Thursday, December 9, 2010

what now?

08:29:01  *** FRIEND 3 ()  acknowledged the
chat request.
08:39:39  FRIEND 3 :
what you thinking here? i am thinking you hedge up everything until
your remaining pipeline between time x (when you would stop hedging
before year end) and year end equals 75% of your risk limits...then
run it into new year and add on further loan
pipelines wont close with the scale loan officers have been
saying...trying to preserve their bonuses...then the loans wont close
and the money will be released back to treasury
...once the money hits treasury, they will
lift bills, 2s, 3s and 5s. i think the big boys are going to eat the
dec28 5yr auction      

08:50:06  ME : i am fearful of the clumsy heavy handed
gov'ts of the world doing one irrational thing after another
making it very difficult environment for risk

08:50:31  FRIEND 3 :  we know they told their CEO's that the loan pipeline looks good in
the last quarter, we dont see the optimistic assumptions closing

08:50:36  ME : right
in aggregate, why would cash rich corp
sector pay all the (presumably) negative carry to lever up?
i don't see that level of optimism
or even that level of cerebral capacity in
most of corporate world

08:52:39  FRIEND 3 : RIGHT! and the cash poor, is just that,
poor. and banks dont lend to the poor....anymore

08:53:18  ME : if the expectation of structural break is
lowered, cash balances will get deployed
one would think
pre re-leveraging
to me the interesting thing is how long
before the fed has to RAISE rates to actually reduce long term rates
or if they just will not do that
but i think we are going to get to that point
since we just saw the 'political process' at work
post g20
voting down the deficit reduction
in favor of 'reaganesque' chicanery
cut taxes AND increase spending!!
which has to rattle the bond market
hard to believe the house dems will lead the
fiscal responsibility charge here
meaning even larger deficits than currently projected
in a world where the fed's attempts at
monetization to lower long term rates has absolutely backfired

08:57:41  FRIEND 3 : sending you something that i wrote
yesterday but havent considered sending yet, would appreciate your

08:57:51  ME : sure thing
so the gov't is determined to fight
deflation apparently, both the fiscal policy folks and monetary policy
which in the short term has the potential to
pump up the propaganda about 'boost to gdp' yadda yadda
which we've just seen
but these things tend to last for a few months
 early 2009 green shoots
et al
the backdrop is deleveraging
so the natural deflationary forces
gets translated to political angst
but gets voted back into the system
i'm just thinking out loud here
these stooges then bring 'tax cuts and spending'
who amongst those on the stage now is enough
of a leader to say 'we cannot take another dose of the heroin'
'we need austerity'
'which means we will have to be prepared to
nationalize the banks'
who will do this??
no one
not a single one of them
not even a bloomberg third party candidacy
 something akin to that is likely
predictable esablishment response to the
rising disillusionment
i mean, bill gross wrote about the 'ben
bernank' video in his pimco monthly

09:07:35  ME : i think the question ultimately is how do
you get money into the real economy in some kind of virtuous cycle way
(eg, productive deployment/investment)
the 'lets use the banks as intermediaries'
has not worked at all
in fact one could argue it's backfired
since the 'wealth effect' from banks buying
up risk assets with the surplus liquidity is way, way overhyped
not sure how you get around the problem that
a gov't guarantee of bank loans is ultimately an additional claim on
the treasury
that would presumably come with some kind of
cbo-scored cost
meaning larger projected deficits and that
could also backfire and steepen the curve even further

09:11:19  FRIEND 3 : i hear you, it's riddled with big brother
issues and big government problems that have not worked up till now.
too many people have been stealing from public coffers for too long
and there's sh!tty infrastructure to show for it healthcare,
education, roads, airports etc etc. the ports are great...because
americans can't be denied of their farting bush dolls from china

09:11:49  ME : we need the deflation
nothing else matters
everything else is pouring water into a broken cup
sure, you can point to water in the cup, as
long as you keep pouring
if you think about it - prices should have
come way down as we migrated production to china and the other sweat
shops of the world
replacing $20/hr american workers with
$1/day chinese workers
but they didn’t
:and there was no 'higher corp tax' on
additional income accruing to the offshoring entities, etc

09:14:02  FRIEND 3 10% deflation is bad, 1% deflation wouldn’t
be such a bad thing. saw richard koo speak on tuesday...and he said
japanese dont have a problem with 1% helps them keep
rates low to keep the debt service low!!

