Dave Budge .com
“Democracy is the pathetic belief in the wisdom of collective ignorance.” — H.L. Mencken

So here are some vids of my kid dancing. Oh, did I mention she’s only 12?

This is just a snip for a ballet in Walla Walla in which she was a soloist.

First Night 2008

A variation from Don Quixote - She’s the one in the middle

And now for a bit of Jazz . She dances on the right (Or stage left for those of you who care.)

For those of you paying attention, our collective investment in AIG is up $15 billion today.  Only $70 billion to go before we’re even.

No real time to post given that we have now become Amerika.  But, for those of you interested in some of the market implications of the grand socialization of the markets read this.  Most interesting observation:

Option markets will cease to function as market makers can’t short stock against their order flow.

Many hedge funds have effectively been put out of business.

An integral layer of demand will be removed from the marketplace, creating a downside vacuum once these curbs are removed.

As Phil Erlanger said on this morning’s Buzz, it is martial law for the markets.

My advice to all of you long - sell into the rally.  We’re not out of the woods by any means.

I remember watching the Dick Cavett Show in the ’70’s with guests William F. Buckley, Jr. and Woody Allen.   There was a part where the three launched into an extended inside joke by using obscure English words that, I’m sure, most people did not know.  After that Cavett asked Buckley why he insisted in using obscure words in his writing.  Buckley responded that he decided to employ the complete bredth of his language skills after he heard Danny Thomas say about his large snout “If you’re going to have a nose, well then, have one!”  It still makes me chuckle.

A bit of that snobbery goes on in elite circles as evidenced by this:

Bombin’ [Jay Nordlinger]

As readers of Impromptus know, I’m a bit of a connoisseur of bumper stickers — the more hateful and offensive, the better (for commenting on, I mean). Well, a reader out in Olympia, Wash., saw a doozy this morning: “Who Would Jesus Bomb?” To make it even more perfect, it was on a Prius.

Of course, the Prius driver should wise up: Any true conservative would ask, “Whom would Jesus bomb?”

It made me chuckle too.

The political class is now calling for extensive regulation reform of the financial markets.  It’s true that, and I have written about it several times, that there is a lack of transparancy in seeing the actual position of most banks, investment houses and insurance companies.  The biggist problem for sure is understanding the complex array of financial derrivitives such as interest rate swaps and credit default swaps.  To understand these things much needs to be done by the Federal Accounting Standards Board to incorporate these off-balance sheet exposures in corporate financial statements.  Of course the fear is that the cure is worse than the desease.

There has long been arguments amongst accounting academics about how to represent the “true” financial condition of a company.  Many of you will recall the big push to include options granted to managers as a direct dilution to shareholders.  The problem with that is, of course, that the rules require companies to recognize these options if the price of the stock is above the strike price.  With a floating market value of the stock this creates an accounting nightmare.  One quarter dilution can be seen and the next quarter, if the stock price is down it won’t.  Reporting such things, in my opinion, is better done on a supplemental schedule.

When there are major failures in the market, either in terms of bad faith or simply markets failing by being out of balance, the reaction by law makers is to write new regulations.  The big problem is that rarely do the new regulations foresee the unintended consequences.  Take, for example, Sarbanes-Oxley.  Besides the superfluous costs of compliance what has happened is we’ve chased away business to other markets and made New York second to London as the worlds financial capital.  It has also made it much more difficult for small companies to raise capital in the U.S. market since the cost of complience keep smal growth companies from producing the accounting necessary to go public.  Accordingly, the law helps chase companies out of the U.S. taking jobs and tax revenue with them.

Then we have rule FAS-157 which requires companies to mark-to-mark the value of financial assets they have on their books.  Yes, I know that accountants must and should live by the “conservative” principle.  But this rule is one of the primary factors that is leading to the liquidity problem in the sector.  Let’s assume that you have a bond that you bought at par with a 3% coupon that matures in 5 years.  The bond looks like it will ony pay you back 80% of your investment when it comes due.  Let’s also assume that the current interest rate for this bond to be sold has climed to 20% sicne there are few buyers in the market that want to buy risky assets.  Using the Net Present Value of Money calculation the bond is about worthless on the open market today.  Hence you need to, according to FAS 157 write than bond off to an extent much further than the 20% haircut you expect to take if you hold it to maturity.  The reality is that it’s not as worthless as GAAP requires you to show it.   For financial institutions this reduces the amount of capital that it can show on the books.  That means lower credit ratings and higer borrowing costs whcih in turn depress earnings that leads to lower a stock price which leads to difficulty raising equity capital.  In other words FAS-157, regardless of how well intended, is causing a destruction of value on Wall Street.

