Friday, June 22, 2012

Things have occurred this week which makes me think we are through the looking glass:

Moody's Investor Service has downgraded the US banks. Moody's announced in February they were going to downgrade the banks, in effect stating their conclusion before they did their analysis. During their "comprehensive review" they missed the JP Morgan debacle thereby putting to rest any claim to actually understand these financial institutions. Leading up to the financial meltdown of 2008, Moody's and Standard & Poor's were selling their ratings for money to Wall Street firms who were slapping their AAA's on absolute junk mortgage bonds. Today Moody's does not have a clue about the financial health of anything and the sound you hear after their latest pronouncements is laughter.

The other day I saw Alan Greenspan on television talking about the US economy. Alan who is vying with Arthur Burns for the title of Worst Fed Chairman Ever, did not understand how the economy was doing when he was privy to all the information at the Fed's disposal. Is the media so desperate for content they have to drag out the former chairman, whose policy decisions would have to rally to get to disastrous? We are still paying the price for his incompetence and will be for another 5 years.

I am sure both Barack Obama and Mitt Romney are smart guys .Mitt Romney's current economic suggestions for the US are a combination of the worst of the previous administration, that lead to the financial meltdown in 2008, combined with all the policy mistakes Europe made post meltdown, which are pushing their economies into recession. The Obama administration seems uncertain about which course they should pursue, one day leaning towards stimulus and the next day flirting with austerity. The voters need better than this. The economy is a serious issue and deserves a serious discussion. 

Tuesday, June 19, 2012

"The best lack all conviction, while the worst
 Are full of passionate intensity." - WB Yeats

This quote neatly summarizes the current state the world. Whether it is politics, investments or economic policies nothing seems to be related to anything else.  Normally an investor can relate various events to other occurrences and draw some rational conclusions about market direction or make an economic forecast. In today's world there are no rational conclusions to be drawn. Historical relationships between investments, patterns, co-relations, etc do not make any sense in today's environment. Buyer beware!  

Europe is approaching their problems like a group of firemen trying to put out a house fire one room at a time. Unless the Europeans admit the whole house is on fire and work on a total solution, there will be no resolution. Today China and Indonesia were telling the Europeans that enough is enough, quit pretending Spain / Greece / Ireland / Portugal etc. are isolated events. 

Wednesday, June 13, 2012

Certain things about the current European situation are obvious. The Spanish banks hold billions of euros worth of bad real estate loans. The Government has arranged for the banks to receive billions of euros of money so people will be confident that they will be able to meet their obligations. Meanwhile the Spanish government pursues austerity measures guaranteed to make the economy (and the bad real estate loans held by the bank) worse. Where do they think this will end? Is there an alternative system of math that allows this to all work out? You can't contract your economy to get out of a recession.

Up next on our European Financial crisis hit parade: Italy followed by France.

There is an article this morning about Morris County NJ. Morris County is an affluent county in an affluent state and the article points out the use of food stamps is up 240% since the start of the recession. Economics is more than just numbers, in this silly season of overheated political rhetoric we should keep in mind that all our political/economic choices affect real people. If we decide to cut state employees we should realize someone just lost their job. This does not mean we shouldn't make these choices but we should be aware of the human cost involved.