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Thursday, April 26, 2007



the fed has spilled a shockingly huge sum into the markets this week by the reporting of the wall street examiner, driving asset prices higher today. speculation is circulating on what event the fed might be trying to inject liquidity to counteract -- bad economic data (possibly housing), large lender trouble (possibly housing-related), plans for a foreign central bank to back off dollar purchases or a hedge fund in dire straits.

the fed created over $30bn this morning, which directly fed a rally in equity markets which have been showing some signs of narrowing participation. and this comes on the heels of nearly $90bn in treasury debt paydowns following april 15, putting a surge of dollars into the market which the fed had actually been mildly counteracting until today. no wonder the markets have headed higher and the dollar has broken to new lows!

but it should be noted that the repo expires may 3, with an unprecedented $45bn maturing. whatever the event is, lee adler presumes it will break before thursday next -- and it should rattle investors.

UPDATE: followup from lee adler:

Oddly, the Fed reversed most of yesterday’s add today by shorting the 14 day rollover and doing a rare reverse repo on top of that. My guess is that they realized it was overkill with the way the market skied. But they left Monday’s 5 day forward, 3 day $18 billion repo in place. I suspect that this is a pre-emptive strike against what is likely to be a surprising bad GDP release tomorrow.

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Tuesday, April 10, 2007


is it time to short china?

from mike panzner via big picture:

one of my most vivid memories from the nasdaq bubble was the frequent overlaying of the composite price pattern with the japanese nikkei leading up to the 1989 disaster and the gold mania that peaked in 1987. markets prices are fractal systems driven by repeating patterns, and there is a pattern here that should command global attention. this page has made previous mention of the raging chinese asset bubble, and already warning shots have been fired across the bow. this pattern in combination with anecdotal evidence of bizarre and rampant consumer speculation may very well mean that it's high time to get out.

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a momentary reprieve?

from calculated risk on the march jobs report:

Overall this is a solid report. With the revisions to prior months, the economy has added 152K net jobs per month for the last three months. The expected job losses in residential construction employment still haven't happened, and any spillover to retail isn't apparent yet. With housing starts off over 30%, and residential construction employment off less than 4%, I expect the rate of residential construction job losses to increase over the next few months.

the number apparently has some confirming depth as well. housing is continuing to crash and construction employment will go with it, but the retail jobs picture is a bright spot, as least in this singular data tick. one can make the argument that retail is unimpressive or even flat, and that it is a lagging indicator, or even that the data has been fabricated -- but consumer-led recession is going to see outright weakness here, and there is none apparent just now.

however, those criticisms are still valid -- employment growth rate is decelerating just as corporate profits and capital expenditures are decelerating. and employment is lagging, as noted by deutshe bank (via econobrowser):

"Labor is last to go. Weakening profits against the backdrop of rapidly decelerating capex will eventually hurt hiring because profit margins will come under pressure. This is what happens in every cycle, only the timing and size of the adjustments vary. In the late 1990s, it took several years before slowing profits led to slowing employment, because capex remained strong as many companies imprudently over-expanded their capital infrastructure, e.g. telecom. When capex peaked in Q4 2000, it did not take long for the unemployment rate to rise and for payrolls to decline. The former began rising in Q1 2001 (from only 3.9%), while payrolls turned negative the following quarter. At that point the economy was already in trouble, forcing the Fed to ease aggressively. Often the labor market is the last sector to falter, and if the Fed waits to see this before acting, downward momentum could be substantial at that point."

mainstream outlets have seized on the report as evidence of clear sailing ahead, but this is more problematic a prediction at this point than usually. the recency effect noted by big picture should not cloud the fact that conditions are worsening -- noting particularly continuing contraction in manufacturing and the first loss of payrolls in professional services.

the joy with which the march non-farm payroll report has been broadcast adds some credence to bill cara's notion that this is a final leg in the markets -- one in which big players are getting their ducks in a row before finally allowing the bull to expire -- as one of the ways in which they can do so is to use their media force to ram positivity into the unsophisticated investor pool, sending them into buy what the major houses are trying to offload.

i was particularly amazed to tune into cnbc this morning -- that most obscene of all the wall street trumpets -- to check the premarket futures, only to be assailed by an ubiquitous "time to buy" animated graphic, followed by an interview with real estate shill david lereah. (in this clip, ken heebner must disappoint cnbc something furious, essentially telling the audience that both housing and the economy in the united states will continue to struggle.) if the humongous banks and brokers have turned to something so transparent, i would wager that they are deeply concerned.

