Thursday, May 31, 2012

It is the end of May and the world seems headed off an economic cliff. A few months ago I said that I expected one more "safety trade" when all the liquid money in the world would be invested in either US Government bonds or London real estate. I don't know anything about the London real estate market but the US government market is on fire.

Elsewhere, undeterred by either facts or experience;

The Europeans still act like there is a solution the Greek situation,.

US bankers still believe they understand the complex financial instruments they have created and continue to trade.

Investors still think tech stocks must go up and if they don't it merits a congressional investigation

Finally, US Investment Banks are awaiting the latest pronouncement from Moody's about their credit rating. Moody's who missed the recent JP Morgan debacle expects people will still believe they have a clue. I cannot say for certain whether the US Banks are either good or bad, all I know is they are in better shape than a year ago. Consequently if Moody's lowers the ratings they will be admitting they had no idea a year ago about the financial condition of the banks.

Monday, May 14, 2012

Forget the regulatory questions, forget the political fall out, forget the Volcker rule debate, how the hell can the management and board of Directors at JP Morgan allow a trading position at risk to create such a large loss? After 2008 when the effects of unbridled leverage and unchecked risk devastated the worldwide financial system it is beyond irresponsible to do it all over again. Have they learned nothing? It would be better if the two billion loss (and counting) was caused by a rogue trader in Hong Kong. This group was the pride and joy of the bank and had the expressed blessing from top management on down. Stop the madness! Throw the bums out! "Too big to fail", how about" Too Dumb to Let Live"? The bank can absorb the loss relatively easily but that is not the main point, the focus should be on the inability of the people in charge to make intelligent decisions about their business and their company. We are only three and a half years removed from the financial crisis and if you don't understand the lessons of 2008 you should not be allowed near the live ammo.

The corollary to this is once again the regulators, rating agencies and banking authorities had no idea; thereby cementing their place as part of the problem.

Wednesday, May 9, 2012

Things I like about the US Economy;

Recent surveys show CEOs and salespeople are feeling confident about the future,
Tax receipts are higher than anticipated in most states, indicating greater taxable activity in the private sector
Commodity prices are stable to flat
Interest rates are low and will remain low for at least a year

Things we are going to have to learn to live with in the US economy;

Higher than normal unemployment
Sluggish housing and real estate sector
Continual cut back in the public sector both in services provided and employee benefits

Things I worry about (domestic edition);

People running for office or actually in office who advocate the exact same policies that created the 2008 meltdown
Unreasonable belief in what Paul Krugman terms the “confidence fairy” (This is the theory that if we adopt austerity measures that slow our economy, small businesses will run out and hire people)
Moody’s Investor Service in an attempt to make people forget their incompetence and contribution to the financial crises will do something really stupid even for them. (downgrade everyone and everybody just to keep their name in the news)

Things I worry about (international edition)

Nothing has been done about the euro situation.
Everybody is in agreement about the solution to the Greek crisis except the Greeks
The political reaction to the bad choices the European and English authorities made when faced with stimulus / austerity options two years ago