Ye Olde Retirement Account:
Update re Dollar’s slide

NOTA BENE: None of this is sophisticated thinking. Just musing aloud over the Sunday Times …

Seems an update’s in order re recent hesimeditations about whether the dollar’s slide is over.

The G7 finance peeps the other day barely peeped about the weak dollar. Something of a surprise, to find them so supine.

This encourages one to think — after a month of low visibility — that the dollar will continue to slide. Perhaps even abruptly. And that gold, therefore, will indeed hold the $1000 mark and now shoot for something higher.

THEN AGAIN:

1. If our current wars — on each side of Iran — were to enlarge as a result of the latest contretemps, it could push people to the dollar anyway, seeking safe harbor.

But … The recent Iran story was mostly about public perception, in that the Western powers and Israel had the intelligence on the underground site before. Some heightened visibility perhaps …

But the talks with Iran last week were apparently net positive, and it seems best guess that the Western powers will try to build on them, rather than set things afire anew.

2. And it will be interesting to see how the Irish vote on the Lisbon treaty will effect the Euro-Dollar trade. Centralization, at any given moment, can cut either way, I suppose.

European manufacturers consider $1.50 (per Euro) a line in the sand of sorts: they don’t want the Euro to cross it. Currently roughly $1.47.

If it jags to $1.50 this week in the wake of the G7, the big question will be how stiffly the Euro banks will come in to protect it (by buying dollars).

So maybe, to be conservative: If that $1.50 line gets decisively crossed, tested and holds … There is no telling how far the dollar may fall, or how high gold (in dollars) may rise.

That’s the DXY index, which measures the dollar against a basket of six major currencies. Dollar bulls in August said 78 was the bottom. Past two weeks were thinking 76. Now … Perhaps destined to test that old 72 level, sooner than later.

But who knows?

Case-Shiller housing index rises in July across 18 of 20 cities

WASHINGTON (MarketWatch) — The market value of U.S. homes in 20 major cities rose by 1.6% in July compared with June, the third monthly increase in a row, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s. In July, prices rose in 18 of 20 cities. In the past year, prices are down 13.3% in the 20 cities. The figures are not seasonally adjusted. The figures indicate a “stabilization in national real estate values,” said David Blitzer of S&P, who cautioned that the expiration of the first-time home buyer tax credit and increased foreclosures could put more downward pressure on prices.

Ye Olde Retirement Account update

As a followup to my musings toward the end of this recent brood about my own retirement account:

Today I sold half the gold fund (FGLDX) money to cash. Continuing however to hold China and energy.

Why sell half the gold?

Tomorrow the Fed speaks. And there are hints, it seems to me, that they might adjust their language a bit to the Tight side. Just a smidgen.

But it would be enough to juice the sorely depressed dollar, and thus kick King Gold in the pants. He’s been feeling the resistance of that magic $1000 an ounce level and is

looking a bit ragged. The slightest juice to the dollar would send him tumbling down the hill a while.

It will also hurt US stocks in general. Financials. Tech. Industrials (which have been roaring the past month). It might even be the thing to set off the big correction every trader on the planet has been waiting for since the Fourth of July.

But China stocks should benefit from the juiced dollar, grossly speaking.

And energy … mixed, re the dollar juice — but the current supposedly positive macro environment (everybody on TV says so!) bodes well for energy, and the charts here are looking rather smart.

Then again — I may be wrong to think the Fed will drop any Tight hints.

In that case, I may have some regrets a few weeks hence to have let some gold go. But it’s come a long way, and that chart is looking toppy.

The euphoria of the moment is strong. So if the Fed is entirely Loose tomorrow (as it has been for a while now), US stocks should continue to appreciate for a while. Or at least a week until the quarter ends on Sept 30. Or …

But take a gander at the last three charts in the Hussman piece linked in the 1930s post directly below.

The 1930s look familiar

Re what to do, what to do, about those Retirement Account Blues — check out the charts in this piece, particularly the last three, by a respected fund manager.

Is China going to allow its currency to rise dramatically against the Dollar?

Some people have been guessing in the past two weeks that this is in the works.

Might explain some of the strange things happening with stocks and bonds and gold and the universe.

The strange things, in a nutshell: Bonds are saying the world is mired in deflation and not likely to change soon, and US bonds in particular — where the short and medium and long term Treasury yields are low (showing no worries about inflation) and the inflation-protected Treasury bonds (called TIPS) are stagnant.

Bonds in short are saying things are bad and going to get worse.

But the US stock market has been rallying since March, and refusing to go down despite a world of traders expecting it to do so. As if things were much improved and going to get better.

The dollar is crashing thru what some had hoped as late as a week ago was short-medium term support. And gold is rocketing, thru the $1000/oz psych level. These (like the bonds) would seem to say things are cruising for a bruising. So why are stocks rocketing?

And why are people buying US bonds (driving those yioelds down) if there is a panic underway with the dollar (which when devalued hurts bonds denominated in dollars)?

A scenario which makes sense of these apparent broad contradictions is a sudden revaluation of the Chinese currency (some call it Yuan, some REmimbi) against the dollar.