In the WSJ today Zachary Karabell writes this:

Among its many products, AIG offered insurance on derivatives built on other derivatives built on mortgages. It priced those according to computer models that no one person could have generated, not even the quantitative magicians who programmed them. And when default rates and home prices moved in ways that no model had predicted, the whole pricing structure was thrown out of whack.

The value of the underlying assets — homes and mortgages — declined, sometimes 10%, sometimes 20%, rarely more. That is a hit to the system, but on its own should never have led to the implosion of Wall Street. What has leveled Wall Street is that the value of the derivatives has declined to zero in some cases, at least according to what these companies are reporting.

There’s something wrong with that picture: Down 20% doesn’t equal down 100%. In a paralyzed environment, where few are buying and everyone is selling, a market price could well be near zero. But that is hardly the “real” price. If someone had to sell a home in Galveston, Texas, last week before Hurricane Ike, it might have sold for pennies on the dollar. Who would buy a home in the path of a hurricane? But only for those few days was that value “real.”

The regulations were passed to prevent a repeat of Enron, but regulations are always a work of hindsight. Good regulatory regimes can mitigate future crises, and over the past hundred years, economic crises world-wide have become less disruptive. The panics of the late 1800s, the bank runs, the Great Depression in Europe and the United States, were all far more severe than what is unfolding today in terms of business failures and jobs, homes and savings lost.

But bad regulation is something to be feared, especially as industries become more complicated. Legislators and agencies would be wary of passing rules regulating how a semiconductor chip is programmed; they would recognize that while the outcomes those chips produce might be simple, the way they produce them is not. Yet financial service regulations sometimes act as if we still live in a time when deposits consisted of sacks of money in a vault.

A few years from now, there will be a magazine cover with someone we’ve never heard of who bought all of those mortgages and derivatives for next to nothing on the correct assumption that they were indeed worth quite a bit. In the interim, there will almost certainly be a wave of regulations designed to prevent the flood that has already occurred, some of which are likely to trigger another crisis down the line. Until we can have a more rational, measured public discussion about what government and regulations can and should do vis-à-vis financial markets, we are unlikely to break the cycle.

I don’t object to regulation financial markets - especially when it involves disclosure and capital adequacy.  But we have to be careful in how we approach this.  John McCain is write to call for a blue ribbon panel to devise a way to update the antiquated depression-era regulatory structure and bring it in to the 20th century.  But what do we don in the mean time?

Vinnie Catalan blogs on some quick things we can do to help the run on debt.

1 - Modify FAS 157

Change the rule from the insanely destructive and academically illogical mark-to-market to mark-to-moving average. By shifting the “fair value” reading from the last sale to the average of the past six months, you will get the closest thing to a reasonable compromise between the market fundamentalist ideologues (with their quaint notion that markets are always efficient) and the realists who know that in the short term investors can be anything but rational, especially when it involves illiquid, opaque assets.

2 – Require more transparency in illiquid assets

The FASB’s recent rule change for FAS 133 appears to be one such solid step in the right direction. More needs to be done.

3 – Begin the process of creating standards for derivatives

Financial innovation is not going away. And when conducting properly, financial innovation can be a very positive force for the real economy. However, when so much is constructed in the dark, in times of stress it becomes impossible to determine where the bodies are buried.

4 – Restore the uptick rule

Since the SEC has finally woken up and instituted sanity into the naked short selling arena, they now need to revisit their laissez-faire, market fundamentalist ideology and restore the uptick rule. By doing so, it will significantly reduce the incentive for the pre-Depression era bear raids that are wrecking such havoc.

5 – Move with a sense of urgency

I began this commentary with a reference to football, so let me return to that metaphor.

In a football game, there often comes a point where time is of the essence. And those teams that are prepared for such times act with clarity and a strong sense of urgency. They may not always succeed but the process is the correct one. The current crisis requires such a sense of urgency. If left unchecked, however, the bear forces at work will continue their bear raids (on equity and debt) until the threat to the system becomes more than it can withstand. Frankly, financial Armageddon is not too strong of a phrase.

I haven’t thought all of these through but on the cover they make sense.  One thing is for sure, if we tighten down the screws too tightly and too quickly on the financial system the result could be disastrous.  Caution is in order.  Action is required.

Barack Obama is making fun of John McCain because he wants to put together a kind of 9/11 commission to figure out how to better regulate Wall Street.  Obama asserts that we already know the problem and we don’t need a “commission” we need a leader who will fix the problem.

Well, here’s my read on Barack.  Unless he knows the solution, which he has yet to articulate in any rational manner, how can he lead us out of this mess?

There is a fundamental problem right now with the accumulation of capital.  The financial system is failing because debt is being destroyed and it must be replaced.  Obama’s “solution” is to increase the tax on capital by a minimum of 25%.  How is that going to solve this problem?

