ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Thursday, May 29, 2008


might be time to double back on the bounce

it's been some five months since january 22/23, and a very good time to be long the market as it put in a double bottom from a march 17 retest. the NDX has moved from 1687 to 2019, a 20% move.

but the rally has stalled and participation is narrowing in the NDX. cumulative net points and volume are lagging on the upleg of this week from the same levels of ten days ago -- so is percent issues tading over moving averages (10, 30, 150 all). mcclellan oscillator has putting in lower peaks since may 1, and the index has seen (may 7 and 21) two 90% downside days. 65-day and 20-day new highs are lagging form may 2; new low expansion isn't pronounced in teh 65-day window, but is in the 20-day. cumulative 20d NH-NL is not looking healthy. volatility envelopes (sensitive and ordinary) have been in declining peaks since may 2.

i've already been short the financials (SKF) for some time, at a small profit.



commodity shakeout coming

per the bank credit analyst:

Our global Leading Economic Indicator (LEI) is signaling that some contagion from the U.S. slowdown is spreading beyond the G7 countries, which could finally trigger a shakeout in commodity prices.

A slowing in non-G7 economic growth at a time when the U.S. is still weak could be the catalyst for the long overdue correction in commodity prices. We would hold back from putting fresh funds to work until overbought conditions and sentiment ease.

some economic catalysis to follow on my earlier post.

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Wednesday, May 28, 2008


more leaks regarding a forthcoming american attack on iran

via yves smith, the asia times.

The George W Bush administration plans to launch an air strike against Iran within the next two months, an informed source tells Asia Times Online, echoing other reports that have surfaced in the media in the United States recently.

Two key US senators briefed on the attack planned to go public with their opposition to the move, according to the source, but their projected New York Times op-ed piece has yet to appear.

these follow earlier reports, cited here through the jerusalem post, which were themselves preceded by a palpable intensification of the demonization of iran for the faults in the invasion and occupation of iraq which are, in fact, the responsibility of the united states and the clinically incompetent bush administration alone and absolutely as it chose to incur the determined opposition of the most critical elements of iraqi society (as cogently narrated in the asia times earlier this month with an honesty that would never see the pages of a properly patriotic american paper, including an articulation of how the american-backed forces -- frequently euphemized as the iraqi army in the american press -- have actively suppressed popular will and electoral outcomes with military violence in an effort to maintain the puppet government headed by nuri al-malaki). it is a delusion of convenience that fools no one in the region even if it dupes mainstream americans. as i then said:

strategically, the united states is left having upset the balance of power in the mideast by overturning the iraqi applecart, handing iran a regionally dominant position by empowering iraqi shi'ites, some sympathetic to iran. contrived efforts to now rebalance the situation by weakening iran are not going to be materially aided by a few airstrikes. it would take the construction of a durable american client state in iraq. this is no small undertaking, and it isn't kind generally to shia empowerment -- there's a reason some select sunnis have so consistently been installed by europeans atop the power structures of states carved from the former ottoman empire along the persian borderlands. this dissonance of american goals -- the utopian desire for decentralization and democratization on the one hand, the realistic need of a client state to preserve regional order in favor of america on the other -- is likely to be expressed in frustrated fits, the physcial manifestation of which is an airstrike, in lieu of anything like a real solution.

it seems my pessimism of six months ago was justified. the cheney court as described by james galbraith appears to be carrying the day for resource warfare once again, leading to another frustrated fit of predation and yet more unease among america's would-be allies over both american intentions and sensibility.

UPDATE: more via nouriel roubini and former german foreign minister joschka fischer -- they feel an israeli attack has been greenlighted by the bush administration.

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"ridiculous and frequently mistaken meditations on the capricious nature of life, usually in lower case" indeed.

Check out Kazimi for a picture of what's really going on on that part of the world:

Cheers and allbest!

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the difficulty i have with kazimi is seen well here, tom.

Dismissing Arabs as a nation culturally and historically incapable of adopting democracy is just plain racist. But it is a bigotry that is not only tolerated in leftist circles but rather openly and proudly displayed because it stands in opposition to George Bush’s vision for the Middle East. So much for the honesty and solidarity of liberalism.

i'm no defender of cnn. but this is plainly twisting blitzer's argument to imply something that nowhere exists in the text. this sort of 'analysis' is a simple extension of the kind of shoutfests that cnn (among many others) only to happily runs. it is useless.

kazimi is normally not relaying anything like truth, nor does he seem to have much interest in doing so. he is relaying political spin -- in literally every post. indeed, the ease with which he adopts the caricatured western meme of 'liberal'/'conservative' polarization is a dead giveaway. were it not, this is a man who is payrolled at the hudson institute, which is politically slightly to the right of hitler's burnt corpse. :)

it's no recommendation of mainstream news or any other blogger or viewpoint -- and it isn't as though he never has anything interesting to say. but if you want to know something about iraq or the mideast, kazimi is the last kind of person one should listen to. any critical reader should easily see what he is. the popularity of his commentary is a model disaster along the lines of so many others re: the death of the gatekeeper. his job is to sell a neoconservative point of view, and those who take him at face value are only fooling themselves.

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the predator state

via mark thoma, a new addition to the reading list.

This is political economy at its best, ...deserving of status as a classic.

