Thursday Links

If you missed my piece on the latest damaging structured product: the buffet of buffets, go read it now.

Other stuff:

Jerry Murrell of Five Guys Burgers:  How I Did It.  This reminds me of Steve Wynn's quote:  Bigger isn't better, BETTER is better.

I think I got these next two links from Marginal Revolution:

1) Pornographic magazine for the blind"

"Among the 17 raised images include a naked woman in a 'disco pose', a woman with 'perfect breasts' and a 'male love robot'."

2) Evil clown hired for stalking, threats, and a pie in the face

I am now a part of national history:  The Library of Congress will archive all Tweets as part of the "universal body of human knowledge."

Finally, soccer fans are probably already familiar with this brilliant goal by Bayern Munich's Arjen Robben last week against Manchester United:



but the leggo recreation (including pre-game ceremonies, and the other Bayern goal) is equally brilliant:




-KD

Derivatives Reform - Where are the Regulators?

There's been a lot of talk lately about taking a more proactive role in regulating derivatives.  Well, I received a brazen email last night which illustrates that such derivatives are still being marketed unabashedly, with no shame and no regulation.

The email was from Harrah's, for their Buffet of Buffets.  Now, obviously, we know what a buffet is - you go and stuff your pie hole until you can't walk, for an affordable price.  A "buffet of buffets," however, is a dangerous derivative, designed to do irreparable harm to society in general, and clearly carries systemic risks.  The buffet of buffets allows the purchaser to gorge himself not just at one buffet, but at ANY of Harrah's 7 buffets at 7 different Vegas Strip properties. "Revel in Las Vegas' world renowned buffets in a whole new way!" The banner touts... Yeah - sure - I remember similar claims about adjustable rate and interest only mortgages, CDOs and CDS... new, "innovative" products that were supposed to be godsends, and turned out to be tools of the devil.

There is brazen fraudulent mistrepresentation in this derivative also:  the terms sheet claims: "unlimited-access buffet passes to any of seven world-class buffets."  However, the list of buffets included is then disclosed:

Caesar's Palace

Paris

Rio

Harrah's

Flamingo

Bally's

Planet Hollywood

Imperial Palace

It's obvious that the structurers of this derivative tried to put in some absolute crap that would under-perform and cause damage to purchasers - as anyone who has done any kind of research would agree that calling the Imperial Palace's buffet "world class" is outright fraud.

Let's get back to the prospectus:

"Loosen your belt and get a "Buffet of Buffets" day pass, then let loose and enjoy all day access to seven of the most spectacular buffets in the city, all for one ridiculously affordable price of $29.99."

Hmmm.. that sounds familiar - oh yes - it reminds me of a pick-a-payment mortgage, as described here by AAMortgage:

"A mortgage that makes home buying more affordable. You can increase your cash flow by selecting a very low payment from the variety of choices available. This flexibility gives you more control over your finances."

The pick-a-payment mortgage was supposed to be a benign way to gain flexability and affordability... Just like the buffet of buffets!  And we know how pick-a-payment worked out - mass carnage!

Reading more of the fine print on the buffet of buffets: "Just charge your buffet to your room, and you're on your way to a once-in-a-lifetime Las Vegas buffet experience."

Hmmm. I am almost certain that this won't be a "once-in-a-lifetime experience."  At the very least, you will revisit the experience the next morning on the crapper, as your body fights the effects of the prior day's binge.   Unfortunately, although you can postpone the economic reality of debt repayment by issuing new debt, you can't postpone the gastrointestinal reality of the buffet of buffets by hitting another buffet.   Let's give them the benefit of the doubt and just say it should be described as at least a "twice in a lifetime experience."

Believe it or not, this seemingly simple derivative buffet of buffets is so complicated that they need a frequently asked questions document for it!  My favorite is this one:

"8. What happens if I am in line to enter a buffet when my all-inclusive citywide buffet pass expires?

A: Unfortunately, once the pass has expired we can not let a customer in with their expired pass. Customers should give themselves plenty of time to gain entry into a buffet should they want to go close to when their current pass will expire."

