U.S. Can Blame Wall Street - Who Should Everyone Else Blame?

While the newsflow continues unabated, market engagement remains tepid at best; as noted, many punters (and banks) seem content to limp into year-end.

The latest development from the U.S. is, unsurprisingly, a broadening of the firms angling for a piece of the bailout pie. Yesterday, AmEx (AXP) filed to become a bank (and thus receive some sweet, sweet TARP lovin'), while Nancy Pelosi wants to divert a chunk of funding to prop up the U.S. automakers.

Jeremy Clarkson's love for the new 'vette notwithstanding, it's not difficult to come to the conclusion that most of Detroit's offerings are uncompetitive in the global marketplace in terms of quality...and that's before you factor in the pricing disadvantage that comes from the Big 3's defined benefit liabilities.

Macro Man understands the political realities that make the bailout of Detroit an inevitability, but it does make him wonder where the line is drawn. Banking, insurance, real estate, financial services, autos - which industry is next in the queue for government handouts?

McDonald's (MCD) (to ensure a ready supply of cheap, if unhealthy food, for the nation)? Televangelists (to ensure a ready supply of prayers on behalf of the nation)? Major League Baseball (MLB has a long and proud history of gorging at the public trough to pay for stadia)?

Macro Man doesn't know which industry is next in line, but he does know that the list of extended hands is growing by the day. As an exclusive to MM readers, he has managed to secure a photo of the queue to receive public funding through the TARP. Should you wish to apply, he's afraid you'll have to go the back.

But hey, enough of pickin' on the old homeland. While it's easy to blame the state of the economy and consumer confidence on the government and greedy Wall Street bankers, how does that explain the collapse of confidence elsewhere? Take Japan, for example, where some leading indicators are actually pointing up, the government is, well, flaccid, and finance a go-go hasn't been seen in nearly two decades. Yet consumer confidence has collapsed there as well.

click to enlarge

And the goings-on in Russia seem to have re-directed the market's attention to the fact that when the shit well and truly hits the fan, you really need to hold the world's reserve currency. After Tuesday's "band widening" of the Russian basket, CBR reportedly burned through at least $8 billion of reserves yesterday.

Meanwhile, the DXY has broken through the top end of a wedge formation, suggesting further impulsive near-term gains for the buck. Clearly it's happening against some of the weaker currencies out there; USD/TRY, for example, has rallied 11.5% since last Tuesday.

With EM looking wobbly and stories circulating of yet another round of hedge fund redemptions in the pipeline, the market certainly feels as if it is short of liquid USD assets. Macro Man has added some tactical risk in some of his favourite EM short plays as a result.

The lack of flow information notwithstanding, this dollar does feel as if it may be poised to make a step-adjustment higher. It's almost as if embedded dollar shorts ask their banks how they can buy some and, by way of reply, are told to "get in the back of the queue."

Comments

[Sailorman:]

OK - know it all! What does -MM readers, CBR, DXY, USD/TRY, EM all stand for or is this a guessing game GG?

2008 Nov 12 08:40 AM

[Alex Wallen...:]

Blame? We, Americans, need to blame ourselves for allowing the financial elites and their political gophers to create a system based on nothing but debt leveraged by debt-derivatives and further derivatives of those. If we try blame it on anyone else, we'll never fix it.

2008 Nov 12 08:56 AM

[David Martin:]

The fall in other economies is not surprising when their biggest customer is going bankrupt and looks unlikely to be able to repay what it owes them.

2008 Nov 12 09:03 AM

[rdr4:]

I agree some more English words need to be used to insure comprehension.
I agree that as long as Washington is run as a whorehouse, the problem is going to continue.
I additionally agree that lobbyists represent an anti-democracy entity, capable of circumventing and perverting the government's charge of insuring a stable economy. (Clearly, the government is incompetent at providing a stable platform for business, but seriously now, would you hire a lawyer to build your house, manage your aquarium, or mow your lawn? No, the product of lawyers and legislators is noise not necessarily attached to any productive action or reality.)
Pay all legislators the mean average income of their electorate, abolish incumbancy, audit all legislators semi-annually, and install the death penalty as punishment for betraying the public trust. Send all lobbyists to Gitmo. Watch democracy work, again.
Thomas Jefferson and Ben Franklin saw the potentials for perversion of democracy at the beginning of our country. Read their thoughts and it is easy to see that everything that worried them has come to be.
Today, Nancy wants to burn my earnings to pay for campaign votes delivered by auto-makers.
Our legislators cannot bail out incompetently run entities on my dollar, survival of the fittest makes a strong America, bailouts are cancer.
I hope someone will spend as much time writing to elected officials as they will spend on this blog.