The general theses can be simply stated. First, while conservatives toyed with laissez-faire, they quickly abandoned it in all important areas of policy-making. For them, it now serves as nothing more than an enabling myth, used to hide the true nature of our world. Ironically, only the progressive still takes the call for “market solutions” seriously, and this is the major barrier to formulating sensible policy. Second, the “industrial state” has been replaced by a predator state, a coalition of relentless opponents of the very idea of a “public interest”, whose purpose is to master the state structure in order to empower a high plutocracy with nothing more than vile and rapacious goals. Finally, the “corporate republic” created by the likes of Dick Cheney is highly unstable, a formula for national failure. Progressives must wrest control from the reactionaries before it is too late for restoration of America as the world’s financial anchor, technological leader, and promoter of collective security.

yes, yes and yes.

a serious work of political economy that attacks intelligently along paths so worn by the bilious trench warfare of television news "analysis" and "discourse" would be welcome, if only to restore real argument to its rightful place where shallow hyperbole and shouted invective have pathetically come to dominate the postmodern public debate.

but one that transcends the ridiculous archetypes that somehow hold up someone like larry kudlow as either a "conservative" or a proponent of free markets is beyond welcome -- it is a necessary and long overdue restating of the terms of the debate, one which frames the current generation of american conservatives in the most honest light possible: that of a new fascism which (very like the old) seeks to subordinate state power to concentrated interests and minimize or eradicate the dissent and change that makes management difficult but is nonetheless the lifeblood of a healthily functioning civil society.

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Tuesday, May 27, 2008


the last days of an oil boom?

john mauldin, via minyanville, examines the commodities boom with a special eye on oil -- and concludes:

For a few weeks now, observers have noticed that Iran is leasing tankers and storing oil in them.

...India's refiners are telling Iran they no longer want their oil, preferring the higher-quality stuff that's readily available in the area. So Iran has to decide whether to send it to China or "repackage" it so that it can end up in the US, while they try to get refiners in India to change their minds. Thus, they're leasing tankers to store the oil they're pumping.

I called George at about six this evening and asked him about the Iranian situation, as that is a lot of oil that could come on the market at some point, as well as a possible reason that oil supplies are down. George has analysts on top of this situation.

He told me, "John, it's more interesting than that. It is not just Iran. Today we started checking on how many tankers Iran had, and soon discovered that there is a serious tanker shortage. Lease prices have soared in the past few weeks. It is clear there are a lot of speculators betting that oil is going to rise to $150 or so and are willing to pay very high prices for keeping the oil on the seas waiting for higher prices. It is a speculative boom."

He then told me about flying into New York in the early '80s. Outside the harbor were 30 or so tankers just sitting, waiting for prices to continue to increase as they had been doing for some time. When they did not, they all tried to get into the harbor at the same time, and of course they couldn't. It was the top of the market. Prices dropped, and the owners of the oil had to go to the futures market to hedge what they could. I had heard that story, but George saw it with his own eyes.

Almost everyone (except the stock market) is convinced oil is going higher in the near term. As I noted above, this week's rally was partially due to short covering by large institutions and companies which had sold production far into the future at much lower prices. They finally threw in the towel and took off their hedges.

... Oil is the biggest component of the commodity index funds. If oil drops and looks likely to go lower, then the massive buying of these funds we have seen in the past few months could dry up. As Dennis Gartman says, it takes a lot of buying to make the price of something go up, but it only takes a lack of buying to make it go down. And if there's net selling?

... Let me say that I believe the long-term price of oil is going much higher. ... As for today, if I was in a long-only commodity index fund, unless my time horizon was very long I would be watching it closely and have some close stops. And I might wait until I saw what the price of oil was going to do. If you have some profits, then you might want to think about taking some off the table. Just a thought.

what's interesting to note about commodities is that many peaked back in february and march of this year -- take a look at this chart collage. wheat, corn, cotton (TT), lean hogs, lean cattle, gold and aluminum -- none has been particularly productive as an investment over the last few months. the exception? CL -- light crude.

if there is a speculative bubble ready to burst over oil, the product of some alliance of institutional investing and hedge fund positioning, there won't be much to support notions of a problem with inflation in the western world. as the economist noted, the emerging world is a different story.) indeed, deflation -- the underlying current of credit destruction now afoot, rendering funding scarce and driving down both the supply of and demand for dollar-denominated credit -- would suddenly (shockingly, for many) take the stage.

UPDATE: more from yves smith, relaying the analysis of john dizard:

This is not to say, in my view, and of others, that today's oil prices reflect the economics of marginal supply and demand. There are people out there who have bought physical oil and stored it so as to sell it in the future. But the real commodities buying frenzy has been defensive buying by consumers, government stockpilers, and processors trying to protect themselves from the adverse effects of future price increases.

Eugen Weinberg, a commodities specialist with Commerzbank, who thinks we are in the late stages of a bubble, says: "At the moment we have big inventories worldwide, about 3.5bn barrels in the OECD countries, which does not include China. That is enough so that if Saudi Arabia stopped exporting, the world could run at its present level of demand for a year and a half with no increases in production from other countries."

UPDATE: steve waldman on "limits to arbitrage" and who has the capacity to keep prices elevated in commodities markets.

