Monday, June 30, 2008

Back in the Saddle

After two weeks of travel - very stressful - I've returned to my turret and see the jizz [ that's a real word - a prior Word of the Day ! ] of the market as devastation in many stocks reminscent of a World War I battlefield after a thorough shelling and gas attack. Ugh !

Obviously, my moves to buy the big commercial bank stocks in my Alpha Fund was ... "early" at best. At worst, I suppose "stunk" fits. Other postions in the Alpha Fund, except GE, have performed rather well taking into account the trading adds at the lows earlier this year. Even though the Alpha Fund is designed to be concentrated in a few big positions ( < 10 ), some diversification is still crucial to prevent a really huge meltdown. Of course, limiting the Alpha Fund to about 15-20% of my holdings helps, too. This is risk and money management.

What now ?

I will continue to play out the hand using meliorism. Some new money coming in a few days will be deployed into my stocks that are now ... uh ... "bargains". Oh, I remember well those quotes of Jesse Livermore scoffing at the public buying "bargains". But my long term thesis still seems correct, viz., that the big banks will gain share and profitability vs. the other parts of the financial sector. Also, I need to seek a few smaller stocks with really good growth prospects.

I wonder if this news was overlooked on Friday: "WASHINGTON: Sales of existing US homes rose a surprising 2.0 percent in May from April amid falling home prices, the National Association of Realtors (NAR) said on Thursday. The improved monthly data for the battered real-estate sector offered a fleeting glimpse of relief from a severe and prolonged slump that has resulted in spiking foreclosures and credit turmoil. " Uh ... who was it that forecast a housing bottom in Spring ? Uh ... I think that name began with "Bu..." Hehehe, and it wasn't "Butthead". I also read in the Financial Times that London's regulators are forcing hedge funds to disclose large short positions much faster. Will our SEC follow ? Short interest continues to grow, so I suspect the beefers will continue to push the market down.


Gosh, I thought that "inflation" meant a broad increase in prices. In the late 1970s, housing costs increased dramatically as inflation was rampant due to excessive money printing by Jimmy Carter's Fed. This weekend I got my real estate tax bill and it was down by 6.8%. So that prompted me to compute my actual housing costs. This is mostly mortgage interest and principal, taxes and insurance. Bunkerman has a fixed rate, 30 year mortgage at 5.41%, so that cost has not changed. Real estate taxes are down, as mentioned. Insurance, including an umbrella liabiliy policy and earthquake insurance, is down by 12.7%. Combining in actual $ amounts, the total is down by 3.42% year over year. That is strange, for a year of such rampant "inflation".

Reading the history of the Mameluk empire in the period from about 1200 AD to 1516 AD, I noted that the cost of living in Cairo was increasing dramatically in the late 1400s ... before 1492. Gosh, I wonder how that Spanish gold affected prices before the discovery of America by Columbus - a time warp ? Ok, enough jest. But the point is that blithe quips about inflation and its causes in the past might fall apart when actually looking at historical facts. That same applies to the present.

Checking gasoline demand from my commodity research site, the public's demand for gasoline has sharply fallen. Summer "driving" season seems to be gone. Year over year demand is about 3% lower and the usual hump from June to late August might not exist this year. Recent demand is about the same as last December. Since the US is the largest consumer, overtime this will have an effect. If only Congress would kick the pension funds out of the futures market and into the real, physical oil markets where they belong. Let them buy physical oil in the ground, not futures or other derivatives with limited natural hedgers.

Word of the Day

This week I will focus on "syn-" words. That's "syn-", not "sin" for those readers thinking about that other, slang, meaning of "jizz".

"Syn-" is a combining form to make compound words, being a Latinized form from Greek.
Syn- means together, similarly, alike.

"Synchronic" - adjective {$10]
Synchronic means describing a subject as it exists at one point in time; it's opposite is "diachronic"
Sentence: A simple, synchronic summary of the US presidential campaign for 2008 is a slugfest between Obama and Big John.

[Did you notice that alliteration in Bunkerman's prose ? Hehe ...]

Wednesday, June 25, 2008

Outlook for the Economy

Yesterday the question of the prospect for the Fed's raising rates was asked in the comments [click on "Comments" below each day's blog]. A Reader adduced the probabilities for hikes in the Federal Funds rate to suggest an increase in the fall by a bit. Those probabilities are determined by traders and beefers, so can be dominated by fear and greed, and were quite wrong just recently in forecasting rates below 2%. If they were wrong just recently, why should I believe then now ?

But then I thought about the question and what would make the Fed raise rates. Inflation is near the comfort zone and likely to fall in the near future. The 2% overnight rate equals the 2% upper band of the comfort zone and is a bit below the 2.2% core PCE year over year rate of inflation. A neutral federal funds rate would now be 2.5% as the overnight rate should be a bit over a short term Treasury bill rate, which in turn should approximately equal to the core rate of inflation in equilibrium. So the decision depends on the economy. When the economy bottoms, the Fed will be able to raise rates to neutral.