The chinese for a long time thru their Great Industrialization these past years held the Yuan fixed against the dollar. This Peg was relaxed a bit a few years ago but the chinese government still holds the Yuan low vs dollar with stern intent — by buying dollar-denominated bonds with the great influx of cash (in many currencies) it enjoys as the world’s sweatshop manufacturer of choice.

But at the same time, of course, Peking has been moaning and groaning as first Bush-Cheney and now Obama pursue policies that have broken all prior restraints on the US national debt. For the future here is clear — inflation. Which devalues that trillion in Treasuries Peking holds.

So the chinese are floating down river with a leg in the Buy Dollars boat and a leg in the Sell Dollars boat. (They want the Yuan low against the dollar to continue to fertizlize their industirial growth — but they see and fear the inflationary future of their dollar denominated holdings.)

If Peking does allow the Yuan to rise dramatically vs the dollar, gold would likely go to the moon, Chinese stocks in general would suffer, the dollar would tumble against all the major currencies, and everything one buys with dollars (eg oil, US Treasuries) would cost more merely as a matter of exchange, regardless of fundamentals.

It might trip off, sooner than anticipated, the Great Inflation / Dollar Devaluation that everyone sees on the horizon as the only way out of the great debt hole Uncle Sam has dug for himself since the 9/11 attacks.

The cure always begets another disease. Greenspan took us down to super low interest rates to try to keep things going post Tech Bubble Pop and 9/11.

Those low rates begat the credit and real estate bubbles.

Their popping begat the meltdown of the New York-London-based high-tech global financial system.

That has begotten this Depression, to treat which Washington a year ago went banannas with new debt.

Which leaves the Chinese with a foot in each of two boats, which the tides of history are pushing apart. They’ve been jawboning about the Dollar and reducing their dollar assets for several years now.

Perhaps the moment for the big move — allowing their currency to float — ie, CEASING to buy tons of dollars/dollars assets to keep their currency down — is upon us.

Here’s the last 18 months of the dollar. The DXY index.

Bottoming circa 78 or ready to revisit that 72 level??

Life During Wartime:
LOST DECADE in STOCKS
What’s to Be Done?

Back in town picking up life’s pieces, attention turns to ye olde Retirement Account. What’s to be Done?

To begin: some perspective as to what we’ve gone through so far this century:

That’s the tech-heavy NASDAQ Comp index.

Let’s see if the S&P 500 — more diversified than the NAS — looks much different … Hm.

It’s interesting to pin the major geopolitical events. 9/11/2001. 3/19/2003. Katrina, late August 2005. Obama’s election.

A. The New American Century: Blame it on the Banks

The greater recovery seen in S&P — compared to the Nas — from nadir early 2003 to Halloween 2007, and then the greater fall, are due in part to the rise of big banks and other financial giants, which took advantage of Alan Greenspan’s extremely low interest-rate regime (tonic for the Tech Crash and 9/11, or so it seemed) to mint money in the early years of this decade.

That is: Those profits and the correlate stock price gains meant the Financials came to comprise a much larger chunk of the S&P 500.

Here are the Financials themselves (the BKX index of banks):

It’s interesting to note that the Financials began to roll over in 2007 a few months before the S&P. It’s a useful old saw: As go the Piggies (the banks), so goes the poke. Perhaps it will be some help trying to ascertain when its safe to go back in the water.

Along those lines, here’s the past three years of a major Financial ETF (the XLF):

And here’s the past year:

Does it look like the Piggies are done going down? Reasonable people disagree. The declining volume (vertical bars along bottom) during the current run-up is not encouraging. And there’s been some news this week suggesting autumn downturn. But more on that later.

B. Blame it on the Invisible Hand of Bush-Cheney

Note the slow steady rise in stocks that began — like the Iraq war — in March 2003. This was the beginning of the recovery from the double whammy of the tech crash of 2000 and the 9/11 attacks.

We now know what many traders suspected and declared during this oddly steady recovery: That it was held so steadily in place by a Bush-Cheney Treasury trading outfit, conducting focused raids on the S&P E-Mini futures contracts, in order to support the Iraq war.

This frequent covert intervention — visible typically in the last hour on days when it was clear (by experienced lights) that the markets should turn down and enter a phase of correction — was driving professional traders crazy for years: The Market That Will Not Go Down.

Articles were written, complaints with regulators filed, investigations initiated. One thread was traced to a Chicago brokerage account … Finally, the dam burst when the Housing bubble popped, triggering what Jim Cramer accurately identified in August 2007 as “Armageddon in fixed income.”

THUS: One should note that it was not only Chairman Greenspan’s super-low interest rates that helped create the asset and credit bubbles that now pain us, but also prolonged, unprecedented politicized intervention in the stock market — in support of a war that, by all measures of international custom and law pre-existing Bush-Cheney, was indefensible.

C. Blame it on the Free Marketeers

Also note that the fall of the Financials in early 2007 was not rooted merely in worries about US housing — but a pending accounting regulation — Financial Accounting Statement 157 — which came fully in effect at Nov 2007 but was already being implemented by institutions roughly a year in advance.