People with access to the physical commodity could profit from more than the ordinary arbitrage. At every roll, they have the entire community of "index speculators" over a barrel. Shorts are under no obligation to let speculators close out their positions at inflated "market prices", or even estimated "fundamental values". They can force longs to accept prices that overshoot downward, exacting a price for release from obligations that paper speculators are incapable of fulfilling, the obligation to accept delivery. If you think Masters is right, you have to explain why, year after year, those taking the short side have been willing close their positions at a loss rather than forcing more deliveries. Why haven't shorts entered the market who are capable of calling index speculators' bluff?

Hmm. Let's turn once again to Smith:

Remember, you can arbitrage futures to physical only if you are permitted to do so (only certain traders, known to have access to the storage and transport, are allowed to take or make physical delivery) and can actually obtain the relevant commodity.

So, there are potentially barriers to entry for bluff-callers. So, who are these "certain traders" permitted to make delivery? I don't know, but one would imagine that commodity producers would be prominent among them. So, for the conspiracy-minded among you, here's a theory: Producers' core asset is not the stock of goods they have for sale today, but their potential to produce and sell a stream of commodity out into the indefinite future. It might be worth it for producers to bear an opportunity cost by not exploiting futures trades aggressively — that is by letting specs close positions at artificially bid-up prices — in order to inflate the apparent value of their enterprises, especially when producers intend to borrow funds, sell equity, or make stock-based acquisitions. Managers whose compensation is equity-linked might be particularly enthusiastic. Depending on how numerous and competitive the community of enterprises capable of physical delivery on prominent contracts, there might be a tacit cartel on the producer side, accommodating speculative futures prices, while managing spot supply so that cash market prices (which are less consistent and transparent than futures prices) are not outrageously out of line with futures market benchmarks.

the truth is that commodities DO boom and bust -- they always have. it may be important to argue about the mechanism, as waldman here does and cogently, but not as important as simply realizing that -- because it has happened -- there IS a mechanism. and that one is in a speculative bubble is NEVER simply as obvious as looking for invenory buildups, for if it were so easy there would never be a speculative boom in the first place.

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sticky prices no more

s&p/case shiller are out with their 1q2008 figures. via calculated risk:

The index fell to 159.18 in Q1 2008, from 170.62 in Q4. A decline of 6.7%, or almost 30% at an annual rate.

This is the lowest level for the index since Q3 2004.

Prices fell 14.1% over the last four quarters according to Case-Shiller.

The index is off 16.2% from the peak.

these are stunning numbers even for the desensitized. declines are quickening even as annual cyclical pressure should be boosting buying pressure.

in the shorter term, the 3-month annualized data (pink line) show that prices tend to rise seasonally, exhibiting their most positive behavior between march and may. but, following may into november, one starts to see seasonal discounting take over through the autumn, usually often bottoming in december.

so what happenes when that cyclical pressure turns against prices? or, with other factors so dominating house price movements, will it even be noticed? i tend to think it will -- turning bad into worse.

with the potential and indeed probability pointing toward even steeper declines in the coming quarters, this slump has undeniably become the exemplar of depression housing and is challenging long-held assumptions about the market for homes as a commenter at calculated risk noted:

Looks like we may have to revisit the idea of house prices being sticky in certain environments.

My sense is that the huge glut combined with mass foreclosures is pushing down prices quite rapidly.

So the situation may be fundamentally different from past downturns or situations like the Japanese downturn where lack of buildable space (I'm assuming) and high savings helped drag out the downturn.

and another:

In the face of data like this coming out of leader areas like San Diego I've been predicting that house prices will NOT be sticky since late last year. We're going to see a crash, with no historical precedent even in the Great Depression, with house prices reaching rent equivalence within a year. The extreme leverage of the past few years has changed the housing market profoundly, both on the way up (as we saw) and now on the way down (as we're starting to see).

stunningly, optimistic spin is still to be seen. yet another incredible report on new home sales -- one so bad that few would have believed it possible just a couple years ago -- is met with a headline like "Home sales post unexpected April increase". the irrational optimism of bubbles dies hard in busts, and following the largest and wildest bubbles it only dies once the horsemen of an unanticipated apocalypse have laid waste to the scene repeatedly such that no brick stands atop another. apparently we are not there yet, though at least new home inventory is finally downtrending -- a necessary condition for anything like a floor to be put in on prices eventually.

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chinese financial instability

via naked capitalism.

Michael Pettis gives us a very thorough report on the stunning and mystifying report from China that its FX reserves increased by $75.4 billion in the month of April alone. To put this in context, China already has the world's largest foreign exchange reserves, and unbelievably, the pace of its growth in FX reserves is accelerating. FX reserves grew $247 billion in 2006, and then the addition almost doubled in 2007 to $462 billion. And now the growth in April is nearly half the growth of the first three months of the year.