I feel the ghost of Herbert Hoover walking around in Obama’s head.

But to be fair, McCain is prattling on about “greed” on Wall Street.  A responsible conservative would call this “profit motive” as opposed to that populist pap.  He’s calling for limits on executive severance pay - which is just another form of government asserting itself in our rights to freely contract.

Sheesh!  As the Mugambo Guru says “We’re all doomed!”

My prediction that interest rates to businesses is coming true today.  Look at the 2 and 5 year bonds.

Business Credit is the life blood of the economy.

I just would like to remind all of you head-up-your-ass-blame-Bush-for-deregulation-morons of this New York Times article dated September 11th, 2003.

The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.

The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac — which together have issued more than $1.5 trillion in outstanding debt — is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.

[…]

Significant details must still be worked out before Congress can approve a bill. Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.

In fact, because of easy money it made housing less affordable.  But who’s askin’?

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

Representative Melvin L. Watt, Democrat of North Carolina, agreed.

”I don’t see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing,” Mr. Watt said.

See a pattern here?  And BTW, the bill was killed in the Senate by, mostly, Democrats.

Frank Raines, the big shot at Fannie at the time,  was supposed to be the guy to help Barrack pick a V.P. until it was pointed out that he had a few skeletons in the closet.  What’s that say for Obama’s judgment?

The GSEs were the kings of the lobbying set and it shouldn’t go unsaid that the prime beneficiaries of theri largess were leading Democrat lawmakers.  Oh sure, it was all well intentioned pap - but pap nonetheless.

Now with the failure of Lehman and the soon to be substantially taxpayer owned AIG (the $85 Billion bridge loan from the treasury comes with warrents for 80% of the company) everyone is hollering about where the oversight was over the last eight years.  For all of you rubes you should know that Credit Defaul Swaps were first introduced into the banking industry in 1996 with the full blessing of the U.S. Treasury and the Federal Reserve Bank.  CDSs were used to free up primary capital for banks so they could increase leverage and, in some part, make available financing vehicles for affordable housing -  you know, Mortgage Backed Securities and Collateralized Debt Obligations.  Meanwhile, us folks in the finance industry noticed a continued degradation in transperancy of financial institutions.   And with Mr. Bush’s effort to create an “ownership society” that both parties embraced,at least for affordable housing, we binged ourselves into a toxic coma.

Here’s the good news; with the massive debt destruction and deflation that we’re now just beginning we will eventually see all that affordable housing.  Now we just have to figure out how to finance it.

Well, you’ve all likely heard the news that you’re all owners of the worlds largest mortgage banks.  Fannie and Freddie should have been put out of our misery some decades ago but, given that they were born at the pen of the government and coddled by the same, it’s little wonder they haven’t been put to pasture and offloaded the contingent liabilities of the U.S. taxpayer.

The reaction by the presidential contenders was swift and vacuous.  McCain made sure that we knew he endorsed that the taxpayer get paid back first - demonstrating that he really hadn’t a clue what Paulson’s plan is.  Obama went on railing about the lack of government oversight by the Fed - which proves that he has no clue at all about what Fannie and Freddie are and who, in fact, their overseers are (which really is Congress.)  He also failed to mention that in his three short years he has become the number three recipient of political donations from these GSEs for the last 10 years.  Man, can that guy make up a lot of lost time.  I didn’t hear Biden’s reaction but if I had I’m sure to have fallen asleep in the middle of it only to wake up some hours later with him still talking.  And Sarah Palin demonstrated equal ignorance by pointing out that this is how government subsidized programs end up - oblivious to the fact that, until now, taxpayers weren’t on the hook in any direct sense (although the implicit guarantee and the associated reduced borrowing costs might be considered a form of subsidy.)

In all fairness, Gov. Corzine of New Jersey was on Mad Money and told Cramer that even he was having a hard time getting his hands around the deal.  This, after being a legendary investment banker at Goldman Sachs.  He’s right, it’s a tough deal to understand for even those who have spent a lifetime in the finance industry.  I include myself, of course, in that cohort.  But there are some things that even a layperson can understand.  It’s good to have an investment banker at the Treasury.

Now, I’m not saying that Paulson is better at this becasue he’s a Republican.  My guess is that Robert Rubin would have structured the deal quite similarly.  Actually, my guess is that he was consulted on the deal being the Co-chair at Citigroup - along with Jamie Dimon at J.P. Morgan.  These are very smart people and, notwithstanding their own self-dealing in the matter, have a sense of what returns are required to make a deal fly. For all of you in who care enough to know here are the highlights that interest me.

