Back from the Heartland

I have returned Sunday afternoon from my hometown in SE Ohio, enduring typically shabby treatment from an airline. My hometown is quite a delightful place to visit and, in fact, to have grown up in as a child and young person. I stayed in a pleasant cabin in the woods - naturally feeling quite at home. Partaking of the local food establishments instead of McDonald's for this trip, I enjoyed fine meals including a particularly good New York Strip steak and accompanying wine at a restaurant. More fine local fare included several chocolate milk shakes, homemade, beer-battered onion rings, a fine pizza at my childhood favorite establishment and a huge breakfast for $4. "Inflation" was nonexistent, as usual.

Since I had no Internet service during the trip and quite limited news exposure, I missed the "fun" of the last half of last week. Ugh ! However, perhaps the ague peaked on Friday.

Of course much colossal foolishness is being slowly exposed by this turmoil. Iceland is a fine example. Apparently billion of Pounds were deposited into its banks by British "investors" - uh ... I guess they were really speculators. Iceland has 300,000 people, fewer than Columbus, Ohio. Who in any rational frame of mind would "invest" billions in banks in such a tiny place ?

The Euro-nations seems to be working together now - that is good.

In case you are wondering why banks and markets need to be supported and preserved by government, I suggest you consider that direct cause and effect relationships exist for about 1,500 years or perhaps even 2,000 years or more connecting prosperity of communities and towns and cities and nations to their having working markets for people to exchange goods and services. Credit is essential for this activity to be extended beyond face-to-face contact.

Why do pundits pontificate on matters on which they clearly have never read a scholarly work ? I heard a fellow on Bloomberg early this morning citing the Panic of 1873 as an analogy. I have read books about every panic of the 19th century and there is no doubt that 1873 bears almost no connection to today.

The Fed has made its dollar swap lines unlimited in size to provide dollars to the BOE, ECB and Swiss National Banks. So this should get the Eurodollar market moving . I have wondered why there has been a shortage of dollars in Europe. Perhaps US banks and money market funds cut back lending there. Or perhaps the Arab and Russian pulled back. Over time perhaps we will learn the cause of this problem, which is really in the center of this maelstrom.

I read in the WSJ and FT that all those "wonderful" over-the-counter derivative contracts in both commodities and credit default swaps are now being moved to central clearing exchanges. I remember that fool, Alan Greenspan aka Elmer, saying how "wonderful" all the liquidity those derivative markets provided. Sheesh.

This morning electronics giant Phillips said it was seeing lower demand and was dropping its stock buyback programs. Sigh ... another example of stupidity and greed - they only do stock buybacks at high prices.

Internet Idiotcy

I have seem now twice an example of false information propagated over the Internet, from completely unconnected people. An email being sent around the world says that a better use of the $85 billion being used to support AIG would be to give it to the US taxpayers and that $425,000 per person could result. Uh ... the writer made a math error ... three too many zeros. The correct math gives $425, being $85 billion divided by 200 million persons. Of course, Bunkerman knows his math and checked the facts.

I wonder if this type of stupid, false commentary is a cause of public antipathy to the Paulson plan ?

Markets

Time to buy. I will be buying stocks today and all week as long as the governments keep working hard and together .. and not bickering.

As far as banks, ... and now there was one .. viz. JPM. And perhaps HBC. It appears these are the last two banks that are well run and do not need government or Warren Buffet's help and are not cutting dividends. So those two will be the ones that will emerge untrammeled by government restriction and not massively diluted. BAC's head cad, Ken Lewis, blew it by overpaying for Merrill Lynch. And C's Victor Pandit similarly blew it on cutting the dividend in bidding for WB. I'd consider investing in WFC, but after it raises the capital that it says it will raise to pay for WB. But one wonders if WFC is overpaying, too.

JPM showed discipline by buying WM for zero. I wonder if it will buy MS ?

Hmmm CHK's CEO got a multibillion margin call and had to dump billions in stock. I read that Sumner Redstone also got a margin call. Interesting.

The Root Causes

Well, I suppose all last week beefers and the rich were panicking and selling all they had. That was the source of all that selling - the deluge. Perhaps it's over now ... or will be soon over.

The "root cause" of all this pain is the collective beefer community - the trillions put into speculative hedge funds and or run by aggressive advisors for the rich who wanted a "free lunch" of "steady returns in good or bad markets. That is and was known to be impossible in such size. So a huge bubble was created by the rich and their quacksalver advisers in their greed. That is why the credit derivative market was created ... why the subprime market could grow so large ... and is why the over-the-counter trading in commodities could grow so large to cause an oil bubble.

The massive leverage that pundits cite which must be cut back resides in hedge funds as the counterparty to the banks. And it's being liquidated.

Gigantic pools of money simply need to be massive restricted. Period.

The stock market could never become a grand new, bull market without the breaking of those pools, whose trading nonsense weighed on markets and diverted massive sums from production investment. Now they are dying and perhaps, as the death of the dinosaurs freed the world for mammalian development, a new wave of diverse growth led by the free peoples of the world can now be develop and persist.

Word of the Day

"Ideocratic" - adjective [$10,000 ???] this word appears in no dictionaries. But its related word, "ideocracy", does appear in Dictionary.com in Webster's New Millenium dictionary.
Ideocracy means rule or government based on an idea or theory.
Ideocratic means of, or related to, or derived from ideocracy. Compare to theocratic, democratic, timocratic, etc.
Sentences:
Original usage - [from Reflections on a Ravaged century, by R. Conquest, pg. 89] "The full pathology of an Idea is to be seen in pure form in, for example, the whole lethal activity of the Khmer Rouge. ... We shall consider the content, and the history, of these ideocratic movements and States in later chapters."

Current Usage: The untrammeled ability of huge pools of money to be created and run rampant around the world's financial markets further facilitated creation of dangerous derivative markets. All this occurred because governments and regulators were smitten by, and run according to ideocratic notions of pure libertarianism and "free" markets.