Pettis is quietly horrified. The increase is well out of proportion to changes in China's trade surplus. It appears to be in large part due to hot money inflows (from where, one might ask. The Middle East? Japan? Those seem to be the only places with large enough surpluses of their own to throw around). Dani Rodrik, Ken Rogoff, and Carmen Reinhart have all argued that high levels of international funds flows are correlated with financial instability. This announcement does not bode well for markets getting back on an even keel.

with food riots, a property crash and a stock market crash all underway, these massive hot money flows are grist for the mill of speculation regarding an incipient unstable deflationary shock in china, following hot on the heels of a massive inflationary boom that has birthed a different kind of shadow banking system within china -- one which has made a feature section of the economist this week that may soon be regarded as a magazine cover indicator. says pettis:

We have reached what I believe is the end stage of this trap in which the monetary system is forced to adjust through appreciation and inflation. The problem is that in such a case there is a huge risk that hot money inflows destabilize the adjustment process, and this seems to be exactly what is happening. Instead of reducing foreign exchange inflows, the appreciation of the RMB is causing massive hot money inflows (which is not at all surprising, but it has been made much worse by China’s bad luck of having to adjust in the middle of the sub-prime crisis) and so the adjustment must be much more dramatic and much more painful. No matter how quickly China tries to reduce monetary expansion by appreciating the currency, in other words, monetary expansion grows even faster.

pettis himself discourses at length, in the context of reinhart and rogoff's recent work, upon the likelihood of a financial crisis in china. his conclusion:

As good as the R/R paper is there are, inevitably, some things I would have liked to see discussed more. For example there has not been much discussion in the R/R paper about the role of contingent liabilities in sovereign crises. As a very interesting book published last March by the IADB (Living with Debt) notes repeatedly, very often the debt that “caused” the financial crisis was not the long-term accumulation of fiscal deficits but rather the very sudden emergence or conversion of contingent liabilities. These contingent liabilities suddenly exploded – for a variety of reasons – and were generally structured in ways that exacerbated both the previous good conditions and the current bad conditions.

The two most common forms of this have been the explosion in the relative value of debt denominated in foreign currency, following a currency crisis, and the explosion in contingent liabilities through a collapsing banking system. In my opinion these have been two of the most common causes of “unexpected” financial crisis, and it is worth considering any country’s, including China’s, risk of either event occurrence.

China, of course, is in little risk of seeing the former happen. With less than $400 billion of external debt and close to $2 trillion of foreign currency reserves, China is at no risk of a recurrence of the 1997 Asian crisis. The real threat for China is in the second set of contingent risks, that of an explosion of liabilities arising though the banking system. I am obviously not the first person to point this out – China’s massive loan growth and its stubbornly high NPL ratio in spite of what can only be described as a dream time for bankers suggests at the least that in a sharp downturn there is a very real risk of a surge in NPLs.

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REO goes jumbo

via housing wire:

we enlisted the help of Denver-based Integrated Asset Services LLC, a 230-person company that handles asset disposition nationwide for many of the nation’s largest financial institutions. The folks at IAS dug into their national database of sold REO properties and pulled together for Housing Wire an exclusive look at REO sales by state where the sales price was recorded above the $417,000 limit (most REO properties are listed and sold at prices well below this level).

What the numbers show is clear evidence that the foreclosure mess — and, by extension, the build-up of REO — is clearly moving up the real estate food chain.

this dovetails neatly with expectations and early evidence that defaults are rapidly expanding from subprime into alt-a and prime mortgages, where underwriting standards were little better than in subprime during the height of the boom.

commentary of this kind is not only in wapo but on the cover of barron's this week.

numbers of actual jumbo REO sales are still small and concentrated (if expanding) geographically:

In April of 2007, for example, just 27 REO properties above the traditional conforming limit were sold nationwide; in April 2008, that number had mushroomed to an astonishing 173 properties. (We should note that these numbers refer to REOs actually sold during the month, and don’t include the countless many more properties still sitting — unsold — in inventory.)

And it’s not the just number of jumbo-priced properties that are swelling in REO, either; expansion is taking place geographically, as well. Last April, 11 states recorded at least one REO property sale above the conforming limit; in April of 2008, that count had reached twenty states. The lion’s share, not surprisingly, were in California — the Golden State, hit hard by the market downturn, saw 102 REOs sell for more than $417,000 during April, compared to just 13 such sales in April 2007.

but that is going to change.

“We’re just now seeing Alt-A and prime delinquencies begin their climb,” said one source, an MBS analyst who asked not to be named. “That means a whole lot of deluxe REO is on its way.”

paul jackson points out the important caveat for people (like myself) who have got out of the housing market during the boom to rent with the expectation of picking over the carcass of housing during the bust.

For lenders, a growing glut of high-end REO can particularly problematic, according to IAS CEO David McCarthy.

“The carry cost is so much greater,” he said. Carry cost typically refers to the amount of money needed to “carry” an asset on the lender’s books, and includes accrued taxes, property maintenance, and the like; traditional cost of carry can run roughly 2.5 percent of a property’s value.

The result, McCarthy said, is that many servicers and their investors are placing extra attention on the valuation of higher-end properties, in an effort to make sure that they can sell more quickly and keep loss severity as low as possible.

“I think many are taking a closer look at the prices they get, and are spending more time to estimate value” in those markets that have been hit the hardest, McCarthy suggested.

In part, the push to ensure accurate valuation is a reflection of the carrying cost and the desire to limit loss; it’s also a reflection of the fact that more consumers are now looking at REOs as a potential investment, given the higher price points involved.

with banks likely to overmanage this end of their REO portfolio, it will likely pay to wait for the flood to begin. at this point, as the post implies, there are too many quick-trigger investors and not enough deluxe REO. the attention being paid to the situation in barron's and wapo is testament to the lack of fear in this setup.

it's likely not until the first wave of deluxe REO speculators jump in and have their capital position destroyed by secondary waves of supply and further price collapses that honest-to-god panic will set in on the part of banks and investors alike.