First, the government is calling the takeover “conservatorship” which is to say that they are not receivers but acting for the benefit of the creditors (bond holders primarily.)  The Treasury jumped in and will buy preferred stock that is senior to the existing preferred stockholders who are senior to common stock holders.  This had to be a tough call for Paulson inasmuch a number of commercial and investment banks were urged over the last year to buy Fannie and Freddie preferred stock to help the firms raise capital.  The upshot is that there are about 17 banks whose tier one capital ratios are now sub-par because they held so much of this “investment grade” crap in their primary capital accounts.  Paulson referred them to the Office of Comptroller telling them that the OCC would work with them to “devise a plan” to work their way out of the capital inadequacy. This was the government’s way of saying “we’re sorry and good luck.” But the good news for  the creative destruction of capitalism is that the stockholders are likely to get diddly. Capitalism rises to its justice.

Secondly, really showing Paulson’s investment banker bone fides, the coupon rate on the newly issued preferred is 10% - about 400 bips higher than the market would otherwise garner for a well capitalized bank and about 700 bips higher than Uncle Sam himself is paying for treasury notes.  This, actually, is really smart inasmuch as it insures that the profits that Freddie and Fannie make as a government enterprise go straight back to the taxpayer.  The initial volley is only for $1 billion each (notice how cavalier I am throwing around billions as if they are loose change) but may be as much as $100 billion each if needed. But my guess is that any additional preferred stock will have the same coupon - as it should in my opinion.

Third, because of Congress’s dereliction of duty on this matter (conservatives have been howling about the probability of this kind of mess for at least 20 years now) the government had little choice at this point to do what it did.  If Congress had acted responsibly the whole matter would not have come up.  But it didn’t and the unintended consequences of creating an economic chimera (think public-private partnerships) have come home to roost.  It’s not nice to fool mother nature.  Failure to act by the Treasury would have assured that credit markets seized ( which would actually put the pain behind us faster) and the pain would have been much much more acute.  Of course my libertarian friends will argue that I’m being pragmatic and risk making matters worse.  They’re probably right.  I just think the maker of a mess, in this case Uncle Sam, has the obligation to clean it up.

Last, Paulson said the the Treasury would reduce the amount of portfolio loans by $250 billion a year starting in 2010.  That sounds like a lot but it actually will take about 10 years to do this.  The long term plan is to make both companies smaller by half. The GSEs were never chartered to hold loans in portfolio but did so because they had been profitable.  If they had bundled and sold all of the mortgages they ever touched this wouldn’t have happened.   But that, again, is what happens when Uncle Sam is viewed as a rich angle investor and Congress thinks that there should be different rules for GSEs than other financial institutions just because they are the invention of Congress. If any of you are feeling screwed look no further than Capital Hill.

The upshot?  Who really knows over the long term?  Over the short term there are a few things that we saw today. Rates on 30 year mortgages reduced by 30 bpps and many think that they will come down a whole point.  This is significant in that, as treasury yields have been coming down lately, mortgage rates have held steady,  The spread between the 10 year treasury and MBS (mortgage backed securities) fell a full 75 bbs bringing the cost of money for mortgage closer, but still a bit high, to its historical level.  The reduction in rates will help the real estate market begin to work through it excess inventory.  Although it will take some time for this to have an effect on the economy it’ll be helpful.  As I’ve said to many of my clients, we won’t see a turn around in the economy until the housing market stabilizes.  That, however, could be a year or two away.

As approving as I sound about this I’m really only lukewarm on the deal (and I hate the fact that it had to be done.)  Not so much because of the transaction and the risks but more because I think its only the beginning of the challenges that lie ahead. Between now and the end of the year financial institutions will have to refinance debt they owe to the tune of $871 billion according to a Bloomberg story.  Fannie and Freddie are looking at something like $250 billion this month.  That means, for the financial industry alone - let’s make that the U.S financial industry alone - we will need to retain over $1 trillion of investment in financial services bonds.  Given how the industry has fallen out of favor with the investor class I’m not sure it can be done and, if it is, will rates for such instruments go so high that the hopes of a recovery in the sector is put off for several years?  That is the big tell we need to be looking for.  If those bonds aren’t absorbed we’re in for a much longer and deeper “rough patch.”

Yes boys and girls, today is a real watershed moment in American history.  This action by the Treasury is bigger than the South American debt crises, the Asian contagion, the failure of LTCM, and the bail out of Bear Stearns combined.  Make no mistake about it, we will get past this  - but we’ve hit the wall.

[Update}  For those of you who are really wonky on financial services policy, Arnold Kling has an interesting briefing paper at Cato that is worth reading.  Long story short, Kling thinks we can get out of this mess by placing a stop to new mortgages at the GSE’s and reducing the capital requirement for conforming loans originated at banks.  Interesting idea.  Politically impossible, but interesting.