2008 Nov 12 09:06 AM

[knot2hazy:]

Alex Wallenwein said

"Blame? We, Americans, need to blame ourselves for allowing the financial elites and their political gophers to create a system based on nothing but debt leveraged by debt-derivatives and further derivatives of those. If we try blame it on anyone else, we'll never fix it."

C'mon Alex .. who the heck in the USA knew about leveraged debt and derivatives until it was too late. Besides that, the gophers we have are actually pigs, wearing different shades of lipstick. What we need is a 3rd party pig without the lipstick.

2008 Nov 12 09:58 AM

[Bob McGregor:]

Without freely available credit none of this could happen. So the blame has to be proportioned accordingly. The USA Federal Reserve under Greenspan turned on the tap, cheered on by USA President Clinton who harrassed Congress to lower lending standards. Then the "Insiders" who control the Federal Reserve saw a way to emasculate the rest of the world and make them beholding to the USA by spreading the toxic crap over seas. Overnight, the countries who thought they could start to disengage from the USA currency system, found their banking system had cancer as well - spread by the Wall St Investment banks. Voila! Overnight the rest of the world had to continue the con of lending to the bankrupt USA Govt. Of course these additional funds prop up the massive consumption of USA citizens and allow them to live well above their means.

This has been going on since 1971 - when the USA went off the gold standard - so the only certainty long term is a continuing decline of the real purchasing power of the USA dollar. Indeed I believe the USA dlr is in the asymtopic or terminal phase of it's decline against real value items such as gold. The current strength of the USA dollar is its final bull market within its overall massive Grand Super Cycle Bear market.

Having said that, major stocks have one more major super cycle bull market before the final demise of the USA dlr starts. This stock bull cycle will be similar to 1974/1987 and 1987/2007. Only then will we see another 1929/1932 total meltdown.

2008 Nov 12 10:04 AM

[k9s-4-k8:]

Bankers, Congressmen, Subprime loan originators, homeowner wannabees all share in this fiasco. Its rather ironic that of these we,re financially bailing out the bankers and the homeowner wannabees. We're also bailing out Congressmen through the last election by reelecting virtually all the same scumbags that gave us Fannie Mae and Freddie Mac. As for the subprime loan originators---we haven't prosecuted any of them so take that as a stay out of jail free card.
I never thought I would be saying this but this country needs someone like Ron Paul.

2008 Nov 12 10:38 AM

[waf76:]

Bob McGregor - I completely agree. One more bull run and then it's over. The bailout will ultimately lead to our demise. The dollar will be worthless, like a peso...We'll inflate our way out of paying our debt but then what? Abolish the Fed!

2008 Nov 12 11:13 AM

[john s. gordon:]

students/former students with loans are certainly deserving of a bailout.
> jack

2008 Nov 12 04:55 PM

[Bob McGregor:]

Waf76
Then what? Possibly depends on who owns the gold in Fort Knox - presuming it really exists! If anyone can really answer these questions then perhaps we could make an educated guess. Perhaps a future role for Gold and the other precious metals? At substantially higher levels? But what will happen to it in the interim?
I'm aware some analysts are now advising clients to increase their gold holdings from 5% to 25% of their total assets. Suggests they think we are more progressed in the end game than I believe.

2008 Nov 13 10:05 AM

[waf76:]

I think we are susceptible to groupthink from the media so its hard for me to listen to analysts who 1 day say oil is going to be 200 dollars by the end of the year but then the market really starts to tank so now you have analysts suggesting 50 or even 40. Same thing with gold and other precious metals. They just want the masses to follow suit after they're already in for cheap and they can get out when the masses start buying. If you're not in gold or bonds or whatever is the "in" thing already then its too late. The SEC should stop hedge funds from selling phantom stocks and stop letting CNBC aid and abet the short sellers.

2008 Nov 13 01:51 PM

[Bob McGregor:]

Interesting how waf76 links CNBC aiding short sellers. For some time their guests have been a one way street at the same time demolishing CNBC parent company GE which has halved over the past 3 months; so I guess karma is taking care of them [CNBC].
But the "Insider" links have such influence with the decision makers I cannot see any real change occurring, at least not until the new administration takes over. Even then it will have little impact as all the policies the Insiders wanted in place are now there which will help emasculate any real change a new administration may hope to implement.
We will be aware some real change is about to occur when the following is implemented:
1] Reintroduction of the short selling [SS] uptick rule
2] Transparency is demanded of the SS by forcing them to report ALL scrip borrowed SS daily and it is PUBLISHED and made available to the market DAILY.
3] A 15% limit is placed on the amount of a company that can be SS to curtail predatory SS cartels bringing companies undone.
At the moment it is a one way street in the SS favour.

2008 Nov 13 06:54 PM