Well - that should sound alarm bells in the head of any prudent investor - this is the problem Scion Capital's Michael Burry had with his negative carry positions:  his investors didn't want to wait for their seat at the profit table, and chastised Burry for spending money holding the positions, which resulted in him being forced to liquidate earlier than he wanted to.

If you have the buffet of buffets pass, you'll be worried about getting stuck in line and having your pass expire, so you'll have a tendency to hit the buffet at sub-optimal times, earlier than you prefer, and thus you'll be giving up expected value.

Summing up, we can easily see that despite its benign appearance and marketing, the buffet of buffets is a dangerous derivative that bears many common characteristics of products we have already seen fail spectacularly during the financial crisis.  We need less talk about regulation, and more actual regulation, and this is a good time to start. 

-KD

Greek Headline Manipulation?

Greece sold 26-week and 52-week bills in an auction designed to prove that the latest rescue plan has "worked."

From Bloomberg:

"Greece’s auction of Treasury bills drew stronger demand than at a previous sale, signaling renewed investor appetite at the government’s first offering of debt since winning an aid package from the European Union.

Greece sold 780 million euros ($1.06 billion) of 26-week bills at a yield of 4.55 percent, attracting bids for 7.67 times the securities offered, the nation’s Public Debt Management Agency said today in Athens. It also offered 780 million euros of 52-week securities at a yield of 4.85 percent, with a bid-to-cover ratio of 6.54 times."

Now - what that means is that for the 26-week bill there were 7.67 times as many bids as there were bills offered.  The January 26-week auction in Greece had a bid to cover ratio of 4.9x, and had averaged 6.2x in 2009.  The January 52-week auction had a bid to cover ratio of 3.1x, and averaged 5x in 2009.

Thus, it appears that this auction had very strong demand, showing increased bid-to-cover ratios, which is exactly what Greece and the E.U. had hoped for.

There's just one hitch: a former colleague of mine writes, emphasis mine: 

"However both auctions are already trading below auction price slightly (6m priced at 97.75 and traindg 97.381, 1yr priced at 95.33 and traqding at 94.638). You can see these bills on Bberg with GTB Corp . I'm not sure where the other 600% of bids are now that its below auction price, which makes me think that the bids were there for nice headlines."

In other words, if the auctions were really more than 6 times oversubscribed, where are all the buyers now?  The paper shouldn't be trading lower already...

-KD

A Day In the Life

So your wondering what a former trader turned maple syrup magnate and versatile blogger does on his 34th birthday?  Well, today, I woke up around 7:45, checked my email, read the morning's stories and banged out a post about Greece's latest Ponzi attempts.

I went for a run while Mrs. Dynamite went to grab some supplies so she could make me superstar waffles with strawberries, bananas and cool hwhip.  Then, I showered up and went to the dump, which is about a 45 minute round trip.  After I was done taking all of our regular trash and recycling, we strapped our old hot tub cover to the top of the car, and I made another trip to the dump, and then continued on to Concord for grocery shopping.

When I got back from grocery shopping, me and Mrs. D planted some grass seed in some sparse areas around the house, and then I caught up on several old episodes of the WSOP Europe Main Event that I had on my DVR.

Mrs. Dynamite made me special cookies with butterscotch chips and peanut butter chips, and then made my favorite dinner: roasted veggie meatloaf with balsamic glaze.  Don't worry - there's still plenty of meat in that meatloaf (1lb each of veal, pork and beef)  - it just gets its name from the plethora of diced veggies that are also incorporated.

That's pretty much it.  Exciting - I know.

I did bask all day in the post-mechanical glow that came from getting my John Deere STX38 garden tractor running yesterday.  The people we bought the house from last year left it for us, and my uncle, a handyman ninja, helped me jump start this thing last fall.  When I tried to actually mow with it, it stalled out, and I pushed it back to the barn for the winter (after loading the tank with fuel-stabilizer gas, and re-jumping it to run the stabilizer through everything).  I've spent the last few months stressing about how I'm going to get it running, since I lack those types of skills,  but all it needed was a new battery and voila - country mowing power. 

Our property is roughly 1/3rd lawn, 1/3rd longer growth field, and 1/3rd woods.  I immediately assaulted the field, mowing the crap out of it while howling like a banshee.