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Monday, April 09, 2007


richard lindzen

newsweek ran in this issue an overview of global warming with a contribution from richard lindzen.

this writer, for one, refuses to recycle. the stuff heads to a landfill regardless. someone has to come up with a viable and profitable use for my empty diet coke bottles before it makes any sense. and the landfill of today is the mine of tomorrow. what ends up recycled out of my household is the doing of my very tired wife.

but that doesn't make lindzen right. his m.o. has as much or more to do with being a contrarian than with positive science -- he has called the association between smoking and lung cancer "weak", for example, and smokes avidly as if to agitate the point. one can respect that -- i love nothing if not running against the grain in search of wisdom -- but one has to take his views with that knowledge. he's never posited an idea of where climate change is going, though he acknowledges it exists. he serves only as a critic.

as a well-known critic, he's obviously right about some things. it's easy to criticize the models climatologists use, which (as i've long said) have more in common with a tennis ball on a string than the earth. and there's no refuting statements like

Looking back on the earth's climate history, it's apparent that there's no such thing as an optimal temperature—a climate at which everything is just right.


There is no evidence, for instance, that extreme weather events are increasing in any systematic way

and it's maybe even plausible to say

Overall, the risk of sea-level rise from global warming is less at almost any given location than that from other causes, such as tectonic motions of the earth's surface.

and this writer for one think american notions of ethanol from corn -- a net energy-comsuming, not -producing, process -- are utterly ridiculous and little more than politically convenient. (make ethanol from sugar or not at all -- right now it's the only sensible way.)

but none of that is proof against the potentiality of manmade climate change. moreover, statements like this

A warmer climate could prove to be more beneficial than the one we have now.

invite accusations of bias and complacency. the world we live in is arranged to our sea level; our cities are located on shores, and billions of people live in flood plains. to ignore this is folly -- sea level rises of the kind discussed by the ipcc would be devastating in many highly populated world centers. it might be just jolly for ivory-tower mit meteorologists and siberian farmers, but for 200 million bangladeshis it will be the initiation of a volkerwanderung that will send asia into decades of political turmoil similar in nature to the palestinian problem.

and such potentialities are not implausible. indeed, while one can suppose that the ipcc is exaggerating the threat of global warming as lindzen does, that there are feeback mechanisms that tend to keep climate in a steady state, there is also the possibility that there are significant feedback mechanisms that facilitate rapid state changes -- and there is no knowing whether we are close to one or not. the history of the earth is one of specatacular climate variation; the complex system clearly does lurch between radically different states.

here is the great fault of the climate change skeptics (including lindzen): an ignorance of tail risk. could things turn out just fine? sure. but that really isn't the material question. it is instead: what if they don't? do we need insurance?

this is the issue, imo -- one must appreciate that the implications of global warming are quite probably civilization-ending, particularly for the ossified west. even if there is just a 10% chance -- a probability that lindzen would have to permit -- that the ipcc reports are right, we should reasonably undertake to manage the climate as best we can.

we all purchase health insurance as young people on the tail risk of ending up needing a liver transplant or something, the odds of which are miniscule. why does any young person buy health insurance? or homeowners insurance? or car insurance? after all, 95% of us spend more on it than we will ever get out of it. the answer is because of the affordable cost and the looming threat of tail risk.

people like lindzen are arguing -- in exactly the fashion that he does with smoking -- that as things are we probably aren't going to get sick, therefore we don't need health insurance.

that betrays something very dark about what lindzen and people like him represent, imo -- there is a recklessness and death drive about the viewpoint that calls into question the commitment to civility of the people espousing it.

for the rest of us, the economist estimates that taking such steps would have an implementation cost of about 1% of global gdp. that is a trivial amount to pay for what is probably civilizational life insurance.

so why aren't we fighting to pay it? largely because western governments are slaves to commerce. the problem isn't moral, scientific, technological or economic -- it is political, and yet another symptom of the ossification.

it seems to me that the only valid counterargument -- which is one i don't hear anyone make -- is that our engineering the environment even in just an effort to reverse changes we think we've made may increase the tail risk or the risk profile generally because we don't know what the hell we're doing and probably cannot know. we presume that reversing our inputs means a reversion to the previous state or something like it, but in a complex system that is far from assured. this is a genuinely grave concern -- but continuing the industrial stimulus seems to me more likely to produce a state change than eliminating it.

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Friday, April 06, 2007


fcb purchases resurgent

the levitation of capital markets in the face of what appears ever more ominous economic data has been mystifying for many skeptical observers. news that could easily have forced a selloff has been ignored. why?

in short, foreign central bank purchasing -- as noted by both russ winter and lee adler.


