The Credit Crisis Financial Stocks Short Journal

Its funny, I emailed some people that are quite knowledgeable about the Fed(some worked there) yet no one seems to understand the foreclosure issue and how it affects M2

To me this is huge, its quite possible the difference between having or not QE3+. If the effects of foreclosures are(most of the time) to decrease M2, its quite possible that the Fed will have to increase their purchases, not necessarily anytime soon(or within the 8 months time frame). That is because the deleveraging cycle should continue(it lasts 7 years on avg according to Rogoff) so the only source of money to the system will be the fed not the private sector, with the additional M2 collapse from the shadow inventory of homes that Fed would have no choice. If this is correct a nice trade is shaping up for 2011, that is, buying gold/shorting dollar when it looks like people are in the hawkish camp doubting the Fed will come back again, then they will all act surprised when the Fed does QE even though 'jobs have been strong' or whatever
 
The Fed, through its own missteps, has made itself 100% politicized. The next QE will not be Ben's decision to make. I would say there is a good chance (greater than 10%, less than 60%) than Bernanke doesn't finish his term.
 
Quote from ralph00:

The Fed, through its own missteps, has made itself 100% politicized. The next QE will not be Ben's decision to make. I would say there is a good chance (greater than 10%, less than 60%) than Bernanke doesn't finish his term.
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Are you talking about assassination?Because Obama would veto anything that would stop the fed from easing further, the man is running for reelection
 
Of course not.

I also do not believe Congress would move to remove him from office. At some point, it could become clear that his policies have been a failure and he will lose political support as well as the sycophantic support of much of the FOMC. He would resign at that point.

FWIW, Ben's term runs through 2014, Obama's through 2012. Ben could presumably find a hard money Republican as President in 2 years. He will either have to change his ways or walk away from the office.
 
One good thing about this period where fed futures were quite high and I stayed underweight was that it cleared my head and enabled me to look at the position with less biases. I now realize that the Fed could tighten earlier than I thought. I was thinking the calls from some hawks for the Fed to hike with the UR high was nothing but a bluff but Steve Liesman and Larry Meyer made an important point I had overlooked.

The fed was doing nothing for quite a bit of time even though they were publishing forecasts that they were going to miss on their UR mandate for years. They did not give a fuck. It looks to me that they care about the UR less than previous cycles and the reason is because 'this time is different' due the balance sheet concerns. I dont even think these concerns have great foundation(As I said in the past I believe there is a reasonable chance they will never have to do any exit) but THEY think so and the market might get weird as well. Bottom line that the biggest thing for them are iexpectations and inflation(money supply too) and if these things get out of control they could hike sooner than expected.

Key here is housing, if it takes another dump then the US faces a strong pull down in terms of deflationary forces and no hikes can exist for LONG time. If I knew exactly what housing would do I'd make huge money but I dont have great confidence on my predictions there
 
This is not to say that the Fed would exit and hike with 9% UR, but the level should be quite higher than previous cycles. Depending where iexpectations and inflation are they could do it with the UR lower than 8%
 
From Rosenberg: "State and local governments in the U.S. are in a state of disarray and the need to cut spending to close massive fiscal gaps are simply acute. As a result, companies that sell into this part of the economy — the lower levels of government represent 13% of the economy, which is the largest contributor outside of the consumer and double the relative share of capital spending — are extremely vulnerable to cutbacks in sales and squeezed order books."

This got me thinking, the US had a capital investment recession after the 2000 stock bubble popped, why can't it have a government spending recession now that their fiscal situations are in a mess?Even in the case of bailouts austerity will be demanded if the economist.com Buttonwood simulation is any guide(many ex-policy makers where there)

And real final sales were 0.6% last quarter, the weakest since the recession ended. I'm believe people might be discounting out the double dip recession too soon
 
Quote from Ghost of Cutten:

Things like bailing out rich speculators using money provided by working stiffs on 30k a year, and stealing from dollar holders by printing money, are morally wrong *even if they work* in bringing about the consequences that their architects desire. That is the point you seem to be missing - luckily the US voting public are not so easily strung along by the technocrats as you and Daal appear to be.
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Personally, I don't see anything that wrong about stealing from the Chinese (the $ holders) by printing money. After all the Chinese have been stealing from us eejits in the West for decades, albeit with our full knowledge and cooperation.
One further thing that the Bernanke crowd are not considering is how far this public reaction might go. We recently saw results at the ballot box - a clear expression of US public will against "bailout nation". Yet the Fed, in typical tone deaf technocratic fashion, shows no apparent signs of realising that a seismic shift has just taken place. If voting does not get the desired results, then certain elements of the US public may well take matters into their own hands. Bernanke needs to seriously consider that if he keeps up with this course of action, he may end up suffering something a lot worse than a hostile Congressional committee. Let's put it this way - if intrade started offering a Bernanke assassination market, I'd be tempted to buy. The Tea Party crowd are mad as hell and I'm sure that more than a few of them would seriously considering bumping off the Fed chief if they feel that voting hasn't gotten them anywhere.
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Well, I have lived in the US and outside the US both for quite a while now. You'll have to forgive me if I don't attach that much significance to the results of the latest election. The US public wants all sorts of wonderful things, but doesn't want to pay for them. Politicians of all sorts are going to keep trying to capitalize on that, 'cause that's what they do. Hence I am very skeptical about the viability of US political system. As to the Tea Party crowd, I am having a hard time taking these people seriously. In the end, I am a believer in the old dictum that people get whatever government they deserve. If this means that Congress ends up setting interest rates in the US, so be it.
 
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