Moon Kil Woong

No “W” in New Year

This recession is unique in that bankers rather than wanting tighter money supply in which they can squeeze loverlegeraged assets from the public's hands into theirs they want looser money supply so that they can maintain liquidity only for themselves since they are the overlegeraged market participants this time. However, they need to make sure these assets only go to financials and never enter circulation or they would cause too much inflation.

This is what continues to perplex the market. Segmented money supply and selective asset bubbles are not normal market events. Until the market figures out that the free market signals have been completely compromised people will continue to draw wrong conclusions. Money supply will remain constrained in the market as recovery is supressed an unemployment remains elevated, while money supply in the banking sector will froth over into commodities, stocks, and anywhere else the government is permissive of banks dumping their loads of public financed free cash. As public cash floods into the banks, since it is financed through public debt, the free market money supply can be contracted even further to stymie inflation if needed through higher taxation.

The absurdity of too much money created and not enough money in the system in any other age would cause outrage. Especiallly if it causes dollar devaluation which further taxes the general public.

Thus we can have a bankers goldilocks scenario where bankers asets rise along with liquidity which can be farmed into commodities and equities which rise, yet inflation remains tame because public money supply is shrinking crimping the service sector to offset the price increases resulting in persistent unemployment and no recovery.

Of course, this is all macroeconomics which no one cares about because it's not easily fungable into profits to any but those controlling money supply. So naturally only bankers need to worry about the net effect; publically funded wholesales asset transfer to the banking sector. All you need to worry about is how to pay your bills with a shrinking public sector money supply and increases in national debt servicing and higher taxes in the future.

Just a thought to ponder in the new year.

Defining the Santa Claus Rally and the January Effect

Good call tying the rally to the rise in the monetary base. It also is closely linked with dollar devaluation, rising commodities, etc. It is the root and all other things are the branches. It's strange people don't scrutinize it as much as other financial and economic data, most of which has questionable methodology.

Holiday Cheer: TARP Repayments Reach $164 Billion

Holiday Cheer, Bank executives at these firms salaries are no longer capped or regulated. How can they be cheering and us too? In the end, we are back where we are started with the financial industry, huge pay regardless of performance, poor regulation, systemic risk where TBTF banks are even larger, and taxpayers still at risk.

If you think what banks repaying TARP are no longer dumping risk onto taxpayers look at the US owned Fannie Mae and Freddie Mac that are buying trillions of questionable mortgages at terrible rates from banks still. Or the Federal Reserve that has to buy those loans in mortgage bonds just so they will have enough cash to buy even more. This little switch all liability to taxpayers is already $5.5 trillion dollars strong and growing.

Government has found new ways to hide the fact that they are priming things for the taxpayer to get shafted yet again sometime down the road. And it appears it will be much larger and worse than this time around.

$164 billion is just a drop in the bucket. Banks are still dependent on free government money and government shifting liability from TBTF institutions onto taxpayers. Indeed this is only holiday cheer for government dependent financial institutions like Citibank, AIG, etc., etc. For you... the grinch.

Why Goldman Could Go Short Mortgages

Goldman also was great at finding a sucker to sell them tons of CDS which they advised would make them profitable. Namely AIG, but others also got sucked I'm sure. Perhaps honesty or lackl thereof also played a large role as to why Goldman thought it was appropriate to advise people to sell the very product they wanted to short.

I would like to think most banks are more honest than that.

Why Interest Rates Will Almost Certainly Rise in 2010

I am not alltogethe certain of thise fact even though the author's arguments are compelling. If the Federal Reserve reverses it's QE, the effects are more tremendous than one may expect because it is in the hundreds of billions.

The fact that the Federal Reserve will not curb their dole out guarantees to Freddie Mac and Fannie Mae even at a total risk of $400 billion is disenheartening as to the Federal Reserve's commitment to reversing QE and to any sense of rational behavior as to limiting taxpayer risk and money. Thus, knowing Bernanke, it is entirely possible the Federal Reserve backs out of exiting QE and doing anything about uncontrolled liquidity caused by it's super-Greenspanish behavior.

