I SEE FED PEOPLE....THEY'RE EVERYWHERE

And just as I post the most recent article about Bill Dudley, the NY Fed Chief putting on a PR blitz to save the reputation of the Fed and inform the public about the good works they do, we get another gem that reinforces just how rigged this whole system is. 

FORMER KANSAS CITY FED PRESIDENT, THOMAS HOENIG NOMINATED FOR FDIC CHAIR BY OBAMA.
http://www.bloomberg.com/news/2011-10-21/obama-nominates-former-fed-president-hoenig-for-fdic-vice-chair.html

Hoenig, who has served as President of the Kansas City Fed for 20 years and submitted his resignation on October 1st of this year.

Is it odd that Hoenig would retire only to move into the leadership role at the FDIC?  Perhaps not, however this interesting story about Bank of America, highlighted below, has me thinking a bit more now that I have noted the story.

WHEN THERE IS DISAGREEMENT IN THE WORKPLACE, FIRE THEM
When I worked at the hedge fund back in the day, you could tell when someone was about to be asked to leave the firm (fired).  Typically, the timing would coincide with any challenge or disagreement with the CIO on any investment decision or issue.  Once that event occurred the poor trader or manager was doomed to pack up his belongings within 30 days.

I think the Fed must have this type of leadership approach when it comes to the FDIC

B of A Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit -
http://mobile.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit?category=%2F

Hmmmmm.  Think just the first two paragraphs -

"Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position."

See, the FDIC looks at these transfers of derivatives into the bank holding company and sees these as potential claims against bank assets.  The counterparties that entered into these with Merrill Lynch love this because they are getting a "better" rated counterparty with much deeper pockets. 

Isn't it interesting that the FDIC and FED are split on this approval and a 20 year veteran Fed President would suddenly be nominated to a key leadership position at the FDIC?

ONE MORE JUST FOR GOOD MEASURE -
While it is not related to this story in any way, you just can't avoid a Federal Reserve connection or Goldman Sachs employee in any important office in our government.  While he never worked at Goldman, you've got to know that our friend Herman Cain was on the Board of Directors for the very same Kansas City Federal Reserve in the early and mid 1990's. 
MONTHLY UPDATE -
I took a much needed month off from writing the monthly reports and I feel refreshed and feel like I have a better perspective on the market due to the lay off.  I'm dealing with extended family health issues so I seem to have much fewer hours to devote to writing.  I will attempt to write less long, but more frequent posts in the next month.  The monthly update should be finished tomorrow for some weekend reading.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

THE SOFTER SIDE OF THE FED (SCARY)

I encourage you to read the piece in Bloomberg this week on Bill Dudley, the President of the NYFED titled
"Not Your Father's New York Federal Reserve NY FED President - Bloomberg Article by Caroline Salas Gage

PR BLITZ INDICATES FED HATERS ARE WINNING
Are you getting the idea that the FED is putting the full court press on the public to encourage them to see the side of them that is benevolent and for the little guy?  Yes, me too.  I mean how on earth could we possibly believe that the Fed had anything but the common folk's best interest at heart as they engineered too major stock market collapses and one real estate implosion in the last decade?

Dudley is one of the 3 Fed chiefs that actually matter, the others are Fed Chairman Ben Bernanke and Janet Yellen who is the Vice Chair of the Federal Reserve Board.

The article notes how hard Dudley is trying to get out with regular people and explain how the Fed is helping them.  Clearly he hasn't internalized the criticism of the Fed and questioned if anything they have to say might be true as the Fed continues to squeeze investors that use fixed income investments or even savings accounts as part of their portfolio.  Dudley obviously believes that old ladies should need to take more credit risk or simply cut out medical coverage or incidentals like food or shelter rather than raise interest rates.

Dudley's moves highlight the growing importance of the public's view of the Federal Reserve given that it has now become politically acceptable to believe that the Fed is a part of the financial crisis.  Ron Paul has a book about Ending the Fed, Rick Perry also is quite wacky crying that the US needs to get rid of the Fed.  I've even seen a sign or two in the OWS demonstrations that actually reference the Fed.  A growing move to understand and dismantle the Fed is absolutely not in the Fed's best interest..... nor in the interest of the banks and uber-wealthy 1%ers.  I expect more concerted efforts to humanize the Fed and make Joe 6 Pack feel happy to have a benevolent Fed on our side.

INFORMATION FLOW OR BIG BROTHER?
Now, add this to the recent "rumored" request by the Fed to begin a project to scan and analyze references to the Fed in social media and the blogosphere in order to capture market sentiment, I think you have a situation that could be ultimately bad for all of us in the general public.
http://www.forbes.com/sites/mobiledia/2011/09/30/federal-reserve-wants-to-monitor-facebook-twitter/

http://info.publicintelligence.net/FRBNY-SocialMedia.pdf

Clearly the conspiratorial side of me feels like the Fed has sinister intentions when they move forward with this project, however, the NY Fed assures us that it is all good, why worry?
 
