Europe Don't Want No Short People

The short sale ban on banks instituted by many EuroZone countries is scheduled to end on Friday, August 26, 2011. The ban has not saved banking shares from being mauled and may have created artificial air pockets under the share prices since there are no shorts to cover as the prices drop. We'll know more next week.

That ban ends of the same day as the Fed Jackson Hole meeting concludes and Ben Bernanke speaks. Maybe Europe is expecting a miracle announcement from Ben.

They got grubby little fingers
And dirty little minds
They're gonna get you every time
Well, I don't want no short people
Don't want no short people
Don't want no short people
'Round here

Boat of Gloat v.1

Bank of America Plans Big Layoffs to Cut Costs

The boat of gloat, the sloop of Schadenfreude, sets sail to Charlotte, NC. It sails to the port of call most deserving and docks to find a large, evil, organization. Evil at the top, mind you, and there is a measure of empathy for the pain the generals are going to inflict on thousands of innocent foot soldiers.

With its stock down more than 50 percent since January, the job cuts by Bank of America may be only the start of a broader restructuring at the company, which is the nation’s largest bank. Brian T. Moynihan, the chief executive of the bank, has said that he hopes to trim quarterly expenses by $1.5 billion. Thousands more job cuts are likely in the months ahead.

But this zombie bank, being propped up at horrific costs to the country by the government, needs to finally be killed. Nationalized, unwound, sold off in chunks. For the safety of the US and the world. The list of criminal and civil violations perpetrated by this organization is too long to list.

UPDATED 9/2/2011:
Looks like the layoffs may now reach 30,000.
Bank of America was also sued today by the FHFA for $30 billion dollars (counting BofA and Merrill Lynch).

UPDATED 9/9/2011:
Looks like the layoffs may not reach 40,000.

This boat's for you!

Producer prices hitting the ceiling?

The producer price index inched up today, led by food and energy. Looking at the long term chart, could we be hitting the ceiling on producer prices where the economy rolls over and dies? This set up looks ominously like 2008 except that oil is currently much lower than in 2008.

I am not saying prices will necessarily fall. The Fed has been very diligent about keeping the dollar going down and prices going up, but the economy may only be able to absorb price increases at a certain rate before tipping back into recession.

Subjective Invective v.7

After a wild week for stocks, what to do?

What to do, indeed.

The article gives two pieces of sage advice from Robert Shiller. First...

Though he believes the stock market is still overvalued by historical averages, he says it is closer to fairly valued than before. He suggests investors move their money "modestly" into stocks.

I get it. If stocks are overvalued, invest modestly. As the saying goes, buy overvalued and sell high. Then, at the end, we get another piece of advice from Shiller...

"I'd be wary of putting too much in the market," says Shiller. "There's a good chance they'll fall. It's hard to predict the market."

Invest modestly, but be wary of putting too much in the market because there is a good chance it will fall. Now, I'm really confused. To be fair to Professor Shiller, he was probably misquoted and taken out of context. At least CNBC is consistent. It's always time to buy stocks!

I found this chart from an article by Charles Hughes Smith comparing the DOW from the 1907 panic (the one that spawned the Federal Reserve) to the 2008 crash. Yowza. Quoting Shiller: "there is a good chance it will fall."

Disclosure: I am not a certified financial anything. This is not investment advice. No stock positions.

Real GDP vs. Real GDP ex-deficit

This is my own twist on the size of deficit spending and what it means. By subtracting the GDP deflated deficit from the real GDP, you can see the huge gap being filled by current deficit spending. Some of the causes are well known: spending on unfunded wars and entitlements is too high, taxes are too low, and the Wall Street created financial crisis. Private and financial debt reached a saturation point in 2007 which was the trigger. What led consumers and financial firms to accumulate so much debt is more complex.

If you agree with the general causes, the solutions should be obvious. But what stands in the way is the political courage to address the issues leading me to name the difference in the lines the Political Fantasy Gap. The gulf between reality and sustainable government revenue is so large that the political body can't cope with it. Instead, the aim is to reduce the growth of the gap by 10% over the next 10 years. America is likely to run out of credit before then, which will be the crisis that forces the gap closed in an uncontrolled way.

Falling Down Exter's Pyramid

John Exter was a member of the Board of Governors of the United States Federal Reserve System. This is a modern version of Exter's Pyramid. From Wikipedia...

In Exter's scheme, gold forms the small base of most reliable value, and asset classes on progressively higher levels are more risky. The larger size of asset classes at higher levels is representative of the higher total worldwide notional value of those assets.

For people wondering why big money is flowing into gold, this is one possible explanation. When the financial system starting falling apart in 2008, (you could argue 2000), there was a sudden realization that mortgage and asset backed securities, the highest level of derivatives on the pyramid, were not money good. They defaulted en mass. To prevent losses, money fled down the pyramid to stocks, bonds, and cash.

The crash of mortgage derivatives and general debt saturation led to falling real estate values which led to more capital fleeing down the pyramid in search of stable returns and preservation. As the bust affected the broader economy, it led to lower profits, layoffs, and a stock market crash. At this point, a lot of big money had fled into treasury bonds. Now, the US has been downgraded, many sovereign countries are on the verge of default, and there is only one place left to go.

Update: The size of the top layer of the pyramid, financial derivatives, is estimated to have a notional value from 500 trillion to 1 quadrillion. A lot of that is supposed to be netted out, but the problem, as we saw with AIG, is that if one counter party can't meet its obligations, one side of a big net position blows up, and the whole chain detonates. A lot of that phantom money just disappears.

Liar Liar

From Zerohedge...

S&P on the verge of crossing 1200 for the 26th time

Stagflationary Mark has been documenting how many times the S&P 500 has crossed the magical 1,200 mark.

With the close today at 1,199, it only needs one small up day to finish above that mystical level for the 26th time.

The first time it closed above 1,200 was on 12/21/1998.

It seems much more special in 2011 than it did 13 years ago. Now, it is true that if you bought and held since 1998, you collected some dividends along the way, but this pesky thing called inflation ate it.

Stocks for the long run! (or not)

Awww, SNAP! (updated thru 5/2011)

The Food Stamp program participation is in a powerful uptrend. Here is the latest raw data as of May, 2011:
Total Participation: 45,753,078
Total as Percent of the US Population: 14.7%

There were about 800,000 new people added to SNAP this month in the state of Alabama.