Still, strangely it all hinges on the Fed's action. So much for capitalism. We are a state run economy, hanging on every breath of bureaucrats rather than looking at real economic signals these days. Economists should be weeping this holiday season. They are becoming obsolete.

Mid-Cycle Meltdown: Parsing Today's Jobless Claims Report (12/24/2009)

Yes a worse downturn has been traded for a longer slowdown. The recent Federal Reserve announcement to keep supporting the Macs even over the $400 billion cap it had before is one good signal that the government continues to artificially support an inherently weak market ovwer an extended timeframe. The more such support it lends the longer it takes for the markets to correct.

Is this lingering limbo better than a sharp collapse and a real bottom? We may never know, because the government has learned American's can endure any amount of givaways, pork, fraud, and waste whenever there is an economic downturn.

Things have never been better in Washington DC. States will lose their rights as they beg for bailouts. Obama made government agencies even more bloated. Banks and financials own more of the US than they have in decades. Whole segments of the economy have been socialized. And no one cares how much money the Federal Reserve makes or who it dispenses it to at the cost of a dwevalued dollar.

This Christmas is a very jolly one in Washington DC indeed. Unfortunately, you are the designated Santa Claus, your assets are the presents, and the US dollar is the goose they have been carving up and consuming.

Is There a Goldman CDO Scandal?

AIG Goldman asked AIG to guarantee mortgage backed bonds so they can sell them. Then Goldman advised AIG on how to structurwe them. Then Goldman handled the offerings. Then they bought the mortgage backed securities. Then they bought more than their origional intent to buy enough to cover the bonds they issued. Then they asked the government to bail out AIG. Then they asked the government to make good on their bad derivative morgage backed securities that they advised AIG to sell to make a profit.

So you tell me? How is this honest, legal, ethical, or decent in any way, shape, or form? Sure buyers beware is a good mantra. But Goldman was the in on the buy, the sell, the valuation, the issuance, the middleman, the bailout, and the payoff. They knew more about how bad this deal was than anyone and obviously more than AIG.

In the end, the taxpayer was the buyer. Sure, as a taxpayer I would never buy aid help or bailout AIG. A lot of good that does us ehhh? As for other people they crooked out of money, I agree regulators should insure there is never such a blatant conflict of interest and the buyer should have known. But in retrospect, even today there are tons of strange relationships and conflicts of interest in many Wall Street deals. I guess people get overly acclimated to them.

Take for instance bid rigging US Treasuries with the Federal Reserve buying their own issuance. We take it for granted now. 10 years ago we would be galled at such a violation of basic monetary principles involved. What a world. It is not right. It is not honest. And it screws the buyers (many who are under contract to buy some of the offering no matter what anyway). If the Treasury were ay other agency they would be indited on bid rigging anmd fraud.

Sorry, Felix Salmon. I'm at odds with you on this call. Conflict of interest is conflict of interest. And selling crap as gold is a con no matter what shape or form it comes in.

A Look at the Fed's Track Record

Given that there is no right amount of money, what matters is the goods and services (Say 100 apples were worth 100 dollars and then there was 10x the money and 100 apples now equalled 1,000 it would not matter.) although this is an argument against the reason to make more money (it is irrelevant. the markert will adjust to the change in on of them (200 apples would make the value of each $50 in such a closed loop scenario) the Federal Reserve has got the exact opposite conclusion.

The difference is, when new money is made it belongs to them and the Federal Government, not you. Thus when they blow up the money supply 10x they essentially make your ability to buy say 10 apples only the ability to buy one whereas now they can blow your lost value buying nine of your own with no efford on their part whatsoever. Thus, the method of their madness is actually dependent on the public's stupidity about what they really are doing. Given equal services, it's a 0 sum game. They win, you lose.

The deficit is just a game on top of that. Not only do you lose value by them devaluating your currency, then they ask you to pay the interest on the borrowed money they just minted in future taxes. It is almost laughable. In reality the government needs not tax only spend. You pay your tax in devalued currency. So add that about 12% the dollar dropped this year to your tax bill to figure out how much the government took from you this year and thank Obama and Bernanke for it. You kids aren't paying for the deficit this year alone in higher taxes. You are already paying deflationary tax for it this year.