FAS 157 suddenly required banks et al. to “mark” arcane structured finance instruments on their books at “market prices” — even when no market worthy of the name for such things had ever existed or been intended to exist.

The first shock here was HSBC, the big British bank, in Feb 2007, reporting something like $20 billion (if memory serves) in structured finance writedowns (paper losses).

This marked the peak in the XLF (see chart above), and touched off a mini crash in the broader markets, which the latter managed to shake off until the Bear Stearns failures in June — and even thereafter, for a while, rallying to the all-time highs in October ….

Then FAS 157 came fully into effect, in November, and the stuff hit the fan.

It’s one of the worst ideological regulatory moves in finance history. The last gasp of Reaganite Free Market fever. But hardly ever noted as such in the mainstream financial media.

D. Blame it on the Robots

1. Personal Computers, too, caused the Tech and Financial Bubbles

The great Tech Stocks bubble that began to collapse in March 2000 (see first chart) was, of course, an effect of the Personal Computer revolution.

But it’s less commonly noted that the Financial Stocks bubble of the present decade was also caused by personal computers — on the desks of bankers, analysts and finance lawyers in New York, London, Frankfurt, Honk Kong and Tokyo.

That is: Without personal computers, spreadsheets and the like, the explosion of securitized debt and complex swaps at the core of the current crisis would not have achieved critical mass needed to melt down the global finance system.

That is: These high-tech deals could not, without Excel, have been conceived, structured and managed across time. Securitization as we know it was born with the Wang office networks of the late 1980s.

2. Personal Computers turned Stocks into Trading Vehicles

Finally, note that personal computers are responsible for the explosion of professional traders worldwide, who each day overwhelm the volume of “investment” activity in markets by many multiples.

Stocks and commodity contracts are now trading vehicles, primarily. And traders don’t Buy and Hold. Their busy-bee activity makes the old notion of putting Blue Chip stock certificates in a safety deposit box a dangerous strategy.

SO THEN: One may largely explain, and perhaps to some extent excuse, our Lost Decade — its bubbles and busted long-term charts — as all but inevitable side effects of radical technological progress. The semiconductor & software revolution came at a price. We are living thru an epic battle in the war of Man and Machine and it’s not clear Man is winning.

Perhaps we’ll know in fifteen years or so, when most retirees will be people who got killed in the stock market between Reagan’s Pension Reform and Obama’s inauguration …. Statistics on poverty, homelessness and suicide among the elderly will clue us in thru the rear view mirror.

None of which would have surprised Karl Marx, who concluded that technology, on balance, was more trouble than its worth for the human race.

E. Blame it on Reaganite “Pension Reform”

Another Bubbly megatrend, evinced in this S&P 500 chart going back to 1970 …

… was ignited by the so-called Pension Reform of … 1987, was it? Which replaced conventional Defined-Benefit pensions with the Defined-Contribution plans — the 401(k) revolution.

This radical policy, which passed thru the Congress with hardly a public notice let alone debate, not only took Uncle Sam’s big corporations off the hook for the well being of the working class — an essential first step (like the AT&T breakup) toward Globalization — but also suddenly threw a lot of money at the stock markets. As seen in the volcanic eruptions of the S&P chart above.

That is: Before Pension Reform, pensions were managed professionally, and the investments that funded them were long- and medium-term bonds, by and large.

But with the advent of self-managed 401(k) and their ilk … People who didn’t know better, encouraged by Fed regulations written by lobbyists for the securities biz, had their Contributions taken from their weekly paychecks and wired to the stock markets.

And lordie, lordie, have they been reamed: The S&P today is roughly where it was in 1997. And that’s AFTER the big run-up (percentage-wise) we’ve had since last Thanksgiving — and with the near certainty of more stormy weather ahead before the current crisis may be thought to have established an Urgrund not an Abgrund in the stock markets. A True Bottom, not a False Bottom.

I recall Jim Rogers, a self styled maverick investor type, being asked circa 2001 if the worst of the Tech Crash was over and it was time to get back into stocks.

He smiled sadly and said, lordie, lordie, no. This ain’t no Mud Club or CBGBs … “This was a death in the family. It’s going to take a long time to get over this.”

Mr Rogers was right. And none of the major indices have YET gotten over it. (See the ten-year charts above: all well below the day the New American Century dawned. )

And of course, since the Tech Crash we’ve had several other deaths in the family. The Suburban got crushed by a garbage truck out on Highway 61.

F. Stabilities of an Entirely New Kind

Looking at a bit more than a Lost Decade, then, one might wonder if stocks — as long-term investments — will ever be the same as they were before Pension Reform and Personal Computers. I think (tiresome habit) of Walter Benjamin between the wars in Weimar Berlin:

Among stock phrases that lay bare the stupidity and cowardice of the way of life of the German bourgeois, the locution referring to impending disaster — ‘Things can’t go on like this’ — is noteworthy.

The helpless fixation on notions of security and property deriving from past decades keeps the average citizen from perceiving the remarkable stabilities of an entirely new kind that underlie the present situation.