"The project reflects its (NY Fed's) commitment to “improving its communications and engagement with the public in order to enhance and improve the public’s understanding of its activities and the role it plays in supporting the U.S. Economy,” according to a Fed spokesman’s statement."

I'm sure the Fed's efforts will be passive and harmless and simply used for data collection.  Having said that, I'm sure it won't be long till a blogger or Facebooker is threatened with jail or lawsuit for disparaging the Fed and invoking some type of crisis of confidence relate to their posts.  Think it can't happen?  Look no further than the Eurozone's sovereign debt issues where investors and "evil speculators" are targeted for stating that the sovereign countries are broke and the bonds are a poor investment.  Give the US debt crisis a few more years and we'll see how "passive" this monitoring becomes.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

BILL GROSS CHANGES TUNE (LONG BONDS)

Please find a recent article from the FT regarding Bill Gross' odd and powerfully negative direction call to short treasuries, and his reversal to fall in love with Treasuries now that the long bond is 200 bps lower in yield (price is 30% higher!).

http://www.ft.com/intl/cms/s/0/ddeda7fa-f4d3-11e0-a286-00144feab49a.html#axzz1ad8sTIiJ

I sometimes have a friend that lets me listen to conference calls that he is invited to attend and strangely enough, the other day I was invited to listen to Bill Gross speak this morning about his firm's performance and his outlook for the economy and his funds.  Because they (PIMCO) swing such a big stick (the Total Return Fund) has about $230 Billion under management I like to hear what they are saying because every once in  awhile you can get a nice tidbit about where he really thinks the market is going.  While you must always be wary that Bill Gross will talk his book and try to push the market with his "knowledge sharing" I think he does have great insight.

Very quickly, I did like the way that Gross owned how he missed the bond call, but essentially blamed this on this notion that he was anticipating a global recovery and that this would drive rates higher.  Now he feels like our "new normal" will be a 2% global growth and 2% inflation so this depressed level cannot or will not usher in higher interest rates.  Perhaps this is correct, but I think much of his change of heart has to do with getting whacked and under performing almost all of the other funds in his category and rather than try to beat the market in any significant way, we'll see Pimco try to index even more so they will not stray far away from their benchmark in any way.  At the end of the day that is what I always hate about the mutual fund industry, they only care about the index that they are measured against, not a gain or loss on a cash basis.  I for one believe that Gross' call on US treasuries wasn't all based on an improving world economy, it was a call based on the collapse of solid financial management in the states.  The problem with these trades (as we have seen) is that it may take a decade to see the problem actually manifest itself and then another several years of public political and financial leadership "fixes" before the real implosion happens.  If anything, Gross is just way early on this trade (I can relate).

Last, one very important item was shared during the call which made the droning worth it.  Mr. Gross stated that the Eurozone leadership will talk and talk and they won't really be focused on getting the correct things done.  He did say that we should listen to them and take note of what they were saying, but most importantly Gross said that we need to keep our eyes watching the yield on Spanish and Italian bonds.  No matter what is said, if these yields continue to push higher we will know that the real issues are not addressed and that the problems were still lingering and no solution had been found. 

The reason that Gross is onto something here is simple.  Both Spain and Italy (or Greece for that matter) cannot afford to keep their respective debt ponzi schemes going with interest rates as high as these.  It is like using  a credit card to live on while you are out of work, it may provide some liquidity and keep you in your apartment for a while, but finally the crushing high interest rates and the inability to keep up with your bills will cause your financial "system" to collapse.  In the same way, Italy and Spain cannot afford rates in the 5% or 6% area and their plate spinning will suddenly end if these rates continue for an extended period of time.

So, with that great information, I present to you the charts for Spanish and Italian 10 year bonds.  I would submit that there has been lots of talking and no solution as testified by the climbing yields on these lovely sovereign debt offerings.  Can I interest you in some?

SPANISH 10 YR BOND YIELDS - 5.24%
We see a move off of the highs but still within striking distance.

ITALIAN 10 YR BOND YIELDS - 5.79%
I'd say that Italy is destined to revisit recent highs and then it is to infinity and beyond!

GOATMUG 

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/



IDIOTS GUIDE TO DESTROYING AMERICA (OWS)

I'm actually working on a post about the FED, but as I was typing that article it morphed into a long winded outburst about the Occupy Wall Street fools.  Since I went completely off the range, I felt I needed to create a post related to this topic.