The week’s foreign central bank numbers were an absolute stunner, most certainly a record as they bought $20.8 billion in Old Maid Card securities. I suspected as much when I saw the markets ignore awful news this week. This time it was heavily skewed towards Treasuries, $18.8 billion worth, a record. It’s completely out of the hands of the Fed at this stage, with the shots on monetary policy being conducted exclusively by corrupt clerks in Toyko, Beijing and Dubai.

and adler, who has been monitoring the fed as it has sopped several billion in liquidity out of the market through the fomc this week:

I wrote yesterday that the source of the liquidity was probably a renewal of the foreign central bank (FCB) buying binge. Sure enough, the numbers out last night, while not a record, were huge. FCBs continue to massively subsidize US financial markets.

The FCB indicator published in the Wall Street Examiner Professional Edition suggests that this is a major inflection point. It is either the end of a multi month buying binge, second only to the one from August 2003 to January 2004, or it is a platform for a surge to even greater extremes.

My guess is that it’s the former, but we’ll get a signal one way or the other over the next month or so. The chart and a more complete analysis will be posted in the next WSE Pro Fed report on Monday.

one should note that these price-insensitive forces -- trade-surplus-laden asian central banks, petrodollar recyclers, corporate buyback schemes -- continue to drive the markets in contravention to economic data. one suspects that in many incarnations past, stocks would have sold off much harder by now, given the outlook.

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Thursday, April 05, 2007


the most frightening youtube of all time

the reality of what has happened in housing was never made more apparent than by this -- from speculative bubble.

furthering the point, robert shiller has published a commentary on housing.


Wednesday, April 04, 2007


the decay of aipac

salon's gary kamiya has run a briliant humanizing piece on the plight and politics of judaism in an america where a far-right-wing aipac purports to represent them -- and expressing hope for a future in which that brutal and misshapen political lobby is a spent force, dissipated at the hands of both sensible israelis and mainstream american jews.

The touchiest aspect of all is the role played by pro-Israel neoconservatives in laying the groundwork for the Iraq war. Much of the media has been loath to go near this, for obvious and in some ways honorable reasons: It feels a little like "blame the Jews." But that taboo has faded as it has become clearer that "the Jews" are not the ones being blamed for helping pave the way to war, but a group of powerful neoconservatives, some but not all of them Jewish, who subscribe to the hard-right views of Israel's Likud Party. This group no more represents "the Jews" than the Shining Path represents "the Peruvians."

Logic and forthrightness has traditionally taken a back seat to timorous self-censorship when it comes to discussing these matters. But in addition to the war debate, several other watershed events have helped erode the taboo against discussing the power of the Israel lobby. The most important were the publications of John Mearsheimer and Stephen Walt's "The Israel Lobby," and Jimmy Carter's "Palestine: Peace Not Apartheid." The overwrought reaction to Mearsheimer and Walt's piece, ironically, only supported its thesis. Similarly, the opprobrium heaped on Carter only succeeded in making it clear how little room there is for open discussion of these issues in America.

For all these reasons, a powerful spotlight has been turned on the pro-Israel lobby. And there are signs that increasing numbers of Americans, Jews and non-Jews alike, are willing to openly question whether it is in America's national interest for AIPAC, whose positions are well to the right of those held by most American Jews, to wield such disproportionate power over America's Mideast policies.

As a group, American Jews continue to be staunchly liberal. A new poll shows that 77 percent of American Jews now think that the Iraq war was a mistake, compared with 52 percent of all Americans. (Jewish support for the war has collapsed: A poll taken a month before the war showed that 56 percent of Jews supported it, somewhat below the national average at that time.) Eighty-seven percent of Jews voted Democratic in 2006. And although data here is murkier, polls also show that most American Jews hold views on the Israeli-Palestinian conflict that are to the left of AIPAC's.

What all this adds up to is that for liberal or moderate American Jews who don't support Bush's war in Iraq or his "war on terror" and who are willing to look at Israel warts and all, the fact that AIPAC has anointed itself as the de facto spokesmen for American Jews is becoming more and more unacceptable. And increasing numbers of them are beginning to speak out.

with the approach of the espionage trial of aipac director steven rosen, now slated for june in the most recent development of the long-running fbi investigation of aipac, one hopes that public awareness of what aipac is will rise -- and what remains of the civilized people of our society can, with the help of people like philip weiss, uri blau, marc ellis, paul eisen and milton viorst, publications like haaretz and organizations like the israel policy forum, at least mitigate the militant extremism of likud. this page has said before -- there is an israeli left, and to continue to ignore it in favor of this destructive insanity is debilitating to both america and israel (not to mention palestine and both the west and middle east generally).

How long AIPAC will hold sway depends on how long it can convince politicians that it speaks for American Jews. It doesn't, but only American Jews can prove that. American politicians are not going to stop paying homage to AIPAC until there's an alternative -- and only Jews can provide it.

resentment of aipac in congress is almost surely beneath the surface and seeking an outlet. let us hope it finds one.

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