Data will lag the real economy by about three months. So what are the prospects for the economy ?

Bunkerman wrote a few months ago that the housing market will bottom in the late Spring. That means June. Housing has gone down enough to entice buyers and the price bubble from 2004-2006 is gone. Many homes are affordable now. Some areas have oversupply [sun & surf areas], so will take awhile to work off that inventory. But I think the housing market has btoomed in June, or is bottoming now. Data will appear in August.

The economy is bottoming now, in my humble opinion. That means the Fed can raise rates to neutral this fall, perhaps in September, to the neutral zone of 2.25 to 2.5%. That's when I think the Fed will raise. Hmmm .... mirabile dictu ! That agrees with the fed funds market estimates.

So I need a buy list for stocks. While traveling, that is tough to compile. And I have new money coming in soon, so must figure out what to buy. I'll try to put a list together next week when I return.

PS: I shift my base of operations this evening, so might lose my Internet. If so I won't be able to post Thursday. I plan to drive home on Friday, so can't post Friday.

Tuesday, June 24, 2008

Speculation is not a Dirty Word

For all my rants against beefers (aka big, evil funds) and oil market speculators, I want to make it explicit that speculation is neither a dirty word nor a dirty business. Everyone should be free to speculate to the extent of his or her desire. That's what freedom means and clearly, being a populist libertarism, you expect that from me. But ...

But that means as a person ... not a giant pool of big money. Human freedom is to be exalted, but not groups of big money pools. Those need to be regulated and / or prohibited from trashing markets necessary for price discovery, and overwhelming natural hedgers by their sheer size and thus manipulating prices higher in the same manner as the old "corners" on markets.

And the rich pour money into these pools in the search for "excess returns" and "stable returns". Do they invest in a new oil field ? Or a new mine ? Or in new discoveries ? No. They pour money into financial products and beefers who act as their vikings to loot more plunder in trading pools. The rich should just find a good broker to pick some stocks and private investments in new mines, oil, or ventures. This layer of beefers needs to be heavily regulated.

Populist libertarianism is a two word concept. The "populist" part means that the big pools of money, the ruling classes, must be limited in their ability to raid the common man.

Monday, June 23, 2008

Monday Morning Ramblings

I guess Congress reads this blog, as they are responding to the recent post that financial investors such as index funds are overwhelming natural hedgers in the oil markets for the higher grades of crude oil, and are unaturally driving up those prices. Financial Times also had a recent story how the spread between the prices of various grades crude is at record levels. I have no problem with pension funds investing in oil, but let them buy it in the ground or invest in finding it. The futures markets are no place for them. Congress should simply reimpose the unrelated business income tax on pension funds speculation in futures.

In addition, the position size of financial firms, hedge funds etc., need to be greatly limited and swaps and other over the counter derivatives need to be regulated. Letting these big pools of capital mess up physical markets is just wrong. Again, if they want to invest in oil, let them buy or find it in the ground.

There is no silver bullet to solve the energy problems, but doing a little bit of everything that can help will, in their cumulation, make a big difference. The long term solution is nuclear power as I wrote recently. Short and intermediate term, many smaller changes can help over the multi-decade transition.

Word of the Day

"Meliorism" - noun [$ ? - no dictionary available] - this word comes from reading the fine biography titled "Walter Lippman and the American Century"
Meliorism is a belief that things can be improved but never perfected.
Sentence: (A) Politicians need to embrace meliorism in their efforts to solve the energy problems by making many small improvements and giving it continuous attention. (B) A stock trader must accept meliorism as his credo as trying to attain perfection in trades is psychologically damaging thru quotidian failures.

Friday, June 20, 2008

Problems in Government

Let me make this simple. Long term solutions to the energy "crisis" are and have been known for 30 years. These were developed in the late 1970s after thne first oil crisis. You might ask, so why do we have this problem now ? Government and the people are unwiling to make the decision. In the former case, the cause is brinkmanship of the environmental movement who are against everything that will work due to their own theology of Gaia. In the latter case, the people are waiting for a miracle ... a mythologial perpetual motion machine to get energy for free from the vacuum.

Energy solution: nuclear power plus breeder reactors to make hydrogen from water and coal. Natural gas is used for peak load power only for the transition. Oil is used for the transition period for transportation. That's it. Period. Full stop. This can provide plenty of energy for thousands of years. Japan and France have been moving to nuclear power for decades. So is China. Why isn't the US doing it ? The environmental movement is against it.

In simple terms, the environmental movement wants everyone to live as the Amish do now ... simple lives in harmony with nature. That's why they oppose every workable soloution and support only the unproven or impossible.

The people want a miracle and make stupid decisions. Like not buying flood insurance ... or not buying earthquake insurance. And supporting those carnival operator-like politicians who promise those miracles.

The solutions exist. Who will move from the brink ? The government, the people or the environmental movement ? Put in these simple terms, only the people can make this decision. They need to support leaders who embrace nuclear power.