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Friday, May 23, 2008


existing home sales dismal yet again

via calculated risk:

Months of supply increased sharply to 11.2 months. This follows the highest year end months of supply since 1982 (the all time record of 11.5 months of supply). Inventory is the story in this report.

it looks very much to me that pressure on house prices, rather than abating, is continuing to build along with unsold supply.

looking at the local reporting provided by housingtracker, inventory is approaching its sample high at over 67,000 units, short of the 70,784 from july of last year. but one would expect seasonal inventory growth to push overall listings to a new record high in the next couple months.

it is worth noting, however, that the year-on-year change in inventory growth has slowed into the low single digits from what had been explosive expansion last year. lower prices do seem to be gradually balancing new listings with sales; the question is how this is being done.

sales have been weaker and weaker with each passing month, so one can rule out the idea that sales are starting to pick up. instead, it must be the rate of new listings for sale that are declining.

this would be more understandable in new homes, as we've already seen starts and completions crashing down to meet sales and bringing actual reductions in new home inventory recently (although remaining at a very high level). but in existing homes, no one is building. rather, it would seem that potential sellers are either deciding not to sell (perhaps in hopes of waiting for a better market?) or are taking their house to market outside the realtor community (including perhaps through a foreclosing bank -- chicago is one of the nation's foreclosure capitals).

the effect on prices is clear -- the downward trend is still slowly accelerating. i look at 75th percentile prices as that's what affects me personally, and that measure has fallen from a peak of $455,540 in may 2006 to $426,633, some (-6.3%) (red line). the 12-month rate of change (blue line) is at a new sample low, (-5.0%), demonstrating a stengthening trend. 50th and 25th percentile figures are in yet stronger downtrends, indicating the expected skew.

even if inventory levels off or begins to decline, as noted previously, such turning points typically lead a bottom in prices by 8 to 12 quarters. through 3q2007 per housingtracker, price-to-income ratios in chicagoland remained over 4; and with the advent of recession, incomes are likely to fall. price-to-rent ratios similarly show a very significant negative carry for homeownership remains to be corrected. in short, any notion that house prices are set to stabilize soon looks to be like absolute hogwash. more likely, years of price declines remain.

in the shorter term, the 3-month annualized data (pink line) show that prices tend to rise seasonally, exhibiting their most positive behavior between march and may. but, following may into november, one starts to see seasonal discounting take over through the autumn, usually often bottoming in december. the 75th percentile properties tend to be early in this discounting process, perhaps reflecting a greater market awareness and flexibility in higher-bracket homesellers. that period of discounting lies just in front of us now. it figures to be a frightening period, promising some very disappointing pricing reports. i would not be surprised to see overall chicagoland prices fall by as much as (-10%) in the next six months alone with six-month annualized rates (yellow line) approaching (-20%), and 75th percentile prices perhaps reaching six-month annualized rates of decline of (-15%).

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renters are good people too

via naked capitalism -- as a renter of a home in an established-ownership neighborhood, i can't help but agree. can i say that it galls me, as i'm planting hostas, yews and rosebushes to improve the landscaping at my own expense, to see neighbors who can't manage to mow their lawn once a week -- or even clean up the dog toys? these vaunted owners can't find a way to pick up the trash in their yard, and i'm supposed to be the one driving down property values with my antisocial behavior?

clearly, it's a canard. i tend to agree with yves smith:

People are house-proud whether they own or rent. Yes, a renter will focus his expenditures on things he will take with him, but people who are slovenly will live in a slovenly fashion whether they own or rent.


Wednesday, May 21, 2008


positive news from the mideast

first, a long-rumored positive development in levantine politics is confirmed -- syria and israel are in peace talks with the intermediation of turkey.

Peace with Syria would require Israel to withdraw from the Golan Heights, a strategic plateau Israel captured in the 1967 Mideast war and later annexed. Today, the heights are home to 18,000 Israelis and roughly the same number of Druse Arabs who regard themselves as Syrian nationals. Syrian and Israeli forces are separated by U.N. peacekeepers.

A committee representing Israeli settlers on the Golan said [Israeli Prime Minister Ehud] Olmert's move "put the State of Israel's survival at risk."

"The people of Israel will not support such a deluded and irresponsible move, which would hand over such a vital Israeli strategic asset to the Arab axis of evil," the Golan Residents Council said.

The announcement comes as Olmert finds himself mired in yet another corruption probe — the fifth investigation into his conduct since he took office in 2006. His dismal approval ratings have sparked widespread speculation about his ability to clinch a deal with the Palestinians or even survive in office much longer.

Opposition lawmakers charged the new announcement was designed to divert attention from Olmert's legal woes.

"Evidently the prime minister is so corrupt that he is not only taking cash money in envelopes but he is ready to trade the Golan Heights and our most vital interests in an attempt to save himself from criminal investigation," said lawmaker Yuval Steinitz of the hardline Likud Party.

with dissenters like these, one must suspect that olmert is doing something right. but it must be noted that talks are not peace, and some well-informed doubters of the capacity of the process and its particular participants see an israeli-syrian war as inevitable. nevertheless, one can be sure that the israeli objective in return for conceding the golan heights is the weakening of hezbollah.

and that leads to this: the downward spiral of lebanese politics appears to have been stayed as representatives of the western-propped lebanese government led by fouad seniora and saad hariri and the hezbollah-centered opposition agreed on a power-sharing outline which amounts to a major concession to hezbollah.