Hillary just can’t get over herself (but we knew that, didn’t we?)

Mrs. Clinton’s friends said she was galled that Ms. Palin might try to capitalize on a movement that Mrs. Clinton, of New York, built among women in the primaries. And Democrats used strong words on Sunday to rebut the notion: Senator John Kerry of Massachusetts said that women would not be “seduced” by the Republican ticket, and Guy Cecil, the former political director of Mrs. Clinton’s campaign, said it was “insulting” for Republicans to compare Ms. Palin to Mrs. Clinton.

Hillary built a movement to put a woman in the White House?  She failed at building a movement to put her in there as I see it.  She’s “galled” because there is another woman on  presidential ticket that’s not her.  Sheesh, so much for adding cracks to the glass ceiling (just for the sake of adding cracks I guess.)

As for Republicans comparing Sarah to Hillary; A) I haven’t seen it yet and B) it wouldn’t be insulting for Republicans to compare Palin to Clinton, it would be downright stupid and an insult to Palin.

I know only a little bit about Sarah Palin. The little I know of her is impressive to me - at least when measured against my own life. There is much yet to know. The reaction to her from the left is, I suppose, predictable. It’s also intellectually dishonest.

There is, first, the thoughtless knee jerk reaction that McCain has tossed the election. The adjectives applied are “unknown” and “inexperienced” and, E.J. Dionne called the pick “dangerously reckless.” I suppose Dionne’s thoughts pertain only if McCain wins which, as is seen, Dionne hopes for no such thing with or without Palin. While there is no denying that Palin’s resume is thin there is also no denying that we don’t have a sense of her knowledge, judgment, intellectual capacity, or temperament - all things that have been held out as a case for Barack Obama. I’m not saying that the case can be made for Palin. I’m saying that it’s too early in the process for voters outside of Alaska to know very much. And, following on that logic, it’s also intellectually dishonest for supporters to make much of a case either.

As for the theme that the pick dooms McCain history argues against it. Remember Spiro Agnew? And is a depth of experience a prerequisite for success as President? Think Richard Nixon or William Howard Taft.

Joe Trippi thinks the Dems reaction is wrong too

Something else in his speech introducing Palin as his choice caught my attention and I believe shines some light on the real reason McCain chose the Alaskan.

McCain said of this pick “I have found the right partner to help me stand up to those who value their privileges over their responsibilities, who put power over principle, and put their interests before your needs…I found someone with an outstanding reputation for standing up to special interests and entrenched bureaucracies; someone who has fought against corruption and the failed policies of the past.”

The McCain campaign plans on making an assault on Barack Obama’s strength as a change agent. And challenge, what the McCain campaign will describe as, Obama’s weak or non-existent attacks on corruption within the Democratic party and other institutions throughout his career.

:[…]

The McCain/Palin duo will challenge Barack Obama’s claim of “a new kind of politics” and chastise Obama and Democratic Vice Presidential Nominee, Joe Biden, for their “silence” in taking on corruption in their own party in Illinois, Delaware and Washington, DC.

The McCain campaign intends to claim that “more of the same” in Washington means Barack Obama and Joe Biden, and will make the argument that if you want to “shake things up” then McCain and his reform minded running mate from Alaska will get the job done.

Then again, he thought that Howard Dean, Mayor of Vermont, was ready to be president. But read the whole thing. I think he’s more than half right.

Of course one of the most churlish comments comes from Montana’s own Wulfgar:

Which leads me to the third reason I’m happy that Gelding McCain chose Palin. She’s beautiful, and he just got the MILF-hunter vote. He just earned the vote of every randy buck crossing the field.

I knew what a MILF is but I had to google “MILF hunter” to understand what Wulfgar does with his days. And this from a guy who was more than critical of me because I made some jokes about Clinton’s sexual relationship. Classy.

I have no idea if Palin will help or hurt McCain’s run. That’s because I know for sure that I don’t know Sara Palin well enough to know. I think that’s true for almost everyone.

When Obama gave the keynote address in ‘04 I looked at my wife and said “This guy could be the first black president.”  She wasn’t paying attention.

When I heard Barack give his victory speech in after he won Iowa I praised his ability to move people with his lofty rhetoric. I was moved.

While listenign to him tonight I thought - Jesus Christ, his advisers have turned him in to just another politician.

I thought the speech was one of his poorest showings.  It was flat and full of platitudes that mean nothing of substance.  What happened to the guy that wants to lift us up?

Well, he never would have gotten my vote in the first place but I’m disappointed that he didn’t even make me feel better about my country.

