Who stole my lunch?

Until very recently the counterparties to the AIG CDS's that were settled with the bailout money were kept a secret. The first person to call attention to this publicly was Paul Krugman and shortly after he did so we learned who those counter parties were. Or did we? The AIG bonus thing was not a secret before this week, it simply came to our attention recently. Complexity and jargon pick up where secrecy leaves off.

This thing in its fullness has not yet hit that famous fan. How will our government behave when at least two of the three branches are completely covered with the digested waste of Goldman Sachs et al and the Gramm-Leach-Bliley Act?

They will try to protect each other for as long as they can, but the truth will prevail and it won't be pretty. This is a LOT bigger than Watergate.

Pollyanna's Puzzle

This post is a rewrite and expansion of a comment I left on Paul Kedrosky's Blog.

CNBC faces a conundrum and an impossible task; bearish news drives away advertisers. No where on the front page of their website is there the slightest indication that there may be another shock and another leg down in the market. So are they grasping at straws or is luck with them this time? I'm sure that buried somewhere in the articles they've hedged their bets and have warned that this may not be over.

I myself have been decrying the lack of confidence in the messages from the White House and Treasury, a bearish message from there is a self-fulfilling prophesy... So what's a cheerleader to do?

The Stewart-Cramer Thing

This post is a compilation/digest of several comments I left on Paul Kedrosky's Blog.

I watched Cramer's Mad Money Show daily for over a year around 2006 and have read two of his books. I have had mixed results with his picks but I also did learn much. Jon Stewart needs to continue throwing pies at CNBC. They are less culpable than many but did not do enough to expose sleazy Wall St. practices and were indeed occasionally (isolated, and by individuals) in bed with the enemies of "truth, justice and the American way". Cramer in particular I think plays both sides of the street and knows more dirt than he will admit. I do think he is honest and will do the right thing in the end.

CNBC bills itself as financial news and opinion and sometimes they do that very well. And occasionally they are a forum for the worst kind of hucksters, they probably would have booked Bernie Madoff as a talking head before his arrest if he were available.

Just because others were guilty doesn't mean that CNBC shouldn't be held to high journalistic standards. Yes, I think it was their job to get to the bottom of this scandal before the others, that's their duty and if they didn't do it they need to be held to account.

I have watched a *lot* of CNBC at all hours and have read books by the personalities that appear there and I do like them. I have affection for them because I spend a lot of time with them and most are likable people. And so I have a responsibility to them to offer my constructive criticism when that opportunity arrives.

I also want to thank the people at CNBC for the fine work that they do, I know that just like the rest of us they strive to improve.

(later) I just watched a segment on PBS's News Hour about the Stewart/Cramer thing, and the point was rightly made there that many stories about the coming disaster were published or broadcast by many media outlets and they were dismissed and ridiculed. Cramer himself very famously ranted and later advised people to get out of the market. Unfortunately journalists were as conflicted as the rest of us about this and mixed messages were sent. Those who doggedly pursued a bearish line were dismissed as cranks.

Journalism's mission is to tell us what has happened, not to predict the future. But most people seek investment advice specifically because they are concerned about the future and so investment shows that are not just infomercials should take a greater responsibility.

Cramer, I think is honest but is also a charming scamp, and that is much of his appeal as host of his show. All of us are chastened by our experiences of the past year but those who give advice certainly have greater reason for introspection.

Where is Twitter Going?

Twitter's versatility is amazing and that's why so many people are using it and why it has reached a tipping point where everyone will have to at least have tried it and have an account. Where it really shines is during a national or global event when you really want to connect with all those people you've come to know on Twitter.

Different users use Twitter differently, yet it seems to work for most. Sometimes I feel like I'm evesdropping on an IM comversation, other times I feel like it's a chatroom and then it becomes a newsfeed or a series of blog posts. And there are many functions I haven't touched upon...

The search feature will certainly develop more capabilities so once the index becomes large enough it will be a powerful search engine that can rival Google in many (but not all) circumstances. I've just tried to elaborate on that and have realized that it's an area of prognostication too complex to even begin.

The Cobwebs of Academia

Ivory Tower Unswayed by Crashing Economy

“before we’re certain of what the answer is, we’re unlikely to think in terms of changing the curriculum,” Mr. Reny added. “That’s very serious. The responsible thing to do is wait until we have some understanding of what went on here. ”

This is very interesting. I'm curious to know what the first day's lecture will be. "ummm... we'll be teaching last year's curriculum, but as I'm sure you know everything is different now."

