tinyurl.com/buyetf -> jessescrossroadscafe.blogspot.com/2009/01/notes-from-underground.html
Notes from Underground This is a composite of chatter and 'gossip' and anecdotes picked up from multiple sources, some that could be considered reasonably informed, formally regarded as hearsay. Treat it as rumour as none of it can be guaranteed authentic. There can be no verification in such opaque conditions without investigative staff and the power of subpoena. it is not a bad starting point to use as a skeleton upon which to hang events as we go forward. Sometimes you hear enough of the same thing from different sources, things that make sense and ring true, and the dots connected, even if in a rough way. There was more of a struggle in deciding to allow the speculative portion of this out than you might imagine. The 'history' part seems consistent and valid, but probably a selective caricature. It could all be the overreaction of frightened people who merely do not see the next step yet. But since we started acting on it this week, not in terms of investments, but in bringing capital back to safer harbors, it did not seem right to ignore it. The whole outlook could change next week, and for the better. Anything is possible, if one does not know what is true and what is not, even if it does not seem probable. And we never trade on rumours, only the charts which tell us things known only to the markets. It seems as if the government is downplaying the seriousness of the situation a bit while they work to find a way forward. What might seem today like a radical solution may be adopted eventually but the people are not ready to hear it yet, and it is not clear that this will be required, so why do it? No one wants to make the first moves ahead of an unfolding crisis, especially with the Republicans playing hardball politics and the blame game. The pressure is on from the moneyed interests, but there is a growing concern about the public mood. In the meantime, people's favorite ideas for solutions are getting play because no one can agree on a comprehensive plan. Obama brought in an impressive array of experienced people who know where the levers are. The problem is that they are philosophically at odds with one another, and sometimes poles apart from the president and his inner circle. There are the natural start up problems, but there is a more serious lack of cohesion of vision that is going to be resolved. There is an air of quiet desperation as the situation grows progressively worse, and there is intense debate on when and how to break it to the public. They are not even sure what exactly to break because the situation is so fluid. No one wishes to be the messenger and possibly be blamed for inciting a loss of confidence. Wall Street and the banking system has been every bit as irresponsible and out of control as we thought in our worst moments, perhaps more. A group of twenty somethings with little or no adult supervision developed ideas for 'financial products' with the same care and planning that their counterparts perform extreme stunts on Youtube. They tested the system for boundaries and didn't find any. Imagine a 20 billion dollar portfolio of mortgage backed securities with a capital base of $10k, literally 2 million-fold leverage. Imagine the shock of the inventor as he watches as his successors expand similar portfolios up to $900 billion. After running out of gullible Japanese bankers these young cowboys began trolling for other pools of gullible buyers: hedge funds, pension funds, and University endowments sufficed. Anything to make a sale and keep the money machine turning. The guys initially putting these packages together had some sense that they were crazy, that they made no sense, but nobody said stop, and they didn't care. Government regulators being paid $100k couldn't tell connected guys making $20 million what to do. Don't get in the way of financial progress on Wall Street. A sea of cubicles were staffed with engineers, chemists, physicists, and mathematicians from the best colleges in the country with no knowledge of the history of financial markets, fat tails, and past human follies. But they knew how to turn the crank on financial engineering. The average career age in the business is about 7 years. The creators of these innovative financial products understood the toxicity at some level. As they retired, however, the next generation of twenty somethings came in and had zero sense of risk. They were simply told which button to push and which lever to pull to make money. The Street looked from one market to the next to find and angle and make money. And when they found a market that was vulnerable they swarmed on it like a pack of wolves. It bought deregulation, politicians, and anything else necessary to keep the money machine growing. Nobody dared yell stop because so damned much money was being made. Greenspan became a believer--he lost consciousness of what he was there to do. The reason he turned a blind eye and allowed the damage to accumulate remains unanswered. Our financial system is infected by flesh eating bacteria. The solutions being proposed look feeble, and the Fed looks both powerless and confused. That is why there is such a mood of abandon on the Street. One of the so-called model banks is on a don't ask/don't tell policy; the Fed simply cannot handle another mega-catastrophe while they wrestle with the fully-insolvent among the top five. The word on the Street is to keep everything bad off the radar to buy time. There are rumours swirling that there will be a bank holiday in the UK, and they will be particularly hard pressed because of the high percentage of their GDP that financial services represent. The good news is that it will probably not be as bad as Iceland. The problem with Germany, and by inference continental Europe, is that their regulators refuse to acknowledge their errors and deal with the problems. They are the polar opposite of the Fed which acts first and plans later. The problem is that the Germans cannot seem to get beyond the planning stage because they cannot believe that their regulations and safeguards failed so badly. Additionally, the failed German bond auction was deemed catastrophic in its implications and has them fearful of policy error. Despite a deflationary bias today, most insiders see inflation and spiking interest rates as the risk going forward, probably early 2010 or sooner depending on how fast things start moving.
Creative Commons Attribution-Noncommercial-No Derivative Works 30 US License Need Little - Want Less - Love More Welcome to Jesse's Caf Amricain - These are personal observations about the economy and the markets. In providing information, we hope this allows you to make your own decisions in an informed manner, even if it is from learning by our mistakes, which are many.
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