OCCUPIERS ARE IDIOTS
While the stupid "Occupy Wall Street" idiots are out protesting that they have to pay college loans back they should be sitting outside the NY Federal Reserve building and at least directing their anger at a major cause of America's woe.  These clowns should be demanding that the Federal Reserve return rates to realistic rates and cease direct support to European nations with swap lines. Unfortunately our youthful band of rioters are praising themselves for just coming together to "feel supported" and discuss stuff.

Here is a link to the demands that one of their "leaders" put together.  I don't think I could have put together a better wish-list for Utopian liberal ideas that absolutely couldn't work.  First, several of their ideas would simply destroy any fiber of a "real market" (notice I didn't say free-market since that is not what we have anyway) and the remaining simply are strung together cause it would be great to have a bunch of free stuff or it makes us feel good.  Nowhere in this list are there any thoughtful ideas, we simply see emotional outbursts that would make us all feel better if that was how things were.

IDIOTS GUIDE TO DESTROYING AMERICA

"Demand one: Restoration of the living wage. This demand can only be met by ending "Freetrade".  Another policy that must be instituted is raise the minimum wage to twenty dollars an hr. 

Demand two: Institute a universal single payer healthcare system. To do this all private insurers must be banned from the healthcare market as their only effect on the health of patients is to take money away from doctors, nurses and hospitals preventing them from doing their jobs and hand that money to wall st. investors.

Demand three: Guaranteed living wage income regardless of employment. 

Demand four: Free college education.

Demand five: Begin a fast track process to bring the fossil fuel economy to an end while at the same bringing the alternative energy economy up to energy demand. 

Demand six: One trillion dollars in infrastructure (Water, Sewer, Rail, Roads and Bridges and Electrical Grid) spending now. 

Demand seven: One trillion dollars in ecological restoration planting forests, reestablishing wetlands and the natural flow of river systems and decommissioning of all of America's nuclear power plants. 

Demand eight: Racial and gender equal rights amendment. 

Demand nine: Open borders migration. anyone can travel anywhere to work and live. 

Demand ten: Bring American elections up to international standards of a paper ballot precinct counted and recounted in front of an independent and party observers system. 

Demand eleven: Immediate across the board debt forgiveness for all. Debt forgiveness of sovereign debt, commercial loans, home mortgages, home equity loans, credit card debt, student loans and personal loans now! All debt must be stricken from the "Books." World Bank Loans to all Nations, Bank to Bank Debt and all Bonds and Margin Call Debt in the stock market including all Derivatives or Credit Default Swaps, all 65 trillion dollars of them must also be stricken from the "Books." And I don't mean debt that is in default, I mean all debt on the entire planet period. 

Demand twelve: Outlaw all credit reporting agencies. 

Demand thirteen: Allow all workers to sign a ballot at any time during a union organizing campaign or at any time that represents their yeah or nay to having a union represent them in collective bargaining or to form a union.
These demands will create so many jobs it will be completely impossible to fill them without an open borders policy."

Goatmug only has a few things to say.....WHAT???  ARE YOU NUTS?  Let's go through a couple of these.

1)  Kill "Freetrade" - Ok fine, you close our borders to products and suddenly you have no capacity to make anything and we cannot afford it if Americans did make it since the janitor now makes $20 an hour and therefore all food and every other good had an immediate increase in pricing to compensate for high wage costs.  FAIL

2) Kill insurance companies and let the government do it - Did you catch how insurance companies take money from doctors and nurses and hospitals?  No, insurance companies actually keep costs down.  If the government runs the show, doctors and nurses will actually quit the field as the money will never get to their pockets.  This is how you have healthcare rationing and this will be coming to a state near you if it isn't overturned soon.  This really is about "free healthcare".  FAIL


3)  Guaranteed living wage - give me a break, get two jobs, work hard, and you'll succeed.  You don't earn a decent living by working at Starbucks all your life.  Earn an education (not free) and work hard.  FAIL


4)  Free college education - why?  Government interference in college education in the form of grants and guaranteed student loans has made college inflation run out of control.  Get government guarantees out and tuition will come down significantly.  Who the heck is going to pay for this idiots?  FAIL

5)  Fast track renewable energy - have we not already had a fast track called Solyndra?  This sh*t doesn't work!  It is not economical, it is not based on reality!  When it takes more energy input to create something than you get out, it isn't worth it!  If it isn't scalable, it isn't worth it.  It may make you feel good, but math and financial calculations clearly show that many of these "green" energies just don't work.  Ethanol is a perfect example that good old George Bush supported..... and that too was a big FAIL.

6)  One trillion in infrastructure spending - what planet did this come from, Planet Obama's teleprompter?  Suddenly the granola writer of this disaster of a list wants to improve our sewer system?  Sure, this is a great idea, how do you pay for it?