09:14:42  ME : if you’re not going to target asset prices
on the way up, how can you on the way down???
thats a ponzi scheme
gov't spending which leads to expanded
manufacturing in china is a loser
another short term dose of heroin
point about juiced corp profits is how
much juice is there left in that trade??

09:16:30  FRIEND 3 : in my mind it all comes back to your core
premise, we need to adjust labour to the right clearing level, either
with the deflation, or rising asset prices without wage rises. this is
how the cost of gas, food, and commodities actually do the job!
standards of living fall

09:16:39  ME : the larger reason why stocks are not where
you want to be in the aggregate capital structure

I'm not a fan of that (standard of living falling)
and that is absolutely a qualitative question
what kind of world do we want to live in?
one with a middle class or without a middle class?
one with political stability or one with
rebellions, potentially revolutions and breakdown in social order?

these are absolutely the questions on the table

the last 3 years is the BEGINNING of the
chicken's coming home to roost!!
30 years of policy impact
printing money, deficit spending, put on
asset prices are just temporary salves with massive long term costs
without addressing those larger questions
and it is the beginning of the end game
so the time is indeed now
productive capacity got built based on
massive distortions from gov't interventions
naturally that productive capacity is not an
actual productive use of capital
supporting that structure is throwing more
good money after good money after good money... after bad
its really not that complicated
making disposable trinkets (to paraphrase
you) at elevated prices to sell to people whose incomes you've taken
away is a very short game
short term boost to profits (making the
differential in labor costs)
but long term actually terrible for the business
so once again businesses have pursued the
suicide option
like an addict taking the kill shot of heroin
09:24:10  ME : the big banks need to be broken up
glass steagall needs to be reimposed
the media concentrations that have been
allowed need to be rolled back
more vigorous anti-trust concepts need to be enforced
massive prosecutions for fraud
actually put some morality back in the system
campaign finance reform - public financing
and the trade agreements need to be torn up,
renegotiated including a mandate to produce according to some total
standard of production environment of the importing country
meaning workplace protections, environmental
protections and something about the standard of living
that is actually the agenda that is in the
best interests of EVERYBODY in the long term


09:28:41  FRIEND 3 : hahah
09:30:58  ME : put that into your piece
09:34:40  FRIEND 3 : you've got some thoughts alright!

09:35:21  ME : dude, finance capitalism failed in 2008
it killed itself
putting humpty dumpty back together again is
disastrous, since it is based (as you casually implicitly assert) on
notions of monetizing the arbitrage potential in the differential in
the standard of living between the United States and historically
fascist police states with proletarian populations
the immorality is staggering

09:37:18  FRIEND 3 : true, but we spent it buying farting bush
dolls...i am suggesting we spend it hiring a (probably chinese)
construction firm to build me a new effing airport and a high speed
rail link to get me there in more china made coach
handbags and farting bush dolls

09:37:25  ME : the betrayal of core american principles is staggering
my blood pressure is through the roof
socialism for the rich and capitalism for
the poor is the mosty immoral world i can even fathom

09:44:15  FRIEND 3 : my sister gave me a copy of it couldnt
happen here a couple years ago....only got half way through, but it's
a real tongue in cheek jab at how nazism couldnt happen in the us

09:44:35  ME : the road to serfdom
by friedrich von hayek
no one over thinks 'it can happen here'
and yet it does
but lets talk about kim kardashian instead!

No comments:

Post a Comment