That means Big John McCain, big time.

Thursday, June 19, 2008


Imitation is the sincerest form of flattery, and this morning when I heard that Carl Icahn is now imitating this blog I was really flattered. Carl Icahn is starting a blog !

Hmmm ... having readers like Ben Bernanke, Hank Paulson, John McCain, and Jim Cramer is quite flattering, but now leading the movement to increase the honesty of financial discussion - that's great! [If only my populist libertarian movement would get going ...]

Summer doldrums are here but aren't really boring as the beefer ping pong is intense.

Two BSC hedge fund managers to be indicted. No surprise to me ... a tiger doesn't change its spots and if one plays the con game to long, Sgt. Joe Friday will eventually catch them.

UK retail sales were good ... uh ... hello bears ? The UK shoppers did NOT receive a tax rebate check. So what's the bearish spin on that ?

Oh well .. facts don't matter ... until they do. I don't think I'm being a fideist as I try to adduce facts to formulate my outlook. All the bearish outlooks seem to be quite fideist, though. Hmmm bears really do seem to be fideistic polydaemonists.

[For defintion of fideist, see it as a word of the day in a recent blog. To really learn the meaning of words, one really needs to use and write them. So I'm practicing ...]

Wednesday, June 18, 2008

Deja Vu all over again

In the latter half of the 19th century, the Sear Roebuck catalog opened up the distant rural US to the world. Innumerable products could be ordered at a fixed price and delivered to small towns or farms. The great movie, "The Music Man" has memorable scene where the townspeople in Iowa are so excited by the arrival of the Wells Fargo wagon delivering ordered goods.

So now, the Internet has opened up the whole world - the developing world - to the innumerable goods and services of the developed world. No wholesaler, no middleman taking an undetermined, but large, "trading profit".

What happened in the last half of the 19th century ? A huge boom lasting decades occurred. Crises occurred , as the railroads were overbuilt and had short term problems. The technology crash in the period 2000-2003 should be viewed with this background. After the 19th century railroad busts, the economy came roaring back. New energy sources such as electricty and oil replaced the old ones of wood and whale oil.

Housing was overbuilt by speculative demand. That has ended. Exubia is being repriced to reflect the cost of commutes and heating or cooling that McMansion. Central cities and small towns where transportation costs are less will do fine using the Internet and efficient deliveries to thrive.

Bunkerman's world view sees renewed, strong growth "second phase" to this economic boom. The risks are really political disruptions and wars caused by the ruling classes. Will they mess up the world to retain their power ? I think the talk of the ECB rasing rates reflects this desire to retain power. The already wealthy want to grind "inflation" out of the common man. Does any of their talk reflect the needs of the common worker in Europe ? No. This is a big risk to a united Europe, already reeeling from the Irish "NO" vote.

Similarly Obama wants to raise taxes on those working to earn more income, not on the tax free wealth of his ruling class supporters. Can he deceive the common man ? Time will tell.

I don't think one rate bump will be decisive, but this bears watching.

[by the way, "second phase" is a rugby term, for a renewed offense after a tackle.]

Tuesday, June 17, 2008

Price Warp

Driving here to SE Ohio, I must have passed thru some strange time-space warp, as prices for quarterpounder cheeseburgers, etc. fell by around $1 somewhere along the route. Strange how "inflation" mostly disappears once I get out of the areas of megopolis. I suppose people living in the sun & surf areas notice the same thing when they get away from the influence of the "good and beautiful" as the ancient Greeks called their aristocratic class.

And I of course turned on Babblevision this morning, being a bit of a market addict. What did I hear ? One boob contradicting himself in the same sentence. He was griping about "inflation" in one breath and in the next breath said companies were having trouble raising prices ! Hellooooo ... if a company has trouble raising prices, there is NO general inflation. In inflation, raising prices is easy.

There are rising prices of some raw materials due to demand in China, etc. and limited new supply. Period. No general inflation. That guy and most of the financial pundits need to go to re-education camps to learn the meaning of a few words and concepts.

Corn fields are really poor here ... worst I can every remember seeing. Corn is only about 6-9 inches high vs. two feet nomally by this time of year.

Word of the Day (surprise !)

"Monolatry" - noun [$? no dictionary - I heard this word on a CD course]
Monolatry means a doctrine or practrice to worship of one god, but does exclude the existence of others. This appears to be the practice of the early Old Testament until the time of the exile to Babylon, when monotheism became the doctrine.
Sentence: Wall Street traders seem to believe in an itinerant monolatry, viz. worship of whatever works while it does, but I guess that reduces to worship of the money. Bunkerman remembers hearing joking statements to this effect while working on Wall Street.

Sunday, June 15, 2008


I'm driving to SE Ohio tomorrow on family business and will be in my home town for a couple of weeks, approximately. I won't be able to post a "Word of the Day" since I'll be away from my normal reading material and dictionaries.