Cramer responds to the White House

I am not a Cramer fan but I absolutly must be on his side in his fight with the White House. I voted for Obama and Cramer says he did too. I did have some fears that Obama's economic policies would be bad for us, and I was sure right about that.

We had a banking crisis coming into this regime, but now every area is in crisis. Each day is worse than the previous one for this miserable economy and while Obama's champions cite the stimulus plan, it's really just a hodgepodge of old Democratic pork and will not create nearly as many manufacturing or service jobs as we hoped. China's stimulus plan is the model; ours is the parody.

The whole article is here.

I voted for Obama knowing full well that his policies would create a lot of poor people for him to help and I positioned myself accordingly. Cramer on the other hand voted for Obama trusting that the Mad Money audience would be helped. What a gigantic bait and switch, ya think?

Trouble with Economic Models.

This was a problem first recorded by Aristotle: A category becoming a member of itself. In this case the category is a model of the economy or some part of the economy.


To what extent do economists climb inside their own models and contaminate their results? A social science equivalent of the uncertainty principle, examining the model changes it. But more prosaic since the disturbance may consist of some human being trying to use the model to game the system. The thought can't be original with me and my formal training consists of the three typical undergrad courses--macro, micro, and stats--so I'm definitely in way over my head but I do find this fascinating.

As soon as a functioning economic model escapes the laboratory it affects behavior in the real world and once a model is within itself it needs modification beyond the capabilities of its maker.

Twitter Reconsidered

Right now I feel a lot like I did in late 1992 after I had witnessed some dialog on Compuserve and The Well and became enthused about the potential. I promoted this thing among everyone I knew and even the polite responses were little more than blank stares. Even in 1993 when AOL was using a Mac-like GUI people still couldn't see the potential...

I ignored Twitter for a long time, I didn't get it, I even blogged recently that I didn't "get it." People on Facebook more or less "get it" but largely still don't understand the potential. It does take some work to figure out the potential, and you may well not realize it for a while. But this is the first time I've been excited about a new development on the web since Compuserve was DOS and AOL was Macintosh.

Ev Williams was on Charlie Rose last night, the interviews take a few days to be posted so it's not on the site yet.So, if you haven't put a little effort into "getting it," you should or you risk having to play catch-up somewhere in the future.

The Burning Platform by James Quinn

As a political and economic medium this blog has fallen into disuse because I am not regular enough with it to gain regular readers so I simply have been commenting on other blogs, mostly Paul Kedrosky's Infectious Greed though I have been maintaining a blogroll and other links at andilinks.

Yesterday Paul listed this in his "Readings" section: "Deliriously good and though-provoking rant on where we are, where we’re going, and what we should be doing (James Quinn)" and after reading just the few paragraphs I realised this was a very important post that deserved even what little attention it may get here and what meager link juice it may provide. Below are the lines that I found so compelling though you should read the whole thing.

”Delay is preferable to error.” – Jefferson

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” – Lincoln


The $787 billion 1,074 page stimulus bill has been passed. President Obama has signed it. The market immediately dropped 500 points. It will have no impact on the economy in 2009. The bill will stimulate nothing but the National Debt. Within months, plans for another stimulus plan will be demanded by the Democratic led Congress because speed and the appearance of action are how politicians get reelected.

Morgan Stanley Now Warns of Hyperinflation

I have only just begun my deflation-inflation comparison and read in Alphaville this morning that:

Morgan Stanley’s Jocahcim Fels and Spyros Andreopoulos... [are saying] While such an outcome is clearly not our main case, the risk of hyperinflation cannot be dismissed very easily any longer, in our view.

I should say that I've increased the percentage of my portfolio in gold and silver to over 60% and thinking seriously about going for more, in spite of the recent spike which may be sustained and not return to old levels ever if we are going to see hyperinflation. Just the MS statement is probably responsible for a good part of today's rise.

Inflation or deflation?

I am going to begin commenting on the post titled Inflation v. Deflation and Part II on the Cassandra Does Tokyo blog via Infectious Greed.