Because the relative stability of the prewar years possessed him of benefits, he feels compelled to regard any dispossession as unstable.

But stable conditions need by no means be pleasant conditions, and even before the war there were strata for whom stabilized conditions amounted to stablized wretchedness.

To decline is no less stable, no more surprising, than to rise. …The assumption that things cannot go on like this will one day find itself apprised of the fact that for the suffering of individuals as of communities there is only one limit beyond which things cannot go: annihilation.

Written in 1928. (Walter wasn’t wrong — just early.)

We certainly were conditioned, in the postwar decades of the late century, to regard Hard Times as unstable and fleeting, and prosperity routine.

But then the last Liberty Tree died, in Annapolis, in 1999. And Bush-Cheney were installed. And the postwar order was, quite consciously, set aflame.

Most pundits opine as if finance were a realm of science, and economics governed by natural law. Tis a Dismal Pseudo Science, to be sure — political to its core.

And as for those (legion) currently Calling the Bottom in stocks and singing Happy Days Are Here Again, why they seem to me vile fools.

(But let it clearly be said, contrary to the old saw, that trading fools can make a bundle when the stars align. Smart fools know when to take their money and run.)

(I traded at two (small) professional houses in the 90s, one at 30 Broad just steps from the NYSE. Lots of muscleheads …)

G. So What’s to Be Done with my freakin’ retirement account?

The world since the advent of Bush-Cheney has undergone shocks that may only be compared to the world wars, and the correlate economic dislocations (ahem), in their character and quantities, are unprecedented.

If some hiding remains advisable, where to hide?

And — almost as important — when?

Here’s ten years worth of GOX — an index of gold mining companies for the most part:

And here’s ten years of an Oil index — the OIX:

Note that both the GOX and OIX are well above their January 2000 levels — in sharp contrast to the NASDAQ, Dow Industrials, S&P 500, Financials et al.

But to qualify these, let’s bring the Dollar into the picture — with the DXY — which measures the US Dollar against six (if memory serves) other major currencies. The Euro, Brit Pound, Swiss Francs, Japan’s Yen, Australian Dollar …

Gold and oil often trade inversely to the dollar — since if the dollar sinks against other currencies gold and oil, each priced in dollars, get more expensive as a matter of exchange, aside from whatever notions of intrinsic value may be at play.

Here, for example, the past 20 months of the Dollar (DXY) — against performance of the GOX (blue line) and OIX (brownish line):

One can see the little uptick in the DXY was matched by rather sharp downturns in gold and oil.

The Dollar chart paints a big current question. Dollar Bulls everywhere at the moment are stomping and singing that the Dollar is thru going down, and is about to reassert itself as the globe’s master.

If that were so, one might hesitate about jumping into gold and oil (and other metals and commodities, for that matter) right now.

What to do, what to do …

My retirement account three weeks ago recovered the high it had attained in early 2007, before the collapse of the two Bear Stearns mortgage-bond funds in June.

I achieved this recovery with funds focused on China, Gold, Energy and, to a lesser extent, Technology.

I sold all that Tech this past May — and thus missed the big NASD run up since.

The old saw — Sell in May and go away … til November — failed here, as they will when all the charts have been so thoroughly busted and abused. For now, all the usual seasonality notions remain suspect until confirmed in the rear view mirror, when of course it’s too late to make hay.

I sold about half my Energy in July.

And sold about half the China in early Aug, near the peak (so far), on advice from the woman who heads a decent china fund (AACFX) that profit taking was indicated for the short term. (If a fund manager says that about her baby — run!)

Here’s a China ETF (the FXI ):

The basic notions behind this recent selling were simply that:

– we’ve had a big steep ride up in the past ten months, and what goes up so steeply usually corrects.

– we are still far from out of the woods economically.

E.g., 2009 was milder than 2008 and 2007 for Adjustable Mortgages coming due for reset — but in 2010 they will spike again. (See the chart at the very end of this article, above Mr Potato Head.) This may crush current optimism about a Housing recovery.

I think the big run up since Thanksgiving was in part Obama euphoria. In part simply the big banks stepping back from the brink of dissolution. And in part just a big Dead Cat Bounce after the trouncing all sectors took since Halloween 2007. I think we’ve had a death in the family.

Nevertheless, there are a lot of people and fund managers with cash on the sidelines who have watched the big run up this year with increasing panic — failing to participate. Those people may now be loading their guns to buy on the current Dips.

So it’s not at all clear yet what the next month, three months and six months may look like.

Of the cash raised by recent sales, I’ve put a little more into gold, however. (Or, rather, a gold biz fund: FGLDX). So I guess I DON’T think the dollar is ready to reassert its old primacy. The chinese are increasingly unhappy and the Euro chart looks more promising to my half-cocked eye …

One thought out there is that the dollar’s recent, less than gangbustin’, rise, will peter out now that we’ve heard from the central banks of England and Japan and — tomorrow — will hear from Uncle Sam’s Fed Reserve. This view expects the dollar downtrend, after the recent correction, to continue.

But Mostly: For now I’m not ready to risk much of my hard-won recovery. Waiting and seeing. In mourning.