I also planted three fruit trees yesterday in my "orchard" which previously consisted of a dozen very old, very poorly manicured apple trees that are pretty vertical.  My sister-in-law and mother-in-law surprised me Saturday afternoon by showing up unannounced with two apple trees as a gift for my birthday.  I added a peach tree that I bought on Sunday at Lowes, and exercised my inner Johnny Appleseed, planting them on Sunday afternoon.

Next up this week is transplanting my cucumber, eggplant, brussel sprout and Anaheim pepper seedlings to slightly larger pots, before they go outside in about 6 weeks.

I have discovered a new enemy which might be even scarier than the wasps - poison ivy...

This is my life...

-KD

Greasing the Wheels

It seems that Greece still fails to understand the difference between liquidity and solvency.  Here's an explanation for you - with last night's European Union & IMF rescue plan, Greece solves their LIQUIDITY problem.  They did nothing to solve their SOLVENCY problem.   Liquidity is cash flow - solvency is balance sheet.  This rescue plan addresses the cash flow, but does nothing to remedy the damaged Greek balance sheet.

Now, obviously, the hope is that with the time they just bought themselves, Greece will be able to work out some sort of plan to address the solvency side of the equation - but that remains to be seen. 

Even more troubling is the continued rhetoric coming from Greek Prime Minister Papandreou (via Nemo)

“After the latest developments, with the terms now set, the gun on the table will be loaded,” Papandreou told To Vima daily in an interview to be published on Sunday.

“Speculators will know this,” the PM said, according to excerpts of the interview that appeared on a website operated by To Vima’s parent media group.

“The question is whether this mechanism will persuade the markets purely as a gun on the table. If it does not, it is a mechanism that exists and could be used,” he added.

The continued anti-speculator rhetoric coming out of Greek mouthpieces is troubling. Will someone please tell Papandreou that this has nothing to do with speculators - it has to do with the fact that his country needs more money than they have!

See, the goal of this rescue package is to placate investors into buying Greek debt at lower rates.  If the E.U. and IMF stand ready to fund Greece at near 5%, the hope is that investors will do the same, instead of demanding the nearly 7% interest rates that markets were trading at.  In other words, the hope is that the E.U. doesn't actually have to lend the money to Greece - but rather that this guarantee will stimulate investors to pick up the Ponzi - I mean - the bag - themselves.   

To bring back an old favorite quote, from Tommy Boy:

"Because they know all they sold ya was a guaranteed piece of shit. That's all it is, isn't it? Hey, if you want me to take a dump in a box and mark it guaranteed, I will. "  

Thanks for the mark of approval, European Union!

for more, see Simon Johnson on the problems Greece didn't solve, and Nemo on the rehash of the "loaded gun" threat.

-KD

Greenspan and the Rhythm Method

Seth Myers, on Saturday Night Live's Weekend Update:

"Alan Greenspan, the former chairman of the Federal Reserve, said of his time in office, "I was wrong 30% of the time."  Well that's not bad - for a weatherman - or a free throw shooter - but you were the Chairman of the Fed.  We need the Fed to be on the pill and you ran it on the rhythm method."

-KD

Selection Bias In Economic Data

Let's talk about selection bias and how it applies to recent economic data.

Selection bias is the phenomenon of potentially erroneous sampling.  Yesterday, retail "same store sales" (SSS) numbers came out, up 9% year over year,  blowing away expectations.  Now, there is an inherent selection bias embedded in the SSS numbers - it only counts data from stores which have been open for at least a year.  So, we have another embedded bias:  survivorship bias:  the data from stores which went out of business isn't counted.  This morning I was thinking to myself, "Why on Earth would they want to use such a clearly flawed metric?  Why not just use total retail sales?"  Well, there are good reasons:  most of the time, during normal, stable or growing economic periods, the same store sales numbers probable provide a much more smooth, accurate depiction of the economic situation.  They don't get screwed up by volatile data from new stores - grand openings, and store number changes that result in apples-to-oranges comparisons.  The goal is to get a consistent picture of the sales trends for each chain. 

