, no income. We went over his house and looked at the papers he had received and claimed he didn't understand. The return was real all right; the gearing was nearly 40x.  How the hell could you sell a man nearly 80 years old something like this?  But how could anybody buy it?

What this mob in Washington has done is to create entirely new risk parameters for everyone not just those who can tolerate high risk but for many out of the necessity to survive.  And they talk to us about predatory lending?  How about suicidal investing created by their unbridled hubris and monumental stupidity.  We are creating another bubble of unsustainable borrowing and impossible pay-back and where this one ends I have no idea.  I kinda hope the Big Trader keeps me around just long enough so I have the opportunity to brace one of these fools and say, "I told you so."  I'll go happily and quietly after that.

HOW'S THAT AGAIN?

Got up early, two tv's on at 7:45, yellow pad and paper and pencils in hand, full pot of Joe on the burner, ready to record and comment of the soon to be uttered momentous words from the Chairman: we got bupkus.

Bennie said damn near nothing that we hadn't heard before except that the Fed was prepared to be more accommodating if required, which come to think of it we had heard that before as well.  I immediately called a bud at Morgan Stanley and got him as he was going out the door to get an early start on the long Labor day weekend, and THAT was the story from this side of the pond.  The markets did well on almost zero volume and the story that Draghi had managed to drive a wedge in the German wall of resistance to his Buy the Bonds program as the head of the Bundesbank threatened to resign over the concept.  Some where, somehow this was deemed to be a good thing, as if speaking about some junior minister for south east Westphalia.  It isn't.  The Chairman of the Bundesbank is a very big guy indeed, not only in a financial sense but in a political sense as well.  If he were to resign at odds with the government there would be hell to pay, especially for Angie who still has that meddlesome election coming up shortly.  But the one of a few in New York that might have understood this and raised a question, was well on his way to Sagaponic and so the feeling of comfort continued for the night watchmen for whom 4:00 pm couldn't come quickly enough.

The view now shifts to Europe and next Thursday when Mario is expected to lay out his thoughts in some detail as to "whatever it takes" really means.  Until then, the phone lines--what...oh yeah, we don't have "lines" any more--the airways will be burning up in Germany and between their northern neighbors as to how to deal with this crazy Ey-ty before next Thursday when he might get them all fired.  I must say, I never thought he would get this far this soon.  Maybe I've been wrong about the entire scenario (which wouldn't be the first time) but I simply can't see Germany folding on this critical constitutional issue without conditionality that would render the concept almost certainly unworkable.  In any case it is the late afternoon and MY night watchman duty is officially ended and I look forward to the first weekend of college football and an extra day off on Monday.  Labor Day.  On which we do no labor.  Odd.

See you Tuesday.