I think the folks in Peoria are saying “So what’s the big deal?”

Keven Depew (Minyanitte) has a good article about the banking sector today and births some ideas for an eventual trade.  But what I liked was this:

If I had any measure of good judgment, I would stop right now. Being “right” about economic doom is the quickest way to lose all of your friends and create more enemies than you can shake a stick at. It’s a bit like telling a man his wife is cheating on him… with his son. If you are lucky, you will merely be hated; unlucky, and you will be stoned to death by someone who will then scratch his own eyes out. But I have never been accused of having a good judgment.

With all off my intermediate term bearishness, I resemble that remark.

Listening to the partisans at the DNC one would think that soup lines are forming across America.  Of course we know this is populist nonsense.  But, at the same time, can we believe this?

The Commerce Department reported Thursday that gross domestic product, or GDP, increased at a 3.3 percent annual rate in the April-June quarter. The revised reading was much better than the government’s initial estimate of a 1.9 percent pace and exceeded economists’ expectations for a 2.7 percent growth rate.

I’ve become more skeptical about government numbers over the years and I look at this revision as suspect.  But I will have to say that the economy doesn’t look or feel nearly as bad as 1983.  Things were really tough then.

Don’t take this too far but the GOP is known as “The Stupid Party” historically. Being the political ecumenicist  that I am I think both parties now qualify.  But you gotta love this.

Alaskans send Ted Stevens on to general election

[…]

Stevens won his primary with 63 percent of the vote.

Stevens, the indicted pork barrel roller is everything that is wrong with the GOP.  I hate to see the seat lost to Democrats simply because I have nightmares about a filibuster proof Democrat majority.  But putting Stevens on the ballot might make one think that the GOP deserves it.  Unfortunately, the rest of us don’t.

I just heard Joe Biden say that he and Obama were going to “hold Russia accountable”  in defense of Georgia.  Did he really say that?  How, Joe?

But just so everyone doesn’t think conservatives are un-human, here are some snips from NRO what I pretty much agree with.

The Best of Biden [Michael Graham]

I re-read Biden’s autobiography on the flight from Boston to Denver and the story of what happened to his family weeks after his election to the Senate is riveting.  His reaction — willing to abandon his US Senate seat to care for his sons — is what I would hope to be brave enough to do as a father.

I’m not a fan of his politics or pomposity, but on behalf of dads everywhere, Joe Biden has my unshakable respect.

Beau Biden [Kathryn Jean Lopez]

Is an impressive son.

“More of the Same” [Kathryn Jean Lopez]

This Biden speech is the first real substance of this convention.

Now It’s A Convention [Jonah Goldberg]

For the first time they’ve actually had two top flight professional convention speeches, Biden and Bill.

Me?  I think he left out a great many predicates in his declarations on Barack being right.  But he gives good speech.

Tomorrow night at the DNC Bill Clinton speaks followed by Joe Biden.  I think now is the time to regulate Co2 emissions.

Remember when Bill was booed at the 1988 convention for running on and the how the crowd cheered when he said “Let me end with…”

I may have to take up drinking again if I choose to suffer through those two gas bags.

I got a big kick out of HRC speech tonight.  Not once did she refute any of the things she said about Obama nor did she talk about his character, ability to lead, or the education that he made have gotten during the primary campaign.

I think she’s looking toward ‘12.

Ramish just pointed this out about our Guv.

“Tax Breaks for Oil Companies” [Ramesh Ponnuru]

Schweitzer just repeated this line about McCain. It’s not dishonest, exactly. But if it’s fair so to characterize a reduction in the corporate tax rate, McCain can talk about Obama’s tax credits for porn stars.

Schweitzer was entirely disingenuous about McCain’s energy plan.  He approached it as if the only solution proposed by McCain was drill, drill, drill.  It’s entirely untrue and, in fact, McCain calls nuclear, wind, wave, solar and the whole kitchen sink.

I know it’s politics and most of you know that I think Schweitzer has accomplished nothing in his four years, but for a guy who lives in a state that could make a great deal of money by exploiting our energy resources he’s walking a line that might just bite him on the ass.

Presciently, leftest Mark Tokarski wrote a little nibblet the other day about his proxy vote on a mutual fund where the fund desired to relocate as a Delaware corporation. He writes:

I’m not following the issue, my shares don’t matter anyway, but in general I know that Delaware is a corporate hideout - most Fortune 500 companies are organized under Delaware laws because Delaware is so lax.

Well, I’m not sure it’s lax but it is, to say the least, business friendly with no corporate income tax and, most notably, no usury restrictions such as the limits on charging interest on interest - aka “pyramiding” - that many states have.  For this it’s a credit card haven.  The largest credit card issuers are all incorporated in Deleware.