After over a year and a half (556 days, to be precise) since five opposition ministers resigned from the Lebanese cabinet, precipitating the worst political crisis since the Civil War, a solution was finally reached between Lebanese politicians in Doha, early this morning.

The agreement brings to a close a turbulent period which saw downtown Beirut shut down by demonstrators, dozens of civilians killed in street clashes, the Nahr al-Bared conflict, a string of political assassinations, and the return of ugly displays of sectarianism, which threatened to drag the country back into civil war.

more from usa today. and not a moment too soon, following a show of force from hezbollah last weekend, routing government- and western-sponsored militias in beirut. the situation appears to be that civil war has been avoided if for no better reason than no one has the capacity to oppose hezbollah physically except possibly the lebanese army -- and the army is sympathetic to hezbollah. political concessions to hezbollah followed, providing another slap in the face of the bush administration.

So is it over? Militarily speaking, and barring outside intervention, the answer is probably yes, as the defeat of the government camp has been so complete that there is hardly anything left to fight with. The question remains what the Americans want, and if they know what they want, and whether they are even free to think about it. No doubt, the demise of the Seniora government, praised right left and centre by anybody in the Bush administration who ever said a word about the Middle East, is another black spot on the Middle Eastern report card of this administration, and not exactly reassuring for those Arab regimes who rely on American support for their own survival. Are they going to do anything about it? Can they do anything about it? Is this still part of a “grand plan”? Really a plot to sabotage Israeli-Syrian peace (as if Olmert has any authority or credibility to see such a thing thru)? Or just another addition to a long book of blunders, a list of assorted self-inflicted messes that Mr. Bush will happily bequeath to a democratic successor, or which a republican successor will happily convert into an occasion for a new show of force (though I am not sure a democratic successor will deal any different). Most likely, however, the fading Bush administration will have just enough momentum or rather inertia left to continue supporting Seniora, and pressure its Arab allies to do the same, thus keeping the living corpse that his government is propped up in the Saray, possibly prompting the other side to push even further.

these concessions reflect what is widely perceived as the outright failure of the bush administration to achieve any of its goals in the area, in spite of opening supplying sunni militiamen through something called "secure plus" at the insistence of hardliners -- as had been broken originally by sy hersh. more from joshua landis, who all but pisses upon the ridiculously hyperbole of the frustrated neoconservatives of the wall street journal in contempt -- and more still, in disbelief at the amateurish efforts of washington.

it's debatable at this point as to whether or not olmert's approach to syria is an admission of the failure of the united states, israel and saudi arabia to oppose syria and hezbollah in lebanon effectively. maybe this is finally the rightminded diplomatic attempt, in light of the failure of first military and now paramilitary attempts, to weaken hezbollah. perhaps it is also adjunct to the ongoing israeli-palestinian talks, which are rumored to be at impasse. perhaps it is simply motivated by the internal politics of israel. perhaps it is intended as a none-too-subtle israeli provocation pointed toward the united states, in effect demanding more and better engagement "or else". and maybe it is an important piece in a puzzle of comprehensive peace compatible with the geopolitics of israel which has eluded the levant since zionism found an ally in post-war london.

and maybe it is nothing but cover, a false pretense, a prelude to war of the kind nir rosen sees neoconservatives like the brookings institution's michael o'hanlon advocating with respect to iran.

Any actual expert on the region, or any sincere person with even passing familiarity with it would know that genuine peace has always been easy to achieve, it requires Israel to abandon all its settlements and occupied territories, allow for the return of the refugees and compensate them for their dispossession. It also means granting equal rights to the Palestinian citizens of Israel. The so called "peace process," nothing of the sort, is merely a way to enshrine the dispossession of the Palestinians using unpopular but pliant and hand chosen collaborators like Mahmud Abbas.

Real peace requires dealing with Hamas, Hizballah and Syria. It requires a recognition that there is a hegemonic Zionist aggressor here, with Arab victims, not two equal sides. There can never be a Mideast peace process when the American secretary of state declares, as Rice did on April 29 that "I still remember my first time visiting Israel: It felt like coming home to a place that I had never been. And every time I return, as I look upon the land where Israelis have made the desert literally bloom, and as I drive past the aging hulks of Israeli tanks, which recall the dear cost that generations of Israeli patriots have paid for their nation's survival, as I see all of these things, it is clear to me that a confident Israel can achieve things that many think impossible." Can we imagine an American secretary of state paying tribute to the dear cost generations of Palestinian patriots paid for their nation's survival while attempting to reclaim the homeland from which they were ethnically cleansed?

Anyway, O'Hanlon in the end calls for talks with Iran, not because they will produce any breakthroughs, he says, but because they are a prelude to violence. Talks will get more countries to support the new American war. "By trying to talk," he writes, "we better position ourselves to get tough and have others join the effort." Remarkably, he hopes the talks would fail. "Only by patiently trying to work with Iran, and consistently failing to make progress, will we gradually convince Bush-haters and U.S. doubters around the world that the real problem does not lie in Washington."