Ralph Nader’s
Recent History Reading List

People who were on the money about big money.

Daily Telly’s Pritchard
re IMF’s new (old) paper

Some call it a global currency.

On the heels of the recent Chinese call for something such.

I imagine Peking’s not thinking the IMF however.

Dem Builderburgers ain’t so bad,
heck, I seen worse

An American in Ireland, Richard Moore, worries often aloud about the world in articulate, informed style — at the moment about the Bilderbergers. Just now I dashed off a reply email that without trying hard encapsulates a view of the world (if not a Worldview):

The Bldbrgers are good and useful to consider. They don’t Run the World but they give insight into some of the people involved in the high level struggles to operate and endure the world.

They express a more European point of view than, eg, the Davos gatherings, which are more technocratic and global and American influenced. This European view is caught in our time in the middle, and I tend to sympathize with it.

I mean — the world today is dividing in a new way:

1. Russia and China, among the major powers, are still nation-states. Their owner-operators are still wed to their Nations (ie People). These powers can be read fairly easily as to what their interests are and how they are likely to behave to protect and forward them.

2. The US since the advent of the bomb has been ceasing to be a nation-state (if indeed it was ever a good idea to consider it as such).

(The bomb brought pressure to control events globally and to do so without major-power war; this pressure has been bending the minds of the people who run the National Security Apparat since the end of the war 1945. This is one big reason why the Apparat has grown so strong in Washington while the Congress has almost ceased to exist as a policy making body and the White House careers back and forth, with presidential heads more often than not winding up on platters.)

The owner-operators of the US began to reassert themselves behind Reagan’s smile and broad shoulders, having gone to school on the lessons of Vietnam (an educated working class is not a good idea, reliable pensions are not a good idea, fairly free and balanced mass media are not a good idea) and having realized that the technological revolution meant (re capital) that Globalization was the ticket.

To be extremely brief then: The US since the war has been morphing from something like a nation-state to a thing bestride the globe with two primary interests: to float the National Security Apparat (chiefly the Pentagon but also the mature so-called intelligence agencies) and to float the large globalizing corporations. Responsibility of the owner-operators for and to the Nation (ie People) has become almost neglible.

(Even the most Progressive voices among the American owner-operators are corporate-centric, as if someday Google may just blast off into space, Silent Running with Hughie, Dewey and Louie … )

3. Europe occupies too a rather new and strange space — having undertaken the Euro Union. But the traditional bonds between the component ruling classes and Nations (Peoples) — born of millenia of strife and tight geography — are still rather strong.

The Bilderbergers convey this uneasy place in the middle — between the brute classico Russian and Chinese nation-states and the global military-industrial enterprise based in the U.S.

Europe: Trying to “compete” with the run-amok North American colossus, while trying (as always) to survive the “Asian Hordes,” while trying to maintain the distinctly European take on the Individual-in-Society.

For my money, Europe’s approach to Modernity (the technological civilization that in the West succeeded Christendom) is superior to the American, the Russian and the Chinese. European societies seem to me superior.

So then — even though my own feet are rooted in the Working Class, I don’t find the Bilderbergers as alarming as some. (And I have always valued the reports from the chamber that Mr Estulin has been channeling for some time now.)

Rather, I find the entire careering planet alarming. Chiefly the unbridled advance of science these past two centuries, which has created monstrous wealth, technological processes and weapons that have left us and the earth at the mercy of forces I think NO one or one body of people has a chance to control, let alone govern. Everything put together sooner or later falls apart, as Paul Simon noted circa Watergate.

My view of Europe’s “superiority” doesn’t mean, of course, that if one had to bet on the Last Man Standing he should bet on the European Union. Indeed, many have been writing that the current financial crisis may ruin it.

Would Europe survive the Union’s disintegration? In some fashion, surely. Might that seismic de-centralizing move actually, despite costs, show us something of the way out of Modernity’s disaster? Too much to hope for, I suppose.

Age of Obama:
Status Quo 2, Change 0

Well the votes this past week came in.

FINANCE

Geithner’s patchwork Smart-Money-to-the-Rescue approach to fixing the banking system — Paulson II — has received the presidential imprimatur. The question now is how long the US will limp along as Japan did thru the 90s. Obama has eschewed the bold moves the world was hoping for last November.

As if in reaction: the Chinese officially called this past week for the a new international currency to replace the dollar as the world’s “reserve currency.” The notion makes no sense, in a way (arbitrageurs would simply constantly trade thru the shell currency to whatever sovereign currency they sought, and in that way designate one of the latter as the de facto “reserve currency”). But it expresses a point of view that bodes ill for Washington’s ability to fund itself going forward.

PAKGHANISTAN

The prez gave a big speech. No surprises. Putting his stamp on the policy Gates-Mullen began to implement under Bush-Cheney after the banishment of the Likud Lobbyists post 2006 elections.

Obama has consented to the escalation the Pentagon wants. Has consented to the the Apparat’s plan to downgrade the Kabul government of elected President Karzai in favor (again) of Men We Can Work With selected from the quasi-existent rogue Northern Alliance — foreigners (non Afghan, non Pashtun) from the north. Has put Gates-Mullen-Petraeus in charge of policy. Can now go to the beach.

