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Saturday, April 20, 2024

Federally Frightened Friday

The Fed raised the discount rate – Big Deal! 

As I said in my Weekly Wrap-Up, recessions are for wimps and kudos to the Fed for finally pulling out the stick after all the soft talking they've been doing.  Meanwhile, I do not see what all the fuss is about – I did the math for Members last night and banks borrow about $89Bn at the discount window on a good day and 0.25% of $87Bn is a grand total of $22M – this is NOT going cause the fall of Western Civilization people!  What it does do is stop making the Fed the lender of first resort, which was never supposed to be their function in the first place

The MSM should be more concerned with the end of the TALF, which is where the Fed buys up toxic assets from the banks at face value (we'll all be paying for that later) and they just announced that the Fed's holding of Mortgage-Backed Securities went over the $1Tn mark yesterday, bringing the Fed's Balance Sheet to $2.25Tn of very questionable assets that they've bought for us from the banksters. 

Speaking of banksters – Kudos to Matt Taibbi for his excellent Wall Street’s Bailout Hustle.  As I said to Members, if it wasn't for Matt and Dylan Ratigan, I would have to be writing about this stuff instead of following the markets.  Thank goodness there are a few top-notch people investigating this nonsense with the ability to communicate their findings in a way that makes it interesting:

The nation’s six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007.

The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street’s eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its “performance” was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

Not surprisingly, the latests Rasmussen poll finds that 71% of the people surveyed (and they only survey people who can pay for their phones, so we're skewed from the start) now view the Federal Government as nothing but a tool for Special Interest Groups.  75% of the voters are angry about government policies (and one crashed his plane into an IRS building yesterday to make his point) and 63% are in favor of "throwing the bums out" this November.  Cool, they say they want a revolution (we all want to change the world).  

As Zero Hedge points out:  "It is not surprising – given the following – that this is largely viewed as a class issue":

  • PhD economist Dean Baker said that the true purpose of the bank rescues is "a massive redistribution of wealth to the bank shareholders and their top executives"
  • PhD economist Michael Hudson says that the financial “parasites” are "sucking as much money out" as they can before "jumping ship"
  • Warren Buffet said a couple of years ago: "There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

Warren is right of course, it's going to be us or all the lonely sheeple and me and the Members at PSW have been Island shopping this month (and it's not just us – the WSJ is giving it's readers ideas for moving to Asia), getting ahead of the inevitable day when it all hits the fan in America and you are forced to answer the question: "When they kick out your front door, how you gonna come?  With your hands on your head, or on the trigger of your gun?  The money feels good and your life you like it well but surely your time will come, as in heaven, as in hell…"  OK, I'm done with my Friday music references after you check out this great Tony Blair does the Clash video… 

Speaking of governments that lie to us…  Did you know that our CPI was up just 0.2% in January and our core CPI FELL 0.1% for the month!  Isn't that great?  This amazing feat was accomplished thanks to a collapse in oil prices from $84 at the beginning of the month back to $72.50 at the end of January (14%) metals had a similar pullback (remember we were betting SMN that month) and the entire CRB fell from 293 to 265 (9.5%).  A pessimist might call this deflation as we just got PPI reports showing input prices rose significantly and the declining CPI (the first since 1982) indicates the inability of producers to pass price increases through but the glass half full crowd is rallying the pre-markets back and, even more amazingly, is ralllying oil back over $79 as if this news somehow gives the green light for a 10% increase in crude prices, which I guess it does as the consumers seem to have a few extra pennies and someone has to get them, right?

Notice that during the 90s, we had no problem having fantastic economic growth while running a surplus and keeping commodity prices in check.  Why?  Higher taxes, higher interest rates and ACTUAL LAWS against excess speculation were the magic combination that kept us out of debt while we grew to full employment.  Each of those pillars of success was dismantled one by one during the '00s and you can see the magical effect it's had on commodities and, as more and more money is diverted to commodities – which are mainly produced outside our country (increasing out trade deficit), less and less money is available to pay for services and that is very unfortunate as this happens to be a service economy

So bad luck America, you backed the wrong horse and there are 1.4Bn Chinese and 1.2Bn Indians and 800M Africans who are willing to perform those services for a lot less than you can live on for a month so I suggest you all dig in your back-yards until you find a commodity and then open up a stand on the corner and wait for some speculators to come by and buy some.  Don't worry, no matter what idiotic commodity you find, there will be some speculators to buy them and, if not, you can always put together an ETF and pay off a few pundits to tout it as the next big thing and then you too will be living the Emerging Market dream.

Speaking of emerging markets – silly Asia is not a PSW Member and didn't joiin in our chat last night where we decided the Fed hike would have little or no effect on the market.  We were going to BUYBUYBUY at the bell but now (9am) it looks like we're right back near yesterday's highs so we're more likely to short a little unless the NYSE can break the 7,100 line, as it's the last of our indices to bounce so far.  The Hang Seng hit the 2.5% rule, losing 528 points on the day and don't forget that the Shanghai has been closed all week and never did get a chance to react to China's rate hike last Friday so we are concerned about a "China Syndrome" on Monday if the Shanghai drops 5% to catch up.

Europe has already fully recovered from their down open and is up about 0.3% just ahead of the US open.  Russia's Central Bank cut rates today and that will be interesting for brave carry traders.  Other than that, there's not much news on a Friday so we'll just have to see how our bounce levels hold up for the day (see yesterday's post for details).  I posted options expiration day trade adjustments in the Weekly Wrap-Up and I think I'm going to go short on the Dow and USO into the open but out if the Dow tops 10,400 or oil tops $80 – just playing for a quick dip.  Other than that, we had few adjustments to make as we are EXACTLY where we predicted we'd be two weeks ago, when we began our bottom-fishing expedition.  

Have a great weekend,

– Phil



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