Politics


For me the current elections are so much different from the 2000 and 2004. I feel relaxed.

In the past, I felt like the country is attacked by the evil empire and the majority of population is cooperating with the aggressor.

This time, I have no negative feelings toward any of the candidates. They both are very decent people, deserving respect and capable to be among the leaders of this country.

What is driving my choice now, besides the obvious parallel with teh FDR, because the country is economically in the similar condition compared with 1930s and requires similar policies, is pure qualification.

What I see is that one candidate is very smart, definitively much smarter than I am. When I watch him answering questions I understand that I’m simply not capable to think that fast. He is also perfectly educated, better than I am. In him, I see what I want – a manager. A macro manager to lead the country. A micro manager to deal with every small issue, in complex or separately.

Then I see another candidate. First on all I doubt that he is smart at all. Maybe he is simply lost when he speaks to the camera, but it looks desperate. I can answer almost every question better than he does. Sometimes I feel that he has nothing to say and he simply squeezes out some meaningless word soup.

I also see how badly educated he is. His education is far inferior to mine. I don’t even compare him to another candidate’s education – that’s just a joke. I compare him to myself and I see that compared to me he is almost a high-school dropout. But I’m not running for president – he does.

I also see his judgement in action. The most important desision before elections is to pick a VP. And he chose the candidate even less qualified than himself. That is worrisome, because in order to be a successful president he must chose every single cabinet member to be at least 10x smarter than himself. And I doubt that he can.

Otherwise, he is a very nice guy and I wish him long and happy life. Somewhere away from the White House.

Please go and vote. That’s not only a duty, that’s more a privilege, one of those rare days when your opinion is worth more than zero.

Hi All! I want to share with you that I was cordially invited to start my own blog at Wall Street Examiner. You probably know this site very well as Russ Winter is contributing there as a blogger and Lee Adler is posting his excellent daily reviews for subscribers.

This is the location of my new blog, it’s titled “The yellow brick road” and I’m opening with a new installment of “Where is my recession?” serial.

Please share your feedback, do you like it, is it working well. I’ll continue to announce every post here for easy transition and I think I will keep this site for all posts that I will consider not applicable for WSE

3-month treasury bill:

Kondratieff winter IRX

Here we go, zero interest rates on the horizon. Today dealers were bidding sub-1% with treasury collateral.

Let put this in prospective:

historic 3 month treasury bill

We are below 1950s now and back to 1940s. The 1930s are on the way.

Another chart:

fedspread.png

Today I want to post something completely different. 75 years ago there was the biggest battle in history of humanity – the Battle of Stalingrad. A rough estimate is for 2 million of total military deaths, maybe a bit less. For 199 days of fighting it would be about 10,000 soldiers killed daily, i.e. if you take our total losses in Iraq since 2003 of 3,923 soldiers – back then that kind of casualties would happen from morning till noon of one day.

I think I saw about 50 different movies about WWII, but if you want to get a complete feeling about that war I would recommend to see “Enemy at the Gates“. No other movie I saw would give that much of understanding of that war, in my opinion.

Essentially the battle of Stalingrad was all about oil (the same Greenspan said about Iraq war – that’s oil, stupid). Germans tried to get access to oil fields of south of Russia and they failed. From that point the Nazis were doomed and the rest of the war was just finishing the inevitable.

Today I just want to say two things. First, I want to wish everyone that humanity stops fighting for resources. I understand that the war can happen when neighbors are trying to dispute some land, that happens all the time. But when a powerful country attacks someone to get its oil it’s outright disgusting. Are we not strong enough to just buy what we want? Why should we kill?

And second I want to celebrate the German soldier. It was so many flowers for the right side that I think we need to pay some respect to those who were sent to fight for the wrong side, and they were fighting like tigers. They were not criminals, they were just good soldiers.

Look at the casualties. I will list only those countries that were the most furious fighters, and I list only military deaths:

Axis side

  • Germany 5,533,000
  • Italy 301,400
  • Romania 300,000

Allies side

  • Soviet Union 10,700,000
  • Yugoslavia 446,000
  • USA 416,800
  • UK 382,600
  • France 212,000
  • Poland 160,000

It makes 5,930,000 for Axis and 12,316,000 for Allies. In other words, it took a life of two Allies soldiers to kill one German. I think the Germans were the real heroes! I’m paying my respect to both sides…

P.S. In the light of those numbers please recall the movie “Saving Private Ryan“. There a group of 15 American soldiers was fighting against the similar group of Germans and the fight was pretty much equal. Think a bit. You take American rookies who are at real war for the third day in their life against German commandos that were fighting non-stop for the previous 6 years and they can fight at equal foot! Total nonsense! In real life it would take 40 or 50 Americans to have an equal fight against 15 Germans. You can’t learn history on movies like that…

Just to answer a post from Ron:

I went short emerging markets using a small mutual bear fund DXESX the other day. Don’t believe that the rest of the world gets a free pass if the US economy and stock market tanks plus I expect quite a bit of selling assets in the coming months to make margin calls.