Unless I have Internet problems, which have happened before, I should be able to post a blog daily.

I haven't seen much news up to now for the weekend. Barron's data shows the monetary base is up a bit ... finally ... but is still up only 1.5% year over year - not enough. The Fed needs to push more money into the system.

I'm doubling up on that dog of a stock, WB, on Monday. That stock was definitely my biggest mistake these past few months and really hurts. Ugh ! This is just a tax play, so I can take a short term loss in 31 days to offset more of my gold & silver profits. When (! yes "when" ! I am optimistic !) WB rebounds, the gains will be long term as much lower tax rates.

This being a triple witching week with expirations on Friday, enjoy the ping pong. It will probably be a killer game.

Friday, June 13, 2008


Yesterday was another ping pong day. I looked at the S&P 500 cash chart early AM and was surprised how neutral it was, despite all the anguish I hear on Babblevision daily. Time will tell and the future of the S&P depends on the prospects for the real economy.

Often I think about how the future is determined. One formulation of quantum theory holds that all possible future events and paths over all time and space combine and interfere in a manner described by a gigantic path integral over the future Universe; the actual path of real particle - viz., us - is the "mostly likely" determined by that one that has reinforcing phases, not the random ones that cancel out. It's an intriguing philosophical concept.

[Btw, the "phase" is related to each particle's energy-momentum at each point in space-time. And the "paths" include those coming from the future backwards in time to now.]

In the stock market, a similar concept helps. All the random phases of the virtual buyers & sellers tend to cancel out and the path of the market is determined by the real buyers who buy and hold long enough to let their phases add up, not cancel out. That is part of the reason I try to distinguish beteen the beefers, who tend to be virtual traders, and the investors, who are real buyers or sellers who move markets in the intermediate time scales. But sometimes when all the phases - trades - of the beefers line up and are additive, not destructively interfering - then they can move markets a lot and if that persists, they can cause a big intermediate term move.

Short interest keeps rising in absolute share count. So the beefers are getting more & more short in the same "trade" and their phases are adding and keeping or driving stocks down. How long will this go on ? That's uncertain.

Today's CPI number is important.

On Monday I plan to re-buy some WB as the wash sale 30 day time period for my 5/15 sale expires. I'm doing this simply so I can sell some older, higher cost shares in 31 days for another tax loss. This saves me real money.

Word of the Day

"Fideism" - noun [$10]; fideistic - adjective; fideist - noun
Fideism means a doctrine that all or some knowledge depends on faith or revelation.
Sentence: The once popular form of technical analysis called Elliott Wave Theory requires a bit of stock market fideism as its results don't depend on any real connection to actual stocks. Its fideistic prognostications do seem to work sometimes in short and intermediate terms for some market averages, but one wonders if that is simply the self-fulfillment of many traders using the same reasons for trades.

Thursday, June 12, 2008

Missing Links

While modern man seems to eschew facts, your blogger's quotidian reading of three newspapers (paper ones) and a few more online finds many reported facts to develop his theories, and his quotidian mingling with the common man, aka the average Joe, provides more.

Japan's GDP grew 4% in real terms in Q1 of 2008 (WSJ 6/12).

Bunkerman bought 30 DVDs of his favorite movies as his old VHS tapes from 20 years ago are wearing out [they get too dark to view]. The price: about $9 each on ; he paid about $20 per tape in the late 1980s. So this form of entertainment has declined in price by more than 50% over 20 years, plus improved quality. Whither inflation ?

The new Apple 3G iPhone will sell for $200. Last year the original product was introduced for $400. Higher quality, price down 50% in one year. Whither inflation ?

Bunkerman bought a case of a fine, local craft ale named "Ipswich Ale" produced by Mercury Brewing Company about 10 miles from my bunker. Price - $26 per case. Prior price: $25 per case for prior three years. That's a rise of 1.3% per year, validating core inflation measures.


Late yesterday we witnessed a fine example of 1920s style market manipulation. The Oppenhemier bank analyst comes on CNBC near the close to shriek about doom for the banks ... again. Why ? Why on TV near the close ? Readings of 1920s style market manipulation show old antics is now the modus operandi of the beefers. Load up shorts, then get a prominent person to go to the press and present doom. Then with no uptick rule, hit them with big short orders and hit the XFL bigtime with more shorts and probably hit the options, too. So her beefer clients loaded up and she obligingly goes on babblevision airhead Maria's show in the last 30 minutes of trading. Market manipulation re-born thanks to the SEC.

In Q1 the obvious anti-bubble trade was sell gold & silver, buy stocks. The obvious anti-bubble trade now is to sell oil, buy stocks. WB weekly chart looks like a black hole is forming. Ugh ! I can't sell my oil stocks since the gains would be ST. Yesterday I re-bought all the BAC shares I had flipped around 43 in March, so I've doubled up. On Monday I am considering re-buying the WB and C shares I sold on 5/15 for a tax loss. I can then sell the old, higher priced shares in 31 days for a ST tax loss to offset my gold & silver profits. That will save me 40% - worth doing. Still thinking about JPM re-buy as it's not down enough yet to let me do the tax loss play for enough money.