7)  One trillion for the environment and killing nuclear power plants - Do I even need to say it?  FAIL


8)  Racial and Gender equal rights - What does this have to do with a jobs manifesto?  It is like they just threw in leftist pet projects into the list just to try to get more supporters.  Sure, I support racial rights and equal rights for men and women.  No, I don't support any more language beyond that on this topic.  I understand what they wrote isn't what they were really wanting, but that is usually how they address these issues by not addressing them.

9)  Open borders to work and live where you want - Ok, great, you have open borders and all of Mexico comes to live here on $20/hour and free healthcare!  Oh yes, and what products can you sell since you just turned off all free trade.  This is almost the worst of all of their ideas.  FAIL

10)  Elections -  please, please let the UN monitor our elections.

11)  Debt forgiveness - Right, you forgive those debts and the entire world collapses.  Before you get too carried away with it, each and every mutual fund that owns a bond in it would immediately crater and anyone who lent money anywhere would be a zero.  FAIL


12)  Outlaw credit reporting agencies - great, you want to buy a house and need to borrow money, sure, I'll lend you $300,000, hows does 22% interest sound?  That is immediately what would happen as lenders would not be able to price the risk of lending to a borrower.  Also, since you just forgave all debts, there are no lenders left to be able to lend you money to live in a home.  FAIL


13)  Union sellout - Again, I think this entire list was simply constructed to get as many raging liberals salivating that their pet issue was being represented by the Occupy Wall Street Communists.  Haven't these people realized that unions are simply giant corporations?  Haven't they seen that each state that has a strong union presence is absolutely broke and there are no jobs there?  It is the same uncompetitive wages that are demanded by unions that the OWS guys demand.  FAIL

Remember, that groups and uprisings like these start in one way and are often co-opted by other folks that organize and transmit a very different message than what was originally stated.  This group may  have originally started with some disenfranchised youth that just were frustrated and wanted to gather and vent.  Clearly, they originally didn't have any talking points or agenda, they were simply just wanting "good jobs" or decent wages or just wanted something to do.  Suddenly we see this list of 13 liberal items in their OWS Communist Manifesto that simply looks for free stuff and social engineering of liberal causes.  I think the ideas are poorly thought out and don't really achieve any measure of fixing things like getting jobs to the people.

One last note, I think the police in many cases are being heavy handed in the videos I've seen.  Despite seeing a couple of hooligans, I've seen too much force being used.  Odd though, I'd think that the union workers on the police force would be a bit more sympathetic to their brothers on the other side of the fence.

GOATMUG 

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

GIVE ME A DOUBLE DIP OF RECESSION

Tom Keene from Bloomberg interviews Lakshman Achuthan, co-founder of the Economic Cycle Research Institute and they talk about the outlook for a U.S. recession.

 I don't know how it is possible to have a view that is bullish in this environment. I traded emails today with a person that is convinced that they need to be fully invested in the market and were attempting to find high dividend payers. Fine, I understand that if you are a mutual fund manager. I am not ok with that if you are an individual investor. In this kind of scenario you could lose 20% or 40% in a matter of a few months! A 4% dividend isn't going to make up for that kind of loss!

 So, as we examine this video, keep in mind the comments from Warren Buffett the other day, as he tells us that there is not a recession.



Here are just a few of the interesting tidbits from the video.

"This is not a double dip, it is a new recession." 

"If you think this is bad, we haven't seen anything yet."

 "Profits can be good, but I don't know where stocks go. We expect more frequent recessions so you have an elevated stock risk premium. Look at the case of Japan after the bubble burst, it is not that they didn't make any money, but the Nikkei is a quarter of the value."

Can yields go lower? -- "Yes, look at Japan"

IT COMES BACK TO THE FED IS OUT OF BULLETS
I'm becoming more pessimistic as I see more data from the US that is poor and then we have further deterioration in Europe and the emerging markets. Copper is signaling that things globally are turning anemic.

It doesn't seem like the fellas at ECRI believe it's all good.  Perhaps just the Warren Buffett rails and insurance companies, and furniture stores that employ 70,000 are doing fine.  I'm not a huge fan of ECRI's cop out that this is not a double dip recession, for them it is a new recession, because I think they missed the signs as the Fed blew up their model (revealing that much of ECRI's data is based on liquidity and credit just like the Financial Conditions Index.  Having said that, I believe their models are back to pointing in the correct direction because the Fed simply had to quit fueling the economy with additional printed propellant.  It won't be long until the Fed is back again with the Mother of all Stimuli.  If we see significant breaks with the Dow with a 8000 handle I think this will allow for the globally coordinated stimulus from all central banks that I've been waiting for.  Until then, we'll see support levels fall as the confidence in the US economy falters and the Eurozone mess goes into total meltdown stage.  Alas, there won't be the "decoupled" emerging markets to save us either.  We better get our deflation hats on, it is coming.

GOATMUG 

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/