Byron York wrote a piece in 1996 about Hair Plug Joe Biden’s cozy relationship with one member of the industry.  Here’s a snip.

But as much as he bungled the issue, it turns out Clatworthy was on to something: Biden and MBNA have indeed developed a pretty cozy relationship. John Cochran, the company’s vice-chairman and chief marketing officer, did pay top dollar for Biden’s house, and MBNA gave Cochran a lot of money—$330,000—to help with “expenses” related to the move. A few months after the sale, as Biden’s re-election effort got under way, MBNA’s top executives contributed generously to his campaign in a series of coordinated donations that sidestepped the limits on contributions by the company’s political action committee. And then, a short time after the election, MBNA hired Biden’s son for a lucrative job in which, according to bank officials, he is being groomed for a senior management position.

Of course, lots of members of Congress have intimate ties to corporations in their states or districts. And lots of companies encourage their employees to make big campaign contributions (MBNA has given more to some Republicans than it gave to Biden). And certainly lots of children of influential parents end up in very good jobs. But the Biden case is troubling because all those ingredients come together in one man—along with a touch of hypocrisy. After all, this is a senator who for years has sermonized against what he says is the corrupting influence of money in politics.

On a much more contemporary note, I recall all of the hoopla about the Bankruptcy reform bill in 2005 by progressives yelling that the bill was written by the credit card industry and was a definitional screwing of “working families.”  (For the record I didn’t object to the bill - but that’s a different discussion.)  The kids at Left In The West went apoplectic over the issue.

Little wonder, Hair Plug Joe voted yea.  His new running mate voted nay.

Is this the type of “Change We Can Believe In” that will suite The Progressive States Network?  We’ll have to ask David Sirota.

I guess I can’t blame Obama for picking Biden (Narcissist- DE) for Veep. It does, however, raise the question about how committed to change the ticket really is. Hair plug Joe has been in the Senate for well over 30 years - just slightly longer than his hair transplant.

For those of you who watched the Thomas confirmation hearings you’ll remember that he just prior to that had another go of plugs implanted and his head looked like that of an old worn out rubber doll’s head. Of course his capped teeth add to his authenticity as well. But let’s not be petty.

Biden adds kind of a Dick Cheney sort of chaperon to the ticket. As Mark Shields says “Someone to show Obama where the men’s room is in the White House.” The risk, of course, is that Biden is a loose cannon whose (blindingly white) mouth is the only thing in physics that comes close to a perpetual motion machine. The GOP is going to have a heyday with this selection inasmuch as Biden has said so many good things about McCain over the years and went so far as divining a “third way” out of Iraq which was indeed contrary to “phased redeployment” of the Democratics main.

Ramesh Ponnuru thinks that McCain now has a shot at the Indian vote.

This is gunna be fun!

I’ve come to believe that the entire world is nuts. That includes me of course. While I haven’t been posting my come to Jesus failings in the market with a good report card it’s not because I’m hiding the results. The fact is that since June 18 I’m underperforming the market by about 2% on the stocks that I’ve picked but I’m beating the market in total by about 4%. But what I realized is that the way I’ve listed the stocks is factually incorrect since it doesn’t include the weighted average of the gains and losses. So I’m working on that.

I can’t, however, understand the optimism on the street. There’s just too many pot holes in the economic road ahead for there to be reason for a good rally. So, as a word of warning, I defer to The Grateful Dead who said “when life looks like easy street there is danger at the door.”

We are, however, getting a break in energy prices even though the old economic axiom that prices are sticky upwards is true. The wholesale price of gas on NYMEX is down something like 85 cents from the high in July. We haven’t seen that at the pumps or anything near it. But if wholesale prices stay down we will see competition push prices down after the last gas stations sell the last of the gas they bought before the correction. Those rat-bastard capitalists.

Today, for those of you who care, is the 40th anniversary of Woodstock. Max Yazgur still gets the credit and the blame for Three Days of Music and Peace … and the popularization of extreme hedonism. Obviously it wasn’t Max’s fault - he was just the slum lord. But Shepard Smith just reminded me not to eat the brown acid. Words to live by I say.

I, in a most out of character way, have been watching the Olympic games with some intensity. Now, call me an old cold warrior if you will but I think the Chinese may have fudged the women’s gymnastic team’s birth dates a bit.

I’m not an expert on the genetic differences between Asians and Caucasians, but being the father of five daughters I know something about pre-pubescent girls. My guess is that maybe half of them, and that’s a big maybe, are sixteen or older. I tell ya, those Commies are up to shenanigans even if they have left the alter of socialism.