For an example of how flawed gross numbers can be, we need only look at yesterday's data on Las Vegas Strip revenue, which rose nearly 33% from the same period a year earlier.  Of course, this analysis is pretty bizarre, since 2010 included data for the grand opening of one of the biggest projects in Vegas's history - MGM's CityCenter staple casino, Aria.  Of course 2010 will be higher than 2009 - it's an apples to oranges comparison.  To clarify, these Vegas numbers are NOT a "same store sales" metric - they are gross numbers, so a new casino will result in an increase in the numbers - all other factors held constant.

In times of store contraction, however, we get a similar problem with SSS, as a result of the survivorship bias.  As MISH points out, 31 retailers filed for bankruptcy in 2009.  The existing retailers also closed some stores.  This has the substitution effect of potentially increasing sales at the remaining stores, even if overall sales decrease.  MISH summarizes, "Supposedly retail sales are up 4 months in a row. They aren't. Same store sales may be, but that is a different matter."

In other words, imagine if KidDynamitesWorld sells widgets.  I have 5 stores, each doing $200MM in revenue, for a total of $1B.  If, for the next sampling period, I have to close 2 of my stores due to the recession, and my remaining 3 stores now do $300MM in revenues each, my total sales are down 10% (from $1B to $900MM) but same store sales are up a whopping 50% (from $200MM to $300MM).  We don't count the stores that go out of business - we have survivorship bias.  The same store sales numbers, in this example,  offer a very flawed look through the window of my company's true health.

The Census bureau's advance monthly sales for retail and food services for February, the most recent period available, shows that sales were up 3.9% from February of 2009.  So we can see that the situation does seem to be "improving," but I think it's essential to look at the potential flaws and exaggerations that can result from selection bias in the data, such as the same store sales data.

Of course, there's another simple bias in both the Vegas Strip Revenue numbers, and the Retail Same Store Sales numbers - calendar bias.  The Vegas numbers received a boost because Chinese New Year fell in February this year, while it was in January last year (note: the article I linked to above erroneously says it was in March last year).  Similarly, the SSS data received a boost this year because Easter fell at the beginning of April, which resulted in most Easter spending being captured in the March data that was just reported, while last year Easter spending was largely captured in the April data.

When looking at economic data, it's essential to always be cognizant of biases in the data which can result in "apples to oranges" comparisons.

-KD

disclosure: no position in retailers, although I'm looking for a point to short XRT.  I am short MGM and LVS equity. In fact, I shorted more MGM on the 10% rally reacting to this data, which I think was vastly misinterpreted.

I Heart Amazon.Com

Amazon.com has the sickest supply chain management slash order fulfillment of any firm I've ever seen.  Last night I ordered a pair of speakers to plug into my laptop computer.  They were in stock, and I'm an Amazon Prime member, which entitles me to free 2-day shipping, so I expected to receive the shipment some time on Friday.

The UPS guy was here before 9:30 this morning with the speakers.  Amazing.  Note, again, that I live in a rural area.  Not suburban - rural.  I have no idea how Amazon manages to get me the goods so quickly - the "From" location was their Lexington, KY warehouse, but I like it.

In the last six months, I've ordered the following from Amazon:

-Computer speakers

-Books (The End of Wall Street - Roger Lowenstein)

-Fertilizer broadcast spreader

-Uninterruptible power supply

-DVD-R 10 pack

-Battery operated toothbrush

-toothbrush replacement heads

-22 foot telescoping ladder

-2010 monthly calendar

-Garmin GPS

-beanbag mount for the GPS

-More computer speakers (for a small TV)

-articulating wall mount for mounting TV on wall

-BRUNO on DVD

-Radon gas test kit

-100 foot outdoor extension cord

I actually had to send back and re-order two of the items in that list - the extension cord, because it wasn't rated for the correct number of amps that it claimed to be on the website, and one set of speakers because they weren't compatible with the TV I wanted to plug them into.  In each case I easily printed out a return receipt and packed the stuff back together (no cost to ship it back), received a prompt refund, and ordered replacement merchandise.