The issues on both sides are relatively easy to understand but what is crucial is the timing so I will try to lay out the arguments as clearly as possible but I will keep those that affect the timing as a separate list. I happen to think that the amount of US debt that China acquires going forward is an important bellwether both for US inflation and for stability in Asia which is why I used that link for the title of this post.

I find this to be the most important of all topics and will be working on this for the next week or so. I also just received my copy of The Next 100 Years: A Forecast for the 21st Century by George Friedman and will be commenting on the provocative topics covered in this book

Geithner’s taxes and the $700 billion bailout

This post is a rewrite of several comments I posted on a thread on Paul Kedrosky's Blog.

He cheats and he lies but he's the only one who knows where all the bodies are buried so he's got to be confirmed.

When lawbreakers must be confirmed, who's really in power? Corruption is now the stated norm, it's out in the open. Yeah, it was always part of the game on Wall Street, now it's the norm on Main St. too. Geithner's confirmation has turned a lot of honest people into cynics, you think they're going to report all income now? Other cynics will say everybody cheats, well that's much closer to the truth now.

What we are seeing suggests that some of Geithner's skeletons are not in his closet but in Congress. If a clean outsider begins auditing treasury and the whole stinking mess we may have a lot more blood on the floor.

I’m not asserting that Geithner has dirt on major players but if there are dirty major players Tim's their guy. In other words, Geithner's record at the NY Fed establishes him as a non-dirt-disturber. If he's rejected by Congress they may get a dirt disturber. I don't doubt his reputation as a financial wiz (except of course on his own taxes) but, a new broom sweeps clean and while someone else may take more time to get up to speed on the bailout questions many people are just as qualified.

I don't doubt the ''financial wiz" attribute because everyone trying to rush him into the Treasury position (and these are some impressive names) is touting him as the best man for the job in spite of his little tax cheating episode. But maybe it's just that they can't say "we want him because he's not a dirt disturber."

The "wiz" attribution appears in a recent AP story (third paragraph): quoting Ross Baker, a Rutgers University political scientist:
http://www.iht.com/articles/ap/2009/01/24/america...

Geithner is sliding into Treasury on the same greased rail that gave us the 700 billion dollar bailout, and for the same reason

Agnotology

Agnotology, formerly agnatology, is a neologism for the study of culturally-induced ignorance or doubt, particularly the publication of inaccurate or misleading scientific data. Wikipedia article

...Proctor argues, when society doesn't know something, it's often because special interests work hard to create confusion. from the Wired article

I think that intentionally publishing false data for personal gain should be regarded as a serious criminal offense with harsh penalties. Especially harsh penalties if the data makes appeals to human survival or itself can endanger survival.

That is fraud, fraud is illegal in every jurisdiction and is not protected free speech.

Clive Thompson via Paul Kedrosky via Barry Ritholtz

Godspeed, President Obama

I voted for Barak Obama with some trepidation 77 days ago but in those days I have become a believer. There is no one--living or from history--that I would rather see taking that oath.

I do worry that he will make errors with the economy, in particular emulating and repeating the errors of FDR and creating updated versions of depression era policy. The crisis we are facing is worse than most people realize. Credit default swaps on U.S. Treasury securities have risen from $8 to $60 in the past few months--that is default insurance on $10k for 5 years. Many sovereigns are on the verge of default, Argentina, Venezuela and Iceland especially. And one big default would begin a cascade.

Drug violence in Mexican border towns is approaching civil war intensity and I fear that the Obama administration will be too focused on the economy and the Middle East conundrum to pay proper attention to the borderland.

But he's my President and I haven't felt this good about America's prospects since January 1993, in spite of all the problems we face.

Food Data

A comment thread on Paul Kedrosky's blog Infectious Greed has inspired me to gather food data. The point of Paul's post is a pie graph from the National Restaurant Association showing how restaurant spending has gone from 25% of the total food dollar in 1955 to 48% at present.

In the course of my comments it occurred to me that data on changing food habits is extremely valuable. I will be posting my work on the andilinks site but at the moment I don't know how I will format this. My first inclination is to list information sources as I do on the andifashion site, but this is an entirely different type of data set so I will leave the format open for now. I do have a few apparel projects in progress so I have no idea when I will have something worthwhile about food habits to post.

Inflation during the recession?

If TIPS (Treasury Inflation Protected Securities) are a sufficiently large proportion of M3 they are a dangerous feedback loop as are COLA and tinkering with the CPI is the only remedy short of paying down the debt with real money. The US has already spent itself into a quicksand bog and additional spending, especially if too little too late, will only make the situation worse.