Ruling Classes

A top Obama advisor resigns after his special deal loans from Countrywide Finanace become public. These knaves are all alike. Grind down the common man with taxes while getting favored treatment.

Word of the Day

"Manque" - adjective [$10], pronounced "man ka" with the "a" in "man" as in father and the "ka" rhymes with may, accent on "ka"; used postpositionally, i. e., after the noun.
Manque means [$10] that might have been but is not, unfullfilled; [$100] having failed, missed or fallen short, esp. because of circumstances of a defect of character, unsuccessful, frustrated.
Sentence: Will the Hillary campaign manque now provide a wave of new support for Big John McCain from angry Hillary voters ?

Wednesday, June 11, 2008

Big John

I see that Big John McCain reads this blog. Here are some excerpts from his speech on Tuesday, copied from the online Financial Times.

"John McCain on Tuesday promised a clampdown on corporate malpractice if elected president and vowed to give shareholders a veto over executive pay.

"The Republican presidential candidate said government had become beholden to big business and too forgiving of corporate abuses.

“ 'For too long, government has been the voice of big business,' he told a small-business conference in Washington. 'Even when very large businesses violate their trust, they seem to be held to a different standard – getting away with conduct that would leave any small-business owner broke.'

"Mr. McCain said that Americans were right to be offended by 'extravagant' salaries and severance deals for financial sector executives whose decisions had helped cause the crisis in the housing and credit markets.

" 'Something is seriously wrong when the American people are left to bear the consequences of reckless corporate conduct, while the offenders themselves are packed off with another $40m or $50m for the road,' he said. 'If I am elected president, I intend to see that wrongdoing of this kind is called to account by federal prosecutors. And under my reforms, all aspects of a CEO’s pay, including any severance arrangements, must be approved by shareholders.' "

I like this. The Populist Libertarian movement is growing.

More ...

Yesterday's Wall Street Journal had an article about the lavish pay and benefits bestowed on CEOs postumately. This is nuts ... let them buy life insurance with their already high compensation. And corporations for years have bought life insurance on employees, but they keep the death benefits. So this disparity in treatment of the powerful vs. the average Joe is despicable. [Thanks to a silent reader for reminding me of this article.]

And the Financial Times from Monday had a story about "Europe loses patience with its wealthy elite." Here's one of the facts cited: "... the collective pay of CAC-40 bosses leapt by 58 per cent in 2007, inflated by the exercise of stock options." Governments, shareholders and investors in Europe are contemplating how to curb this pay.

The problem is how to do it. Socialists like Obama would want to tax the pay, but all that does is give the governmental ruling classes more money to spend on bribes and payoffs and jobs for their supporters. As a friend wrote to me privately, the preference is to prevent the ruling classes from getting this excessive money in the first place. But how can rules be structured in a free society with private property to prevent them gorging themselves at the trough like hogs at feeding time ?

Certainly precise disclosure and shareholder votes is one possible solution. Thinking ...

Words of the Day

"Irrupt" - verb, intransitive [$10] followed by "into"; "Irruption" - noun [$10]
Irrupt means enter forcibly or suddenly.
Irruption means 1. the act of irrupting, a sudden intrusion; 2. a sudden temporary increase in the local population of a migrant bird or animal species.
Sentence: Will Populist Libertarianism irrupt into the public's political discourse of the US and Europe in the 21st century ? This blog will do its best to propagate these ideas more broadly.

Tuesday, June 10, 2008

Tuesday Tidbits

As mentioned recently, I have started reading the Financial Times daily. This newspaper continues to show superior news reporting and writing compared to The Wall Street Journal. Yesterday I found two really interesting stories with some real facts.

First, an article about the oil markets included the fact that "just 5m [million] barrels per day of light, sweet crude is actually available in the open market", viz., not otherwise under contract. The light sweet grade of oil is most suitable for low sulfur fuels, which Congress in its wisdom [not!] has forced the diesel-based trucking industry to adopt. Some math: 5 million barrels per day times 30 days per month times $135 per barrel equals $20.25 billion. So only $20.25 billion can control an entire month's free, open supply of light, sweet crude. Who is so stupid as to not realize that pension fund flows and beefers in the futures market can drive its price any place they wish ? Thanks Congress, for those sulfer rules - you were told that they would increase prices and ignored that testimony. And thanks, pension funds and beefers and Congress for making this vital commodity a ping pong ball.

Second, an article on the funding differences between US and European banks was illuminating. Data show that "European banks had secretly increased their dependence on dollar funding by about $500b [billion] in the last four years. ... Much of this funding was apparently borrowed from US banks. However, American banks, by contrast, have been raising most of their funding from money market funds, which they have lent on to other banks, such as those in Europe." This data is from the Bank for International Settlements. So some of the tension in the interbank markets has occurred as US banks cut back interbank lending, putting pressure on European banks. Only US banks have direct access to the Fed's liquidity programs.