I have no stock positions in Amazon or any of their competitors, and they don't pay me anything to say nice things about them. I just think their business model is impressive, and that it's a serious threat to brick and mortar.  Many of you will remember when Amazon first came out, there were doubters who said "people like to browse in book stores and hold the books - it will never work."  Well, who would have ever guessed that it would be easier and cheaper to buy a 22 foot ladder from Amazon.com than from my local Lowes?  Nuts.

-KD

Headline of the Day - Losing Streak?

From Yahoo: "Stocks snap losing streak as investors look past Greece to retail sales."  I would link to the article, but it would only make your head hurt, and the headline doesn't appear on the linked version for some reason.

Losing streak?  Wow... that's an interesting way to describe the rally since February 8th, where the S&P 500 has rallied in excess of 11%, with up days outnumbering down days roughly, what... 6-1?  7-1 (NOTE: I just checked, and it's more like 2-1!)?  Oh - but the S&P was indeed down on Wednesday, so TECHNICALLY, it WAS a one day losing streak!

Thank goodness it was snapped! The bears were running wild!  Speaking of which, there is an actual bear prowling my neighborhood.  Of course, I haven't seen it (the neighbors have), because despite living on a dirt road in the woods, I see absolutely no wildlife apart from birds and chipmunks - although I do see plenty of deer footprints, and I heard an owl the other night, which was cool.

I recommend readers check out today's piece at The Daily Bell (h/t Financial Armageddon) where they include an excellent reader commentary on how to evaluate economic data and market price action:

"It's BULLISH No Matter What! ...

The price of oil is rising – BULLISH! More profits for the energy companies, and more investments in "clean energy."

Most of the new jobs created in March were part-time or temporary – BULLISH! Since the economy has turned the corner full-time job offers are practically a sure thing.

But didn't wages go down too? – BULLISH! Revenues - Costs = Profits!

41 states have revenue shortfalls – BULLISH! Various states have always complained about shortfalls. It's another sign that things are getting back to normal.

8 million people are still unemployed – BULLISH! That's 8 million spenders, not savers.

Interest rates are rising – BULLISH! Yet another sign that the economy is getting stronger.

Stocks may be going up but on very low volume – BULLISH! That means the "dumb money" hasn't even bought into this rally yet.

People have a lot of concerns and uncertainty about the future – BULLISH! Not until the "wall of worry" ends will this party be over.

So much new liquidity will cause inflation – BULLISH! Stocks are one of the best hedges against inflation.

The wars in Iraq and Afghanistan are bankrupting us – BULLISH! Don't get mad, get even. Debit the Treasury and Credit the defense companies.

Inflation in China is picking up – BULLISH! That should dampen any bubbles that some people worry about.

Gold is going up in price – BULLISH! This is a broad-based rally.

Wait, maybe gold is going down – BULLISH! That means economic fears are dissipating.

Actually the gold price seems to be consolidating and moving sideways – BULLISH! A sell off or rally would mean things are overheating.

Iran seems determined to develop it's nuclear program – BULLISH! More nuclear power plants means less demand on oil which means lower energy costs which means more profits.

Israel may be forced to handle Iran themselves militarily – BULLISH! That will kick-start the construction industry when we rebuild both sides.

The Health Insurance Reform bill is an abomination – BULLISH! If insurance premiums rise there will be subsidies; if doctors check out they'll be replaced with cheap foreign ones; if care is rationed then costs will be controlled and profits ensured.

And now the student loan programs are nationalized – BULLISH! Good riddance for the banks. Now the government can garnish wages and lower the deficit.

The markets are being purposely manipulated with government money – BULLISH! What's not to like? That means the market ain't going down no matter what.

Big Media is spewing propaganda about the economy – BULLISH! Perception is reality. People only know what they're taught. Advertising works.

Greece may default – BULLISH! Greek bond holders will make up their loses in the stock market.

Japan is a bug in search of a windshield – BULLISH! Just imagine how much more deficit spending we need to do to beat them.

The Euro is getting weaker – BULLISH! King dollar is back.

A $400+ trillion financial mine field of derivatives are set to go off – BULLISH! Let's start the rumor that if the stock market tanks we'll all be dead."