Knowing that the propaganda war leading to the invasion of Iraq failed, O'Hanlon wants this war to be more efficient. He wants the US to work harder "to prove we are the reasonable ones" but he also wants Senator Barak Obama to use more "tough talk." O'Hanlon calls for talks to help shed the image of "Texas cowboy foreign policymaking" but in the end it is only to further the same cowboy foreign policy, just maybe with a few more Tontos at the side of the Lone Ranger. Beware, the worst is yet to come.

the reaction from the administration will be interesting to watch. these appear as major setbacks for a presidency which has been blind with zeal over refusing even to speak with "terrorists" and their sponsor regimes. it is seeing its lebanese puppet forced to cede power to hezbollah, and its primary client state in this or any region negotiating with a country that is in effect the fourth member of the so-called "axis of evil".

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Tuesday, May 20, 2008


the geopolitics of israel

via john mauldin, a very engaging piece from stratfor on the timeless situation of israel.

it notes that the only material threats to israel are either 1) internal disunity, which can put one or more of its three natural geopolitical parts within reach of either syria or egypt (not conincidentally the focii of the clean break strategy); or 2) great imperial powers seeking control and/or access to the mediterranean through the levant.

it is interesting to view, then, the promulgation of the delusion of an 'imperial iran' as a sort of manufacuring of the latter kind of threat. but putting aside that nonsense, one must see that the current major threat to israel is most obviously the sole great power in the region -- the united states -- which explains much of the israeli dedication to maintaining its extraordinary political lobby in the united states as a means of maintaining maximum independence in what is essentially a subjugated role within a global anglophone empire (what stratfor calls the persian model).

with the bush administration having occupied iraq and now perhaps considering action beyond into iran and syria, one has to wonder if some in israel would hesitate to encourage the greater explicitness of the american role as regional hegemon. as noted:

Israel's reality is this. It is a small country, yet must manage threats arising far outside of its region. It can survive only if it maneuvers with great powers commanding enormously greater resources. Israel cannot match the resources and, therefore, it must be constantly clever. There are periods when it is relatively safe because of great power alignments, but its normal condition is one of global unease. No nation can be clever forever, and Israel's history shows that some form of subordination is inevitable. Indeed, it is to a very limited extent subordinate to the United States now.

does anyone in the israeli power strucutre conceive of a time when its cleverness vis-a-vis the united states could end -- leaving it facing an ambivalent or even explicitly aggressive great power?

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further reports of eventual american military action against iran

there have been any number of speculative reports regarding an imminent american attack on iran. so far, none have panned out. hopefully, we'll be able to add this one to that pile in six months or so.

Army Radio had quoted a top official in Jerusalem claiming that a senior member in the entourage of President Bush, who concluded a trip to Israel last week, had said in a closed meeting here that Bush and Vice President Dick Cheney were of the opinion that military action against Iran was called for.

The official reportedly went on to say that "the hesitancy of Defense Secretary Robert Gates and Secretary of State Condoleezza Rice" was preventing the administration from deciding to launch such an attack on the Islamic Republic for the time being.

The Army Radio report, which was quoted by The Jerusalem Post and resonated widely, stated that according to assessments in Israel, the recent turmoil in Lebanon, where Hizbullah has de facto established control of the country, was advancing an American attack.

Bush, the official reportedly said, considered Hizbullah's show of strength to constitute evidence of Iranian President Mahmoud Ahmadinejad's growing influence. In Bush's view, the official said, "the disease must be treated - not its symptoms."

However, the White House on Tuesday afternoon dismissed the story.

the administration's unabashedly belligerent and fear-mongering public campaign against iran, one hopes, is designed to revitalize the "war footing" that it has relied on since september 11 2001 to provide demotic backing for the carrying out of twin agendas -- global energy supply procurement and expanding the de facto powers of the imperial presidency. the ridiculous meme of imperial iran has found a home in the discourse of the nationalist party as a form of freudian projection in the united states, the uk and israel alike (which are, not coincidentally, the three primary beneficiaries of the anglophone imperial order, sometimes euphemized as 'globalization', which has conspicuously dominated international affairs since 1815).

it is normal in my view for democracies in particular to be ruled by the dominant minority through the cultivated popular perception of fear, that most reliable of collective motivations. so militant and radicalized has the campaign for fear of iran (and indeed several of the political entities that lie outside effective anglophone control) become that it finds even the suggestion of communication (much less the material concession upon which the entire concept of diplomacy is founded) intolerable, misguidedly casting about for parallels to the rise of european fascism and remaking negotiation into the original sin of 'appeasement'.

one wonders what is left to settle disagreements if mere discussion is to be ruled out until the other side concedes unilaterally to demands. are we really so afraid that we may walk into another 'munich moment', as it seems every western nationalist opines publically? it is easy for the fearful to forget that, in spite of munich, what some call 'appeasement' is how 99% of all disputes are finally settled peacefully. one 'appeases' the used car dealer when hammering out a price; one 'appeases' one's spouse when figuring out how to split the duties of a household. indeed one of the most reliable indications of dangerous and potentially violent political radicalism is its aversion to the many good and positive forms of 'appeasement', which also go under names like 'diplomacy', 'negotiation', and 'compromise'. where does that put recent commentary from the western right regarding iran on the political -- and moral -- spectrum?