Why Health Insurance Stocks Are Poor Bets

By the way, plenty of medical companies are rallying on the reform bill. I even bought ISRG. Clearly many people don't believe this bill will lead to worse coverage or that higher quality treatment methods will now be shunned. Count me as one of those people.

Why Health Insurance Stocks Are Poor Bets

Well can I add a correction to the title. This should be why health insurers who had near monopolies or duopolies in huge swaths of America and used them to line their pockets are bad bets in 2010. The medical profession is liable to be much healthier after this bill. Unfortunately, Congress and the Senate were unable to get all the lobbyists out of the mix so there is still a lot more to be corrected in our terribly flawed, inefficient, and bureaucratic medical system. But at least this reform is a start at reform.

I wish they had done something similar with ther banking and financial markets. Oh well. Merry Christmas to all the uninsured or people who have been denied propetr treatment that will benefit from this bill.

How the Senate Bill Would Change Healthcare

This is a small, somewhat flawed but neccesary step forwards. In the end a majority of doctors support medical reform. When they sign up they signed up to treat patients and care for people not figure out how to save HMO's money denying care and spend a lifetime figuring out the legalities of medical treatment.

The government is already in healthcare. What we need is regulation, fairness, and efficiency.

If I believed this would collapse the advancement ion healthcare I would not have bought ISRG this week. If the market thought that, then the pharmas and some medicals would not have risen. The naysayers are not speakijng for the medical community or even for medical practices save the medical insurance companies who will face fair and equitable competition in their essential monopoly or duopoly areas of service.

The US has a lot to catch up for in the medical world. It has been sluipping behind every other developed nation by medical metrics for over a decade.

This is not because America doesn't have the best health care procedures and medicine. It's because of the dispensers of medical care, the medical insurance companies still haven't seen fit to support preventative medical care or any care at all unless there is no way out of it. And that's only after you and you doctor fill a warehouse of paperwork to get it. And then another warehouse to bill it to your insurer. Talk about a paradigm of inefficiency. They seem to have learned buraucracy from the old Soviet Union.

Capital Spending Picks Up

This is a great data point to track. It doesn't show a recovery but is indicative of an economic bottom. Now the issue is if it can hold if there is no more stimulus/currency weakening and/or if interest rates rise. It is because that is highly doubtful that one can not call any semblance of a real recovery, only the technical end of the recession still.

Don't get fooled or suckered into a last run end of the year rally. Pick only very good companies with great prospects that you won't mind holding even if the markets weaken. Despite my hesitance to participate further in this market, I have felt compelled to jump back in this week buying ISRV. Thus even in a very risky market I still believe in extreme selectivity. Thet means no bulling into broad based mutual funds that, by their nature, can never hedge overall market risk.

Outlook for a Merry Christmas Eve

Merry Christmas everyone too. This year was not as bad as people feared but certanly near as good as it needed to be towards cleaning up the mess made in the last 10 years. Oh well, at least that gives us plenty to wish for in 2010.

First on my list is controlling the Federal Reserve and the great sapping of worth it is doing in the name of bank security. QE is a disaster. When will people wake up and realize the Federal Reserve is a banking oligopoly with lobbyists? It's interests have 0% to do with your well being, happyness, or financial wealth. There is no Santa Claus and Bernanke is certainly not it if there was one.

Geithner: There Will Be No Double-Dip

And if he is wrong what will happen. All the Treasurers, Federal Reserve Chairmen, etc. spew endless amounts of possitive spin and are proven wrong when it doesn't materialize. They in a big way believe it is part of their job. What a job. They should just put it in their job description as such: "My duty is to lie constantly and make no or little excuses if I am wrong. After all, everyone expects me to lie." In the old days it was called a buyer beware clause.

Year in Review: Newton's Law of Motion, Mean Reversion and Momentum

The other rising force is lower liquidity and/or a dollar rally.

You could also look at other physics laws for guidance like this: For every reaction there is an equal and opposite reaction. That reaction was loose montary policy breeds rising asset and commodity prices. It's the same concoction that drove the 2007 housing bubble. Any QE contraction or drop in liquidity is likely to be met with a violent counter reaction to the previous run built upon a perception of endless free cash to any financial company that wanted it.