I don’t know much about emerging markets but I want to post just one chart. That’s the imports and exports from ISM report:

It looks to my untrained eyes that our imports are collapsing. I hope those emerging markets are not exporting anything to us. Good for them

I know it’s painful for some neighborhoods to lose jobs to offshore locations. But I believe into creative destruction that makes the effective distribution of productive power across the globe to be imperative.

Instead we better fix on the issue of education, making our educated workforce more competitive. It’s no secret that our educational system, though quite good and superior to most Middle East and African countries, is still trailing the systems present in parts of India, China, Eastern and Western Europe as well as other civilized nations.

Though we can probably throw even more money that we borrow from China into education I think those money are going into wrong pockets. Instead I propose a solution that will be cheap, effective, but painful, because I believe that painful problems need painful solutions. We need a legislation that will mandate that:

  1. Any public school (or a class within the same school) may expel any student who is scoring below 80% of this school (class) average score
  2. Any public school (or a class within the same school) must expel any student who is scoring below 60% of this school (class) average score
  3. This rule does not apply to the lowest scoring school (class) in given district

I know that we’ll have the protests of dumb parents and their dumb children, but we know that the majority will not be affected, so those protests will be ignored. As a result we’ll have just few years until best students will bubble up to the best schools and the doors will shut close to those unfortunate who are not worth the efforts, however cruel it could sound. I don’t think we can afford to waste the best teachers time and distract good students by having few dummies in the same class.

Karl Rove announced that he is resigning. Good buy, evil assh*le, go back boil in your pit

The older I get the less I believe into conspiracy theories. You know what is the “Plunge Protection Team“? It’s a group of top US financial officials reporting directly to Prez that is responsible to prevent catastrophic stock market crashes like in 1987 or after 9/11/01. Yes, it’s probably a right thing to do, as public sometimes overreacts in the short term, like the crashes listed above were, certainly, an overreaction.

While there are many forces inside the Beltway that monitor and control each other I think the PPT was mostly restricted in its actions to just prevent market overreaction. But sometimes, when too many Republican stars are lining up on the Milky Way, I suspect that PPT is doing a little bit more than that. Now the economy just became a little bit too much political. The Lame Duck Prez took too much of Republican credibility for stake this time. His ridiculous tax cuts and enormous budget and current account deficits will backfire badly for the whole GOP gang if the economy turns badly before 2008 elections.

The PPT, or the gang of four, is definitely a team of extremely competent economists. They do understand that you cannot prevent the recession when the economy’s pendulum is swinging back from growth to contraction. The recession is totally normal economic event, it has to happen in any healthy economy on the regular basis. There is absolutely nothing wrong in the recession. Except when it happens during the last year of the Lame Duck Prez, before the critical elections. What they need is that recession happens after 2008, not before. The PPT does understand that it is possible to delay the recession, but the cost will be that the recession, when it finally happens, will be much worse.

Looking in retrospect at the stock market of the last 1-2 years I frankly don’t see any smoking gun, except just two cases. First, the March plunge recovered a little bit too fast. Second, the action of July 12 looks completely disconnected from the reality, especially in the face of declining consumer and panic on the credit markets.

I do smell some manipulations in the last three days. Why this is bad? In short, they spend taxpayers money to help the Pigmen unload their stocks, because you can’t really engineer a big multi-month rally. If fundamentals point down, down it will go, few months and tens of billion dollars later.

vetoboy

I’m writing another article in follow-up to last week. The main developments are:

  • Subprime credit default swaps settled at impossibly low numbers, making further securitization practically impossible
  • The widespread repricing of risks is underway. Forget ABX.HE, look everywhere where risk was possible and see the retreat
  • Major investment banks are trading below 200-day line, it’s the market reaction to the dangerous games they are playing
  • Yen had jumped, people say carry trades are unwinding
  • There was the biggest jump in implied volatility VIX index ever

I think we are switching from violent corrections typical for bull markets to slow deterioration of a bear market. People will slowly understand that repricing of risks affects fundamentals, too. It’s not just a trading phenomena. What to watch next week:

  • Most important is Yen. If it grows another 3% the world markets will wet their collective pants. Even 1% will make trouble
  • Anything related to credit default swaps, that’s where the panic could be
  • Hedge funds will report Feb results – watch who’s belly up
  • March 6 is pending home sales. I expect bad surprise – watch market reaction
  • ISM report should be ok
  • Nonfarm payrolls should be non-event

I expect markets to slowly deteriorate, waiting for more bad news. This won’t be a fast correction and then move up, like last year. It will be slow and boring slide.

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