in any case, if one presumes that the sturm and drang is for the management of public expectation and not prelude to actual operation, one must note that the initial sales job -- reliant on terrorism and the linking of iraq and north korea to terrorism -- has fallen flat as evidenced by the disastrous public opinion polling of the administration which make it out to be one of the least admired presidencies in the national history, both domestically and internationally. continuing further down this path can only be seen as a continuation of a bad sales pitch, with the exception of consolidating the bloodyminded political base of imperialists, nationalists and ultranationalists upon which the administration relies for any foreign policy support at all.

that said, the attempt to carry western paranoia to the doorstep of iran also seems to be modestly successful if lacking great traction. see this from, which indicates a deeply negative public opinion of iran in america but one which is stable. earlier gallup polling from november 2007 showed that concern over the administration's aggressiveness against iran outweighed concern over iranian nuclear technological development -- a margin that was then growing. public opinion has been heavily against military action. but the stage has nevertheless been adroitly set for a polarizing incident to turn the vicissitude and bloodlust of americans in favor of bombs over iran. indeed one could argue that attempts have been made to manufacture such an incident in the press.

with republican fears of an all-consuming destruction of the grand old party in november heightened by losses in special elections in what had been reliably republican districts, there can be no doubt that the party must have a very compelling catalyst to back any military action in order to prevent any prospect of popular aversion to military action from turning into an historic firestorm of antirepublican rage. whether or not they get it is unpredictable, as is whether or not a lame-duck administration with a record of reality-defying zealotry would hesitate for lack of one.

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Thursday, May 15, 2008


worldwide telescope

just cool, even if it's microsoft.


the chicago condo market

i'm a former condo owner in chicago, having left in late 2005 to rent in the suburbs. we're currently in a four-bedroom heavily-renovated SFR with a nice yard and a stunning kitchen, paying about 25% less than the aggregate expense of ownership of our (comparatively) compromising 3-br duplex of yesteryear. in previous discussion of positive carry highlighting the logic behind renting at this juncture. it's almost stupid not to.

but i carry fond memories of the city, and look forward to the day -- after the kids are gone -- when we might own a condo downtown. one could view such a purchase as an investment only if the price came in at rock bottom, in my view. the notorious history of volatility in downtown real estate should make buyers wary.

calculated risk offers today two postings on condos highlighting the associated risks -- the negative externalities of one of the biggest condo gluts in the history of the town.

Those sales numbers are quarterly, so 1,200 sales in Q1 2007 was reasonable compared to the 4,794 new condos added last year. But with close to 6,000 units being added this year, and sales of only 201 units in Q1, there is a serious oversupply - with more units coming in 2009.

downtown chicago -- already bloated with oversupply -- is seeing well over 5,000 more unoccupied units come onto the market. more will emerge in 2009. looking out our office windows, construction cranes have been the marker of the real estate boom for years now. new towers have been rising from mccormick place to lincoln park.

the time is coming when one will be able to purchase condominiums in the loop and nearby neighborhoods for half of their current prices, i expect, probably out of foreclosure.

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Tuesday, May 13, 2008


twice as much money in six years?

calculated risk praises this episode of chicago public radio's 'this american life' called "the giant pool of money" which addresses the housing bust.

early in the narrative, the stage is set by highlighting what ben bernanke has called the "global savings glut" -- the massive growth in global savings that, in the final analysis, was funneled to mortgages in america, britain, spain and elsewhere through the vehicle of mortgage-backed securities and collateralized debt obligations (CDOs). it is noted that global savings has doubled in the six years of the housing boom, up to some $70tn.

where did this money come from? it's unsatisfactory to simply say "poor countries got rich", as the essay does -- were global money a zero-sum game it would imply wealth transfer, but clearly it isn't a zero-sum game. money was created here. and how is money created?

the answer is banking -- in effect, we're talking about an increase in the global velocity of money, the multiplier, the level of financial and trading activity.

the global savings glut is an outgrowth of the nexus of globalization and financialization -- it is a product of systemic international leveraging through global banking.

and it is, i suspect, only as durable as the velocity that created it.

at the heart of the instability of the financial system -- and the radical and panicked response of american central banking -- is the threat presented to velocity by default and deleveraging. a significant slice of global wealth could be destroyed in a deflationary disaster.

the final line of this synopsis of monetary velocity says a mouthful.

Financial innovation creates new types of money that are not included in the money supply definitions.

the unwinding of that innovation is what we are faced with -- what satyajit das called nuclear deleveraging, with large economic implications already manifesting per s&p.

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Friday, May 09, 2008


futures pricing means nothing

too often, forward futures prices are taken to be some sort of crystal ball. that is, of course, ridiculous -- a proposition held only by market novices and ideologues. the future is not for us -- and you'll never see a better chart proving as much than the one seen today on ft alphaville.

at best, forward pricing reflects current sentiment. and not always even that. the next time you hear some talking head or fed governor talking about futures prices reflecting something meaningful about what is going to happen -- with inflation or otherwise -- feel free to disregard.

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Good post -- and welcome back!

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lol -- i didn't think my absence would be noticed! our second daughter arrived april 24, and obviously other priorities took hold. :)

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I agree with Bill.

Keep up the good work and thanks for returning!

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Congrats on the new addition!

Speaking of which, good news for parents: the last line in my post from this morning links to a Scientific American article about how it is possible to make up for sleep debt.



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