Gold would be not such a great hedge against inflation if it were not for its "safe haven" attribute. Inflation worries plus crisis equal a gold spike. I am not suggesting armageddon, I don't expect to see in my lifetime. But a global crisis or the perception of one seems a possibility to me, at least enough to increase the amount of physical gold in my portfolio.

I suspect there are others like myself which would in itself increase the demand for gold over its market in normal times. There will be less demand for industrial and decorative gold but with the huge creation of stimulus and bailout in the news every day the safe haven market will grow.

Governments are trying to offset the collapse of velocity by injecting more liquidity but their increasing the money supply will be seen for what it is and will not instill the confidence needed for a true recovery. They will not dare decrease the money supply if the recovery appears fragile and so we may well see inflation as all these facors work themselves through the economy, and public consciousness is a huge component of "the economy."

Gold or dollars?

I am certainly no expert, but I am concerned about navigating the coming months financially. What follows is my strategy for the immediate future.

Confidence that a new administration will be more effective at turning the US economy around is keeping people and governments from dumping dollars. Official dollar/US security dumping by governments would chafe at relations with the US so we won't see much of that in the coming few months. But if confidence in the Obama administration wavers fear will take over and there will be a run on the dollar. I'm betting 60% with the dollar and a 40% hedge against. The value of no asset, income or currency is exempt from this bet--everyone is betting 100% on something or another. In my humble opinion the risk of a dollar panic is greatest now through the spring, if the Obama administration or their remedies look weak in the first three to six months I'll dump dollars for gold right down to my current month's living expenses. Absent external shocks or a big Obama stumble I expect the value of my gold and silver holdings to drift downward for a while. The rather large possibility of external shocks or the smaller likelihood of a serious Obama stumble keep me from selling/shorting silver and gold. A very difficult 2009 looms in any case.

Iceberg, dead ahead

The more I add up these numbers on the back of an old grubby envelope the more I become convinced that we are headed for a catastrophe.

The total of all the U.S. treasury securities in foreign hands is three trillion dollars and has grown 30% in just the past year. The total of all the bailouts including the upcoming municipal and state handouts may exceed ten trillion dollars. The outstanding national debt is over 10 trillion dollars. The total of all U.S. money (M2) is almost eight trillion dollars.

Foreign governments are reeling and have slowed their purchase of U.S. debt in order to bolster their own currency. When they begin redeeming their treasury securities will people begin dumping dollars? Will that be a signal?

Extra Size Directory, Plus-Tall-Petite

I have decided to develop an extra-size directory, which will be an integral part of the Andifashion Directory as the twelve existing extra-size pages are now, but the coverage will be expanded, given in greater detail and there will be a separate extra-size index page.

Some coverage will begin to improve right away. Editing the individual entries is among the most rewarding and fun aspects of this directory but it is also the most time-consuming. The extra-size section is already the best edited and most up-to-date part of the entire site and because it is drawing significant traffic it will continue to be the main focus of my attention. I plan eventually to have a plus, tall, and petite page to compliment every existing category but have not yet projected a target date for this.

Twelve existing extra-size pages:

http://www.andilinks.com/plus.shtm A-C
http://www.andilinks.com/plus-size-2.shtm D-K
http://www.andilinks.com/plus-size-3.shtm L-R
http://www.andilinks.com/plus-size-4.shtm S-Z
http://www.andilinks.com/tall.shtm A-K
http://www.andilinks.com/tall-2.shtm L-Z
http://www.andilinks.com/petite.shtm A-K
http://www.andilinks.com/petite-2.shtm L-Z

http://www.andilinks.com/plus-size-formal-wear.shtm
http://www.andilinks.com/large-shoes.shtm
http://www.andilinks.com/small-shoes.shtm
http://www.andilinks.com/custom-tailored-clothing.shtm

Whipsaw, Recovery and Panic

Many are reporting that the current bailout total stands near 8.5 trillion, that is three quarters of GDP or more than 100% of M2. What is keeping runaway inflation at bay besides fear and a reluctance to lend on the part of those bailed out? Why are so many buying treasury bonds while Warren Buffet and others are buying equities? Is the value of the dollar balanced on a knife's edge here? It seems so...