This made me think ... where are the petrodollars ? That is a really large amount of dollars overseas. This data make it appear those dollars are not being deposited in European banks. Where are they ? Still thinking ...


My bank stocks got crushed yesterday, on the LEH news, I suppose. Ugh !!! This selling seems at insane levels but ... the beefers can push them anywhere they wish in these markets. Tax issues make it difficult for me to make any moves now. If I sell some winners I would have ST gains which are taxed at 40%. I think I'll wait for new money to arrive and then double up on some to hold for 30 days and then take a tax loss on the older shares. This can save me a lot of money on the large gold & silver profits I took earlier this year.

Word of the Day

"Timocracy" - noun [$10]
Timocracy means 1. a form of government in which possession of property is required in order to hold office; 2. a form of government in which rulers are motivated by love or honor. Sometimes a timocracy is called, "rule by the best".
Sentence: While the early government of the United States could be called a timocracy on both counts, it's obvious that the current United States Congress is not a timocracy, as they are motivated by power and payoffs.

Monday, June 9, 2008


I still remember the lecture on the oil price increases of 1973 and 1979-1980 in the business economics class at MIT's Sloan School of Management. This was 1979 and its effects were still being felt. The professor simply said that such an increase in the price of an important, irreplaceable (in the short term) raw material was going to make everyone poorer. There was no way around it - poorer. Those oil price increases were quite sudden. The current wave of oil price increases are occurring over a few years - from a monthly chart, oil prices broke out in 2004 at $40/barrel and the trend has been up ever since.

The professor said there were two outcomes from a sudden oil price spike: recession or inflation. The inflation occurs if the central bank monetizes the oil price increase. A third outcome exists in a steady price rise: a slowdown. I note that hourly earnings are nearly flat in real terms. But productivity was up about 2.5%. So what's going on ?

The gains in productivity are being used to pay for the higher cost of oil, not to increase the standard of living of the common man. Coupled with the continued avarice of the ruling classes, the common man is experiencing a decline in his standard of living as he must work harder and learn new skills to stay even.

Ruling Classes

These hogs are continuing to create trouble for the common man. I heard this morning from an analyst in Europe that for five years there has been an aversion to investing in equity. The beefers*, who were getting all the funds flows, instead heavily played in spread products, creating the debt bubble and the current credit crises. And they are playing in commodities. Together with their friends/clients in the pension funds, they are buying oil futures. Not investing to find more oil. Just buying futures and swaps. For every buyer there is a seller - that is a truism in any derivative product.

Who are the sellers in oil futures/swaps ? There is a limited universe of strong sellers: oil companies with oil in the ground. But they limit how much oil they will sell forward. OPEC and other governments don't sell oil in the forward markets. So this stampede of money into commodities has overwhelmed those derivative markets. That's the cause of this oil price increase since $100. Anyone saying that's not possible simply hasn't done the math. I did a quick calculation last Friday and it's rather easy to prove this flood of pension and beefer money into the oil derivative markets can overwhelm them.

I have no problem with pension funds investing in real assets, but futures are NOT real assets. If a pension fund wants to own oil, it should buy physical oil in the ground, as they do for timber - they buy forests. Or invest in drilling and other real, physical oil investments - that creates more supply. So the old rules against pension funds speculating in futres should be reinstated. Bring back the "unrelated business income tax" for these activities. And beefers must be regulated stringently.

*big, evil funds.


Ugh. Obviously the markets can't sustain a bullish trend until the upper limit to oil prices is known for the intermediate term.

Hmmm ... I see Goldman, Sachs is building a new, palatial corporate headquarters with six huge trading floors. See my blog post of june 4 for "Truisms", #1. Perhaps this will signal a top in this unholy focus on "trading" as a source of income. How unproductive is that ? Nothing is created by that huge human activity of talented people. They just try to skim money off their institutional clients. What a despicable business for a corporation !

Word of the Day

"Congener" - noun [$10]
Congener means 1. a thing or person of the same kind or category as another, esp. animals or plants of a specified genus; 2. (esp. US) a by-product giving a distinctive character to a wine or spirit.
Sentence: Huge Wall Street firms that focus huge capital and effort in trading, such as Goldman Sach, are simply gargantuan congeners of the beefers. They must be heavily regulated to prevent them harming the common man with their shenanigans.

Friday, June 6, 2008


Golly, this week has been boring.

Even yesterday's ramp up was dull. Maybe that's because my big banks are still mired in the mud. Ugh.

BAC purchase of CFC was approved.

Trichet of the ECB talks of raising rates. I wonder how that's going to control the price of oil ? How many more unemployed German and French and Italian workers must be added to cut oil price growth ? Seems like a tough question for an economist/banker. There being no direct connection makes it really an ill-posed question. Are they fighting the old war of the 1970s ? Or just using the wrong theory/model and will cause lots of pain as they find that out.