And speaking of Commies, I would be remiss if I didn’t say something about Georgia and Russia. There’s no shortage of rank speculation (maybe I should say spekulation just for effect) about the what and the why. I’ve read numerous lefties blame Bush and an equal number of righties blame the EU. But I don’t have enough information to make an informed comment. The only thing I know is that I love the name Saakashvili. It reminds me of some sort of Baltic side dish. “I’ll have the braised pork and saakashvili, please.” Or maybe it would be better suited for the name of some obscure heath ailment. “Mr. Jones passed away last night after battling Aortic Saakashvili for the past 20 years.” Better yet perhaps something concerning anatomy. “Wow, did you notice that guy’s saakashvili?”

Well, it’s the weekend and I’m glad not to be neck deep in markets. I got some special Italian sausage today that I think I’ll use to make up some pasta sauce this weekend. Maybe some tomatoes from the farmers market would make it special. And I’ve got some fresh Greek basil that needs to be picked. Huh, maybe I’ll post over at The Spoon this weekend. I haven’t done that in ages.

Wow! After watching the lengths to which the Chinese went for the opening performance even I’m proud to be Chinese.

That’ll be a tough act to follow.

Yep, been gone much of the last couple of weeks. Put my stops on and headed out of Dodge. You know, work to live not live to work. I came back to a steaming pile of things that need attention. Maybe I’ll crawl out of the hole sometime next week. That said, The market continues to act loopy (or should that be, rather, lup-ish.)

I can’t tell if the market is more afraid of the financial crisis or the upcoming election. Here’s the take from the Mogambo Guru:

Last week, the low-IQ socialist scumbags in the House of Representatives in Washington, D.C. among other legislative horrors raised the debt limit of the U.S.A. by another $800 billion, taking the limit to a staggering $10.6 trillion, so that they could continue to act like the mental defective lowlife collectivist scumbags that they truly, truly are, which is destroying our money and our country, which is why I hate them, and which explains why I intend to vote against every incumbent as often as I can, and urge everyone else to do so, too, (except for the people in Texas who elect Ron Paul), unless I can successfully get the American people stirred up into an unruly mob so that I can take over the country and give myself a nice, big salary, a generous retirement package, and the awesome, unlimited powers of an emperor!

It might be good to be king, but who knows. That might require actually showing up on someone eleses schedule - god forbid.

But when I landed the other day I noticed that the banks had held up and after the rah rah on Tuesday’s 330 point lift in the Dow I couldn’t help shorting the financials in a big way by way of the SKF. It was a nice trade and I closed out today up just over 11%. Not bad for a schnitzel to help offset the pounding I’m taking Southern Copper ( PCU ) over the last month. But not to fear for the price of copper. PCU has a 9% short position and one of these days there will be a short squeeze. If I can find a bottom I’ll triple down and if it stays flat I can live with the 9% dividend that it sports.

Commodities, however, have lost their luster and the play of short financials and long commodities may be nearly played out. With the dollar strengthening this might be a slow recovery but, as time goes on, it will indeed recover.

That brings us to the greenback. It’s had a nice rally over the last few weeks and we’re pressing on resistance nearing 1.50. If it breaks below 1.50 we could see a lot of wiggy things happen like oil at $90 bucks. It could happen. So, I’m keeping one eye on the Benjamins at all times.

My bias is that tomorrow will be an up day. But, as you all know, I could be wrong. Fannie reports tomorrow and she might look as ugly as brother Freddie yesterday. I’m guessing, though, that’s already baked in the cake as she took it on the chin today down 14%. In the mean time there has been a shortage of Fannie stock to short - naked or otherwise. t could be in for a bounce simply so the shorts can cover over the weekend. But again, I could be wrong.

Although I still think we’re in for much more pain over the long run it’s been good to see the market consolidate over the last week. I mean, sheesh, week after week of bad news gets me thinking we’re all doomed and thinking the the Mogambo talks. It’s just not healthy.

I haven’t had much of a chance to catch up on the Montana bloggers. I see the banter about oil legislation and approve of the politics of Denny going back to D.C. I’d be a hypocrite though if I said that I would prefer Congress to be working. At least when they’re on break I don’t have to worry about them screwing things up much. As Mogambo said:

In fact, the nation was supposed to be basking in liberty and free enterprise, with minimal government interference, and the Founding Fathers obviously thought that there would be no need for the Congress to ever even meet! This is why they thought it was important to include Article 1, Section 4 in the Constitution, which requires that “The Congress shall assemble at least once in every year.” Hahahaha! Meet at least one day a year! Hahahaha!

But for everyone who has theories of why the oil markets have been doing what they’re doing I have just one comment: You probably don’t know what you’re talking about. As J.M. Keynes said “Markets can stay irrational a lot longer than many people can stay solvent.”