-KD

A Lesson in a Technology Investing Thought Processes

Bronte Capital's John Hempton recently blogged an excerpt from his letter to clients about why he's short First Solar (FSLR).   It's not the FSLR thesis itself that I find valuable - I do not now have a position, nor have I ever had a position in FSLR or any of the other stocks Hempton mentions, but there are essential tidbits to be gathered from his piece.

"Investing in technology stocks has lots of traps for neophytes – and by-and-large we are neophytes so we do not do very much of it. We however spend a lot of time thinking about it primarily because we are scared of what technology can do to other businesses. (The demise of many low-tech newspapers provides a good demonstration of why – as investors – we should think about technology.)"

Even if you don't understand the technology in question, you need to make an effort to understand the effects of the technology on your other businesses and investments.

"We do however have a framework to hang around our (limited) technology investments. A technology, to be a really great investment, must do two things. It must change part of the world in a useful way – a big part of the world is better of course – but you can be surprisingly profitable in small niches. And it must keep the competition out."

It's this second trait - "it must keep the competition out," that I think is an interesting epiphany that could help many investors.  He continues:

"Surprisingly, changing the world looks like the easy bit. Plenty of companies do it. The problems are in keeping the competition out. Only a few do that (Microsoft, Google are ones that seem to). Hard drive makers changed the world (they allowed all that data storage which made things like digital photography and internet multi-media possible). But they never made large profits – and they trade at small fractions of sales.

The limited technology investments we have are not driven by any real understanding of the technology. Sure we try – but if you ask us how to improve the laser etching on a solar panel then we will not be able to help. The driver of our investment theses in almost all cases is watching the competition."

Hempton comes back to the main point:

"To make money in technology you need to do two things. Firstly you need to change the world (which First Solar clearly did) and secondly you need to keep the competition out. Alas very few businesses manage the second trick."

I'm not going to get into the competitive position of FSLR - I have no value to add with that regard, although interested parties would do well to read Hempton's thoughts on the stock.  In any case, everyone can take away the lesson regarding the essential for a competitive edge.

-KD

LOL Fed

I mean what else can you say about this headline:

"Fed keeps eyes out for speculative bubbles."

It's like I'm living in a dream world where every day is April Fools and every story is from The Onion... only neither of those conditions apply.

I am starting to wonder if I'm surfing some hacked version of the internet where someone is trying to f*@k with my head.

Dear Federal Reserve:  the entire market is an asset bubble - driven by speculative mania searching out returns as a result of your Zero Interest Rate Policy!


-KD

Link Dump

There are lots of stories that have been worth reading in the past week or so, but that I haven't blogged about.  I tweeted some of these:

The Incidental Economist: Gaming the Individual Mandate in Massachusetts.  "

In 2009 alone, 936 people signed up for coverage with Blue Cross and Blue Shield of Massachusetts for three months or less and … [paid a monthly premium of] $400, but [had] average claims [that] exceeded $2,200 per month. …

RemDawg's new bar near Fenways sells $500 seasons passes:  for $500 you get a table locked up for all 81 home games, and 1 free beer and $25 of food for each game.  +EV!

Mark Buerhle made a sick sick sick defensive play today

California Case Will Test NFL Teams' Liability For Former Players Dementia: this one confuses me a bit.  I understand that these players have injuries as a result of playing football, and that these injuries are severe and debilitating. I feel for them, but isn't that a known risk of playing football?

Calculated Risk:  Fannie Mae Delinquencies Increase in January

Calculated Risk:  California Extends Homebuyer Tax Credit... cause they have no budget problems at all and can afford to... (/sarcasm!)

The Pragmatic Capitalist:  Jim Grant Downgrades US Credit Rating ???  The key is the surprised question marks at the end of the headline

MISH: Feds Won't Prosecute Pfizer for Illegal Marketing Cause They Are "Too Big to Nail"

TPC:  Rosenberg:  7 Reasons Things Are Not As They Appear

Michael Burry NYT Op-ed: "I saw the crisis coming - why didn't the Fed?"

The Onion: "Rich Guy Feeling Left Out of Recession"

enjoy.

-KD

KidDynamiteBlog is on Twitter

Are you on Twitter, but not following KidDynamiteBlog?  Why not?  Get on it.

