August 18

Quarterly Outlook: The Crisis is Not Contained. Saxo Bank, via zero hedge.

interesting interview by Barry Ritholtz with Felix Zulauf:
Up Close and Personal. Big Picture.
some of the more interesting excerpts, with my favourite in bold:

the problem is that we are living in a fiction that we can enjoy a relatively high level of prosperity for our average citizens in industrialized countries by going more and more into debt.... the Euro acts like the gold standard in the 1930’s for the weaker economies. And in the 1930’s, those countries [the weaker nations] came out of the Depression first (that debased and devalued their currency relative to gold). And then they could recover.... Every human being tends to be lazy, and tends to like people and opinions that tend to agree with him. My situation is that I really grew up in the whole industry as a maverick. I was never a mainstream guy. I can see best when I can see lonely. And the majority is on the other side.... We came out of a time when monetary policy worked extremely well for quite some time. It worked well for the economy because when the Fed banks cut interest rates and stimulated the system, you had good growth following through later on with a time lag.... This time is different, because we have such a high level of debt that monetary policy has become very inefficient.... The deflationary forces are gaining the upper hand and the western world is really hoping that China will bail us out by buying all the goods that we want to sell.... I think China is in the early stage of a decline with economy weakening that will turn into a hard landing.... being bearish on one major economy — you have to bearish on all of the other equity markets as well. They all move together. And being bearish on equities on a cyclical perspective over the next 2 years or so. I’m also bearish on commodities because of what I said about China. [Including gold?] Gold is not a commodity – gold is a currency and it is the only currency without liabilities and cannot be mismanaged by its own central bank…. so gold is different.... We will probably go under book value. In the US, book value is 500 in the S&P. Usually, secular bear markets end slightly below book value, so there is still some way to go.

Are bank stocks such a good buy? naked capitalism.

Bank capital cannot be measured. Think about that until you really get it. “Large complex financial institutions” report leverage ratios and “tier one” capital and all kinds of aromatic stuff. But those numbers are meaningless. For any large complex financial institution levered at the House-proposed limit of 15×, a reasonable confidence interval surrounding its estimate of bank capital would be greater than 100% of the reported value. In English, we cannot distinguish “well capitalized” from insolvent banks, even in good times, and regardless of their formal statements.

so, Reinhart and Rogoff have raised the warning flag about what history says happens to countries who allow their debt-to-GDP ratios get to 90% (i.e. nothing good); so you might think, given that the U.S. is right on the brink of crossing that threshold, that they'd be advocating deficit reduction policies for the U.S. (i.e. in the deficit hawk camp); except not so much:
What should we do about national debt, and when? McClatchy.

Rogoff: "We may need another stimulus bill just to decompress from the previous one, a smaller one to cushion the landing"

Reinhart: "I'm not one of those deficit hawks. ... I'm not saying you run out and pull the plug and have an adjustment that could derail what fragile recovery we do have"

how the h-e-double hockey sticks did guys like Ed Yardeni, or anyone else who inanely assesses stock valuations based on the Fed model, get to where they are?
The question "are stocks a screaming buy relative to bonds?" creates false premises. Mish.

speaking of which:
What does it take to be a Wall Street analyst? Pragmatic Capitalism.

“Applicant must be able to determine current value of S&P 500 and multiply by 1.1.”

an alternative approach:
The essence of value investing. Brinson Partners, via Derailed Capitalism.


this is astonishingly embarrasing:
How could we possibly have known?!?!?
Boston Fed: Economics Couldn’t Reveal Housing Bubble. WSJ.

Should economists and policy makers have identified the housing market bubble before it burst? The answer is most likely no, says the Federal Reserve Bank of Boston, because economic theory was not up to the challenge.

“Economic theory provides little guidance as to what should be the ‘correct’ level of asset prices — including housing prices,” the new paper published by the bank says.

I guess that says it all about economists, or at least the majority of them; the William Whites of the world must be incensed

for further criticism of economists, how about these quotes:

"The completeness of the [orthodox] victory is something of a curiosity and a mystery. It must have been due to a complex of suitabilities in the doctrine to the environment into which it was projected. That it reached conclusions quite different from what the ordinary uninstructed persons would expect, added, I suppose to its intellectual prestige. That its teaching, translated into practice, was austere and often unpalatable, lent it virtue. That it was adapted to carry a vast and consistent logical superstructure, gave it beauty....But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes if scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners. For professional economists...were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation - a discrepancy which the ordinary man has not failed to observe. "

And

"Too large a proportion of recent 'mathematical' economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependence of the real world in a maze of pretentious and unhelpful symbols"

those damning words are thanks to none other than John Maynard Keynes (and perhaps even more applicable today to the deficit hawks and the likes of the Boston Fed than they were in Keynes' own time); hat tip: James Montier


double-dip watch:
as per zero hedge, you know we're headed for a double-dip when:

your parents start referring to 2009 as "the good old days"

your CFO starts making finger-quotes when he refers to "corporate earnings"

what you thought was your cable bill, turns out to be your 401k statement

instead of giving away toasters your bank starts selling them

your mortgage shows up on eBay

your accountant starts making finger-quotes when he refers to your "net worth"

you buy $50 of GM stock, and are named to the board

the family dog asks for a severance package

your spouse starts making finger-quotes when referring to "our vacation"

your recently graduated son moves back into your house...with his roommate

you start making finger-quotes when referring to your five-year old's "allowance"

your parents move to Greece

imperial collapse link of the day:
The Guns of August: Lowering the Flag on the American Century. Chalmers Johnson.

I fear T.S. Eliot had it right when he wrote: "This is the way the world ends, not with a bang but a whimper."

BP link of the day:
Nearly 80% of spilled oil still threatens Gulf. Discovery.
group of independent marine scientists estimate over 70% while government report says 26% --- who ya gonna believe?

CDC says

"For the seafood to pose a health risk, the food would have to be heavily contaminated with oil, and would therefore have a strong odor and taste of oil."

Washington's Blog call B.S.
The government lies to the American people about the safety of Gulf seafood.

other fare:
Are some ADHD-labeled kids just young for their grade? Scientific American.
I've got a son born Christmas Eve, so we can relate to this

its about bloody time; 2010 Favre-watch over
Brett Favre practices with Vikings. ESPN