AIG payouts (not news)

This is interesting — to see where AIG distributed its bailout money — but not news, in the sense that it was clear last fall that the prime reason for pumping governmental money in was to allow AIG to fulfill its obligations under the gross ton of credit default swap protection it sold during the decade.

And that Goldman Sachs is number one on the list is also no surprise.   This takes us back of course to the Lost Weekend during which Lehman was almost bought but Paulson declined to provide “encouragement,” precipitating instead Lehman’s bankruptcy the next day.

Then and now it seems it was the pending failure of Goldman (triggered by AIG failing to honor the CDS it entered into with Goldman) that persuaded Paulson, that same Monday, to change his mind and start bailing.

Things Getting Rough:
Pakghanistan & China

When I worried (in the penultimate sentence of an essay about zombies) about things soon “getting rough” for the new President, I was thinking foreign affairs.

And was thinking of President Kennedy, who was blasted by the Bay of Pigs raid on his 76th day in office.  Things were never the same.  The White House’s struggle thereafter to gain control of American foreign policy and change course might best be imagined as one long scraggling slide off a cliff.

But to return to current affairs:

1. Iraq.

Mass murderous bombs are going off again.  Very bad for the Pentagon song that both McCain and Obama began to sing last spring, a coro castrati.  For if the Surge there was not simply a Success — if the relative calm of 2008 was tactical and keyed in good part to the American audience/elections — if the basic animosities (Shia, Sunni, Kurd) and political questions (who shall control the state?) have not been soothed by General Petraeus’s community policing, what then?

And with what effect on the marketing of the Iraqi Surge’s young cousin on Iran’s eastern borders?

2.  Pakghanistan.

Benazir Bhutto’s murder.  The rocky greeting given her widow-successor, Zardari, after his first address to parliament. (During the reception unhappy campers blew up the nearby Marriott, home to yankee journalists and diplomats.)  The attack on the Taj Mahal hotel in Bombay by a Paki assault team.

And, meanwhile: the mass-murderous missile attacks by the Americans in northwest Pakistan, which began circa Labor Day and which yesterday killed 21 people identified — in first reports — as “militants aligned with a Pakistani Taliban leader,” and wounded fifteen others.

Note that three weeks ago, a similar first report by American authorities, claiming that 15 of 16 killed were “militants,” was revised to acknowledge that 13 were random walkers — indeed, “civilians.” The Army general in charge issued not an apology but “deepest condolences” and a week later the New York Times observed in an editorial:

Almost no one wants to say it out loud. But between the threats from extremists, an unraveling economy, battling civilian leaders and tensions with its nuclear rival India, Pakistan is edging ever closer to the abyss.

Such were the trends inherited by Obama and, for his part, left on Cruise Control.

In the past ten days they have coalesced into a major political crisis — based on widespread anti-Americanism — that might leave Islamabad looking more like the Federally Administered Tribal Areas than the capital of a large industrialized state armed with nuclear weapons.

Meanwhile across the border ….

Today the Times relays White House views (elaborating upon Obama’s comments in a pub’d interview last weekend) sketching the new US plan for Afghanistan:  Lots of carrots and a stick or two, to tease out from among the Evil feuding warlords those We Can Work With, and to encourage those to enforce a sort of peace (stability, equilibrium) that at least does lip service to the quasi-installed, quasi-foreign government in Kabul.

Or maybe President Karzai and Kabul will be abandoned in public, in favor of something even more Realistic with the so-called Northern Alliance warlords (non Afghan and non Pashtun) who Bush-Cheney found, however briefly, to be Men We Can Work With.

This range of possibilities seems to be the Petraeus Plan at the moment. Maybe it’s the best Obama can do with a long-neglected and seemingly pointless situation.  Maybe it’s the best way Home. (Then again, whatever happened to that Unocal pipeline?) One might hope.

But the Times piece also talks about transferring US attention and resources to Pakistan. And so perhaps (as surmised here since erstwhile CIA director Hayden’s belligerent speech of December) the new Afghan policy will be best understood (largely in retrospect) as what the Pentagon thought best to quickly stabilize Afghanistan to allow it to function as the staging of a boots-on-the-ground war in the FATA across the border.

And what further necessities might that incursion give birth to?  Where will the Petraeus Plan really lead?  This is the relevance of the Bay of Pigs precedent.  (See the “blasted” link above.)

3.  China.

It’s hard to imagine serious trouble breaking out between China and the US right now, since they both have so much at stake in the effort to stabilize the global economy.

And gee, surely the Obama honeymoon (internationally — like Gorbachev’s) has more legs than this?

But for the files if nothing else (you realize you have fallen into my filing cabinet?), one must note:

– the seemingly silly quasi-naval confrontation off the Chinese coast.  The Times says the American vessel is a submarine hunter.  But gee, the South China Sea is exceedingly shallow.  Perhaps “spy vessel” is best?  Recall the Mayaguez, during Ford. In any case, now we’re sending in ships with guns and missiles mounted in plain sight.