-KD

Red Sox Country

A great thing about being in New Hampshire is that I'm back in Red Sox country.  That means that I get to watch the games on NESN, where they show all the pregame activities and such, and we get the Rem-dawg announcing the games.

Last night the Sox honored Pedro Martinez before the game, bringing him back to throw out the ceremonial first pitch.  Then, 5 year old Joshua Sacco brought the house down with an awesome adaptation of Herb Brooks's Miracle speech, modified for baseball, and the Sox-Yanks rivalry.  Apparantly this kid was already a mini-Youtube celebrity from Brooks speech, and even appeared on the Ellen DeGeneres Show.

"Their time is done. It's over.  I'm sick and tired of hearing about what a great baseball team the Yankees have. Screw 'em!  This is YOUR time!"

Way to go, kid, I have to admit it got a little dusty in the Kid Dynamite living room watching that on Opening Night last night...


Go SOX!

-KD

Brussels Griffon Rescue

Mrs. Dynamite filled out an application (approved!) for us to become a foster home for the National Brussels Griffon Rescue.  Hopefully, we'll be able to help some Griffs in the NorthEast, and either adopt them or find them permanent homes. 

The timing is perfect, as April is Prevention of Cruelty to Animals Month.  If you'd like to make a donation to the NBGR (Griff Rescue) you can do so here:  this tax deductible donation goes to the national organization and has nothing to do with me or my blog - all it does is help the non-profit organization do their job.

You can be sure that if we end up fostering a dog, I'll post pictures here, and links for how you can adopt.  For now, here's another gem of Oscar, lounging on the couch in a sunray:

-KD

Granite State of Mind

This is absolutely brilliant:



"New Hammmmmmppshire - DSL service is brand new, you might even see a moose"


Of course, you have to know the JayZ original.

-KD

Bees, Wasps and Such

I have tons of bees on my property.  Friggin TONS of them.  OK - that's probably a taxonomic misnomer:  most of them are probably varieties of wasps.  There are yellow jackets, other kinds of paper wasps, mud wasps, carpenter bees, and other various unpleasantries with long hanging stingers.  My barn is ground zero for the majority of these things.   I don't think any of these are honeybees.  Today I encountered a new breed of nuisance - these little teeny bees/wasps that look like they those undercover flies that are disguised as bees - only these ones actually were bees - and they were swarming about right near ground level.  You can't see any of the varieties in this picture, but you can get an idea of the kind of wasp-paradise that the barn is.  Imagine if you're standing in this hay-loft and you look up.  You will see a plethora of wasps nests.

I am a bee-pussy. I'm not afraid to admit it.  I got stung a handful of times when I was a kid, and then I probably went 10 years without being stung by a bee, until I got stung a few times at my buddy Gabe's house in Western Mass back when I was in high school.  We were running up his deck's steps, and there was a nest underneath.  They came out, flew into my t-shirt (which I promptly whipped off, both to prevent them from getting stuck and stinging me more, and to intimidate them with my ripped muscles) and stung me 3 times.  Now, I was a tough high school kid at this point, and figured that the bee stings I'd remembered from my childhood only hurt because I was a wimpy 7 year old.   Nope - these high school stings hurt for almost a week, and I vowed to do everything in my power to avoid being stung in the future, even if it means acting like a total wuss.

So, the question is - what should I do?  Today, looking up in my barn, there were wasps SWARMING at the apex of the roof on the inside (I'm overstating it a bit, probably - there were, at most, hundreds - not thousands).  It's about 2 1/2 stories high.  One school of thought is: leave them alone.  Ok - but here's the thing - it's all fine and dandy as long as they stay up there where they are supposed to, but they move around, and I don't want to get a surprise of a face full of wasps when I move the wrong thing in my barn and find that they've decided to make a nest there.

Also, I have at least one bat that survived the White Nose Disease, and is living in the barn.  We could hear him squeaking today, telling the wasps to "leave me the f*@k alone" as they swarmed around his domain.  I hope the wasps don't kill the bat, but they might.  Also, attempting to kill the wasps with spray poison might kill the bat.