The Ruling Class tinkers and the common man suffers.

Economic data still show no recession has or will occur in this mid-cycle slowdown.

But being right doesn't mean I am making money. Krypto Fund is outperforming considerably and is "slightly" green YTD (+2.6%), and that's most of my investments (85% now). But being competitive, the Alpha Fund is vexing me.

Word of the Day

"Lief" - adverb [$10] archaic, used in Shakespeare, etc.
Lief means gladly, willingly (usually as "had lief", or "would lief").
Sentence: Remember the old Popeye cartoons with the character, Wimpy ? Here's Wimpy as a Shakespearean character. "Perforce, I would lief pay you Tuesday for a hamburger today".

Thursday, June 5, 2008

A Change Occurred

I just checked a commodity research site to which I subscribe. The gasoline demand chart shows current demand vs. last year and the 16 year average. Last week's drop was a singular event. This year's demand had been trending a bit below last year, but the drop last week puts it at a new, lower level. Perhaps the summer driving season will not occur. Last week's gasoline demand was about at late-March levels. Is the US driver finally acting rationally and seriously cutting back on driving ? Doing something instead of just griping ? The drop vs. last year's demand is not large - about 4%. I think people can cut 4% of gasoline demand easily, by combining trips and thinking first about taking the SUV or the compact to go mall. Perhaps the public is doing it.

I'll monitor this for awhile and provide updates.

The implications would be that the commodity peak might pull back to a sustainable plateau. My guess has always been the $100/barrel of crude area and time frame around the Beijing Olympics. Time will tell.

Ruling Classes

WSJ: "WASHINGTON -- The Senate voted along party lines Wednesday to approve a budget resolution that includes more than $1 trillion in discretionary spending for the first time."

That's "discretionary" spending, not entitlements like Social Security or Medicare.

One trillion dollars is one million millions. There are about 300 million Americans. So that's spending over $3,000 per person. Considering that most common people get nothing from this, the amount is stunning.

Unrestricted looting ...

Word of the Day

"Sough" - verb, intransitive [$10] - pronounced "sow" to rhyme with "how" or "suf" to rhyme with "rough".
Sough means to make a moaning, whistling or rushing sounds as of a wind in trees, etc.
Sentence: Reading of the enormous size of the Federal spending sow feeding all the innumerable piglets made me sough in surprise as if suffering from food poisening. Uhhhhhhh.

Wednesday, June 4, 2008

Some Things Never Change

Here are a few "truisms" that have repeated recently.

1. A firm that builds a new palatial headquarters will soon have financial problems: Bear Stearns.

2. A CEO/CFO who appears in a fawning interview will soon have problems: Lehman.

3. Hedges don't work in abnormal markets: Lehman.

4. Wall Street is grossly overpaid: Merrill Lynch's Stan O'Neal.

5. Politicians lie & obfuscate: Obama's "change" and "new ideas" rhetoric.

One obvious fact from this Rich Man's Panic is that the financial industry has been grossly overpaid for the past decade. Wall Street executives & traders get big pay, then blow up. Hedge fund managers get big pay, then blow up. Isn't it about time that pay was connected to "long-term" performance ? Or at least don't pay until the positions are closed out completely.

Ruling Classes

With the sycophantic media in its pocket, major groups in the ruling classes are now backing Obama's candidacy. He promises "change", yet his major policy seems to be to give the DC ruling classes a huge amount of money to use to sustain its power. How much of that money will be diverted to the ruling classes ? Will new regulations favor them or the common man ?

Words of the Day

"Heigh-ho" - interjection [$10] - used often in Shakespeare and was Rudy Vallee's signature line in early radio broadcaasts. Pronounced either "hay-ho" with the "o" long, or "hi-ho" with a long "i" and "o".
Heigh-ho is used to express boredom, fatigue, resignation, or mild surprise.
Sentence: Heigh-ho, Obama wins, promises "change". Zzzzzzzzz.

"Bromide" - noun [$10} and [$100 for meaning #4]
Bromide means, other than two chemical definitions and usages, 3. a platitude or trite saying; 4. a person who is platitudinous and boring.
Sentence: Clips of Obama promising "change" have become bromides for the unthinking. Maybe he should be called Bromide Obama instead of Barack Obama.

Tuesday, June 3, 2008

Problem Identification

In World War II, soldiers, sailors and airmen were trained to identify quickly what type of enemy equipment was approaching, so the correct response could be immediately made. It matters if that rumble is a Panther tank or a half-track with infantry. It matters if that silhouette is a Val bomber or a Zero. And it matters if that object in the periscope is a freighter or a destroyer. So they trained and paid attention to details like the number of engines, etc.

The modern investor doesn't seem to have or seek this skill. He seems lazy or superstitious, blaming old demons for everything. Definitions get changed to fit whatever is happening. So I thought I'd help a bit.