–  the Chinese premier expressing worries about getting stuck holding the bag on a trillion in US Treasury bonds. Various voices over there have been expressing concern for some time, and more than a year ago Peking began to swap dollars for gold, but this is the most salient signal to date.

Surely Uncle Sam and China must be friends.  Surely.

Yet it’s a signal of how big a worry the current problems could become that Obama had an unscheduled sit with the Chinese Foreign Minister at the White House yesterday.

Did a Bruce Lee boxed set change hands?

HOWEVER THE CURRENT contretemps may work out, things are indeed getting rough.  The Prez is going to have much less time on his hands to muse about where precisely to suggest his arm’s-length adjuncts apply their Band-Aids to the buboed bodies of the big banks and the health care system.

One must temper expectations, of course. Things since November 1963 (of which I have no memory — I was five) have indeed never been the same.  A hundred years hence, Chinese grade-school textbooks will use Julius Caeser’s crossing of the Rubicon River and the murder of JFK to illustrate how republics by and for people morph into empires run by and for the state’s military-money complex.

Nevertheless, Obama has a few miles of blue water left as the pounding of the lee shore drifts to his ears. As an aid to navigation, Robert Dallek points out this morning that LBJ walked away with neither Guns nor Butter from the White House, after one elected term.

A cautionary tale about Imperial Overreach.  It’s worth noting in addition that not one president, but three, back then, were handed their heads by the brassy entrepreneurs of the Vietnam war.

Banking system bells toll for thee,
Mr President
(This is not a test)

For once I agree with Mr Friedman of the Times:

QUOTE: I wake up every morning hoping to read this story:

“President Obama announced today that he had invited the country’s 20 leading bankers, 20 leading industrialists, 20 top market economists and the Democratic and Republican leaders in the House and Senate to join him and his team at Camp David.

“We will not come down from the mountain until we have forged a common, transparent strategy for getting us out of this banking crisis,” the president said, as he boarded his helicopter.(emphasis added)

END QUOTE

The world — for good reason — expected Obama to deal with the banking system on Day One, as did FDR (literally).  Instead he has Ironically Detached himself and hired Doogie Howser to run the Treasury.

It seems the political side of Team Obama has persuaded the President he should focus on more positive aspects of economic policy and leave the dirty, no-win banking system business to expendable underlings.

“No win” means: the options are Nationalization (the Seidman way!) or Dawn of the Dead (Zombies, depression and chronic deflation).  Neither generates good press.

But the US stock markets tumbled about 22 percent in 30 calendar days following Geithner’s address of Feb 10.  This measures the volume of hope/expectation that had built up since election day, as if behind a dam.  Geithner’s geeky manner and ludicrous grab-bag of vague old ideas blew a hole in the dam.

The pell-mell size & steepness of this latest market crash is exceedingly rare and means the prez cannot afford to play it cool. Friedman’s daydream is right on.  Get on TV and talk tough love about the big banks then put on your parka and gas up the helicopters.

Perhaps events will sweep the sleepy Admin up in any case. After yesterday’s WSJ report re “contingency plans” for Citigroup, many are now expecting to soon see C in receivership.  Beware the Ides of March.

Or St Paddy’s Day.

Chances are (I guess) the stock markets would react positively to the seizure of Citi. Ding Dong the Zombie’s Dead …    Credit markets likely a different story short and mid term.  (There don’t seem to be any private buyers, even at the current $1 per share fire sale.)

But if Obama-Geithner continue to dither, Dow 6000 as Abgrund is baked into the cake, and the chart suggests 4000 may be the Urgrund.

This is not a test of presidential Coolness Under Fire.

Get out the frickin’ fire hose.

Dead deadbeats cough up

Apparently it pays to dun the dead.

Why may not that be the skull of a lawyer?

Where be his quiddities now, his quillets, his cases, his tenures, and his tricks?

Why does he suffer this rude knave now to knock him about the sconce with a dirty shovel, and will not tell him of his action of battery? Hmm.

This fellow might be in’s time a great buyer of land, with his statutes, his recognizances, his fines, his double vouchers, his recoveries.

Is this the fine of his fines, and the recovery of his recoveries, to have his fine pate full of fine dirt?

Will his vouchers vouch him no more of his purchases, and double ones too, than the length and breadth of a pair of indentures?

Alex Jones Documentary:
The Obama Deception

I don’t agree with some detail here but it’s certainly worth chewing on, particularly as we watch Obama sleepwalk (?) into the Pakghanistan quagmire.
The DVD can be ordered from Alex Jones’s web site: http://infowars-shop.stores.yahoo.net/obdedvd.html

All of the Youtube segments are gathered on one page here: http://www.youtube.com/profile?user=josh99smith&view=videos.

But this may be a handier way to access them:

Part 1. http://www.youtube.com/watch?v=23h4IlRQGZ8&feature=channel_page

Part 2. http://www.youtube.com/watch?v=RHiENcsO10Q&feature=channel_page

Part 3. http://www.youtube.com/watch?v=AjLUkAuT2AA&feature=channel_page

Part 4 http://www.youtube.com/watch?v=mY-8snkdpyE&feature=channel_page

Part 5 http://www.youtube.com/watch?v=BqHi4kmnO2Y&feature=channel_page

Part 6 http://www.youtube.com/watch?v=LWZvBMkZkM4&feature=channel_page

Part 7 http://www.youtube.com/watch?v=mnkbPsfTLyw&feature=channel_page

Part 8 http://www.youtube.com/watch?v=BKqd4UAG8kQ&feature=channel_page

Part 9 http://www.youtube.com/watch?v=YJMB3gxk4jg&feature=channel_page

Part 10 http://www.youtube.com/watch?v=GAmQnUQFG4o&feature=channel_page

Part 11 http://www.youtube.com/watch?v=pf1fD7D0xcc&feature=channel_page

Part 12 http://www.youtube.com/watch?v=iAJAb52PVUw&feature=channel_page

Part 13 http://www.youtube.com/watch?v=w9Ija31HdUs&feature=channel_page

Part 14 http://www.youtube.com/watch?v=l_6sYwMQLLU&feature=channel_page

Obama-Geithner dither as December housing prices drop thru floor

S&P has released December’s Case-Schiller housing price numbers.  Worst monthly decline ever, beating record set … the month before.

See Floyd Norris’s over-all assessment last month.

The dithering of Obama-Geithner this first month in office is indefensible.

Geithner has been there all along.  To report (as the Wash Post apologia speaking for his team did last week) that he came into office and was shocked, shocked by the mess he found and had to drop his best ideas and go back to the drawing board …

Ludicrous.  Indeed, I don’t believe it.   The Times expose the week before seems the more plausible picture:  division and discord between Geithner and his team (all from the Clinton White House) and Obama’s inner circle.  Resulting in squat.

And that’s Obama’s fault. For appointing Geithner.  The Lincolnesque notion of stocking a cabinet with one’s ideological and even political opponents is not something anyone in today’s Washington can survive.  True Ingenue.
Lincoln did not survive it himself, and spent two years dithering, which cost a lot of lives and treasure.

Fed sees 3 to 6 more years of pain, “absent further shocks”

See Paul Krugman’s discussion of the depressed minutes of the last Fed Open Market Committee meeting.

The title of his column:  Who’ll Stop the Pain?

In sympathy the Murdoch (formerly Dow) Industrials broke thru their crisis-lows from this past November (roughly 7400) and closed at 7365.   The all-time high from October 2007 was about 14,121, if memory serves.

Every dark thing I imagined in August 2007 has already come to pass.  Whatever lies ahead is virgin territory.

The dithering of Obama-Geithner in the month since the inauguration is (despite this tepid defense) indefensible.  Geithner, with his vague scattershot presentation last week, seems stricken with ADD at a time when leaders with the steely focus of the Terminator are needed.

Not that Arnold is doing well out West.  I don’t mean we need more Arnolds. (But not that I’ve  followed his work as governor.)  Rather, we need more Chainsaw Bills.

Again I think back to the day Obama declared his candidacy.  Barely a breath of this disaster in the air.  It seems he took office with his head still somewhat in the clouds of that day’s dreams. That was then.

What a shame, if this disaster swallows and digests him whole.

Which resurfaces old thoughts — that Hillary was the better candidate a year ago to face this storm. She was ready to fight, and it seems he was not. A Hillary presidency, however badly buffeted, even broken, would have left Obama intact to continue leading the party thereafter.

A Good Leader is a Terrible Thing to Waste.   And the current configuration — with Clinton at State and Obama at the rudder of a ship that may sink — threatens to waste them both.  Leaving what?

A far-right rebound in four years?  Romney. Palin.  (Rick Santelli …?!?)   What’s the Vegas line that cities will not be burning by the time of the party conventions in summer 2012?

If Arnold & co. don’t pick up steam, we may see cities burning before Memorial Day.

Seidman the Zombie Slayer

Click for full pic.  Rated R.

And here for grisly story about Bill’s tendency — difficult to control when times are hard — to sieze Zombie banks and cut off their heads, purge their innards and re-privatize what’s left.

He’s Back.

And the Living Dead may Never be the Same.

William Seidman, Bill Seidman, zombie banks, nationalize banks, nationalise banks, nationalization of banks, nationalisation of banks, mortgage bonds, asset-backed securities, paulson plan, TARP, troubled asset relief program, geithner

Earth Shakes:
Big Swiss Bank to Name Names

UBS. “You and Us.”  Biggest bank in Switzerland (and maybe the world, memory suggests).  As part of settlement in tax evasion spat with Uncle Sam, is going to break tradition stretching back to roots of modernity by giving USG account holder names.

You and US indeed.

In aid of tax fraud, on its face.  But perhaps something to do with Bernie Madoff’s misadventures?  Or, even, an angle re terrorism?  The world spins …

The Problem is Political
and Bill Seidman is right:
Nationalize, purge then re-privatize our zombied
Too Big to Fail banks

Time for the President to heed sage advice and
– See here, sir! — cut the Gordian Knot.

Click link above to read.  Then lodge comments here below (or click link to do so at end of the piece.)