Inflation - a significant rise in prices of almost all goods and services beyond internal quality or technological improvements. The cause is excessive nominal demand due to prolonged excession growth in the supply of money in excess of economic growth. The cure is tight money. Significant rises in just a few groups due to supply problems is not "inflation", it's a supply problem in those groups.

Recession - A broad, prolonged DECLINE in the Gross Domestic Product. The period must be at least two quarters of NEGATIVE change in the GDP. There are multiple causes, including bubbles in major economic sectors, excessive business capital investment, excessive business inventories caused by a drop in consumer demand, government policy, etc. The cure must fit that cause. Sometimes passage of time is the only cure.

Stagnation - A broad, very prolonged period of economic growth below the long term trend capability of the economy, usually considered 2.5-3%. A mid-cycle slowdown is a short period of stagnation while an economy adjusts internally or externally from one growth sector to another. A prolonged stagnation, other that a mid-cycle slowdown, is usually caused by poor government policies that inhibit growth, excessive taxation, or pressures from overseas.

Stagflation is the simultaneous occurrence of BOTH Inflation and Stagnation. This did occur in the late 1970s as high inflation due to excessive monetary growth combined with stagnation caused by excessive taxation and multiple new regulations on business created stagnation. The Reagan Revolution cured this with some aid from Volcker's Fed. The cures weren't perfect interest rates were kept too high for too long and the initial wave of tax cuts contained too much special treatment for powerful political groups.

Standard of Living - the combination of wages and the cost of living. By "wages" I mean total compensation. A declining standard of living can occur even under GDP growth if the common man's wages are cut while the ruling classes take more of the pie. This is more painful if inflation is even small, at 2%. The combination of a 2% wage cut with a 2% inflation seems very painful at a 4% decline in the standard of living of the common man.

Recent major changes in benefits for health care, cutting retirement plans, replacement of slkilled work with high pay with low pay unskilled work have and are causing broad reductions in wages of the common man. CEO and other ruling class pay has increased the share of the pie of the ruling classes while doing nothing for overall economic growth, leaving less for the common man.

I'lll write more later or on another day. I hope this helps people identify the real "problem" which I see as a decline in the standard of living caused in the example I gave.


Mirabile Dictu !!! George Soros says that index investments by pension funds in commodities is creating a bubble in commodities. I guess George Soros reads this blog - even though I bash him often - as I wrote about that recently. From Financial Times web site this morning: "the relatively recent ability of investment institutions to invest in the futures market through index funds is exaggerating price rises and creating an oil market bubble."

Wachovia fires its CEO - good, they listened to my two letters to the lead outside director. The guy clearly was not competent to lead a major bank.

Ruling Classes

Today's WSJ contains a fine example of how the DC ruling classes loot the public funds. The WTO ruled again against US cotton subsidies. "The U.S. government was forced to overhaul federal aid to its politically powerful cotton industry after the WTO ruled in 2005 in Brazil's favor that certain payments distort trade." US govt. is subsidizing cotton growers ... think ... cotton plantations ... uh ... the rich & powerful.

If an agricultural product must be subsidized, why not fresh fruits & vegetables, which are healthy ?

I think this will be a regular part of my blog, viz., pointing out news items that show how the common man is being systematically looted by the DC ruling classes causing a decline in his standard of living.

Word of the Day

"Refractory" - adjective and noun [$10]
Refractory means (Adj.) 1. stubborn, unmanageable, rebellious; 2a. (of a wound, disease, etc.) not yielding to treatment; 2b. (of a person, etc. ) resistant to infection; 3. (of a substance) hard to fuse or work; (Noun) substance especially resistant to corrosion, heat, etc.
Sentence: To increase energy supply and hence cut the long term growth in oil prices is quite a refractory problem. There is no "silver bullet" or "quick fix" or "easy way out". All means to increase supply or find alternatives must be employed to gain a few percent from each. This means more nuclear power, more drilling, more development of oil shales, etc. All are needed.

Monday, June 2, 2008

Monday Blues

Futures are down early AM - why, I don't know. No news.

If you are looking for a good newspaper, I recommend the Financial Times. It's now really a lot better than The Wall Street Journal, which has declined in value a lot in the past few years, becoming a bit like a business version of "People" magazine with these endless descriptions of how one person is dealing with an issue. Ugh.

The Financial Times has real writing and covers the world really well. Also, its non-business stories are quite advanced and cultured. So try it if you want a newspaper and can get it delivered same day. A one year subscription is really cheap - $99/year.

See Also, the web site is good and has free content if you register.


Short interest is very high in the markets and growing as these double short ETFs and moronic 130/30 funds gain popularity.

Word of the Day

"Razzia" - noun [$100] this is an Algerian word that was absorbed into French in the 19th century. The initial "a" is short as in "act" and the stress in on the first syllable.
Razzia means a plundering raid.
Sentence: Will the beefers* take a vacation this summer or will they try a few razzias to make some fees before the end of the quarter ?

*beefers = big evil funds.