Wasps that build nests on the eves of my house which I can reach will be destroyed.  That much has already been decided.  Unfortunately for me, there are numerous places on the exterior of my house that I won't be able to reach, and that they've already begun building nests on.  Fahhhhhhhk.

Does anyone have a preferred wasp-killing-spray that they use?  Does anyone say "whatever you do, don't kill them - they are essential to your landscape?"  I know that wasps are supposed to eat caterpillars and flies and stuff, but I think I'd prefer flies to wasps...We also have a MAJOR ladybug infestation - and the wasps are doing jack crap about that. At least if they were eliminating the ladybugs we could have a discussion - but hey, wasps, I'm not feeling your benefit!

-KD

Our Credit Has Already Been Spent

First, a graph (click here for large version) - you may have seen it before, courtesy of Calculated Risk:

Then, an explanation via MatrixAnalytix, posted at ZeroHedge a few days ago.  I think this post eloquently explains a concept I've been trying to elucidate to explain why this time is different.  I'll c&p the three paragraphs here:

"The uptick in unemployment is directly correlated to the extreme tightening in credit standards we've seen over the past year or so. The environment of lax credit "easy money" we experienced over the past several decades artificially inflated the perceived purchasing power of households by most likely several magnitudes. If someone had $2,000 in bank but had a $10,000 credit card, there was no reason this person couldn't ratchet up credit card debt to the hilt and pay it off slowly. This was no doubt due to confidence in "job security." If I feel confident that I will have a job one year from now, I then believe that I will be able to finance any debt I may incur for the foreseeable future and can continue spending well beyond my earned income.

However, the underlying "bid" in the job market over the past several decades was ironically and without doubt directly correlated to this lax credit environment. In this environment, if someone with $2,000 in the bank had purchasing power of $10,000 and was more than willing to spend up to that amount + a percentage of earned income, then the demand for goods and services throughout the economy was in fact significantly driven by that credit portion of someones purchasing power and hence employers were bidding for labor based on a demand for goods and services founded on credit lines. In other words, high credit lines were producing "job security" which was producing demand based on easy access to credit lines...which was producing "job security", etc

Now what we've experienced over the past year or so is a significant retraction of those credit lines down to levels equivalent to real earned income. In other words, someone with $2,000 in the bank now most likely only has access to $5,000 in credit and that credit is most likely already spent. In other words, $5,000 of purchasing power has been eliminated from the economy and hence the demand for goods and services must be adjusted downward by the same amount unless the decrease is offset by an increase in spending by cash (which we know is not the case). Therefore, employers must now adjust their expectations of production to this lower level of demand which requires the need for less labor. Therefore, the bid for labor declines significantly, unemployment rises, and the level of "job security" declines. In the short-term this produces an increase in cash saving levels, and a decrease in demand for goods and services. The labor market is adjusting to a new paradigm in credit standards which are certain to remain for several years until cash levels increase to a level which allows for the re-extension of credit and confidence by creditors that those debt levels will be repaid in a timely fashion. In other words, expect unemployment to remain relatively high for several years until cash savings levels increase dramatically and credit lines begin to be re-extended. However, expect even when those credit lines are re-extended they will be to a much lower level than their previous highs as the market has seen the consequences of extremely easy access to credit, and hence the lows and new historical averages in unemployment will begin to rise in response to new lower levels of credit.

www.matrixanalytix.com

The bottom line:  we have a paradigm shift caused by the fact that our credit has already been spent.  That's a vast oversimplification of the problem, but still a good one sentence summary as to why I don't think that the economy can bounce back rapidly like it did in past recessions. 

-KD

Simon Johnson: "The Most Dangerous Man In America: Jamie Dimon"

Simon Johnson's recent post on Baseline Scenario is worth reading, at least for the irresistible two paragraph opening:

"There are two kinds of bankers to fear.  The first is incompetent and runs a big bank.  This includes such people as Chuck Prince (formerly of Citigroup) and Ken Lewis (Bank of America).  These people run their banks onto the rocks – and end up costing the taxpayer a great deal of money.  But, on the other hand, you can see them coming and, if we ever get the politics of bank regulation straightened out again, work hard to contain the problems they present.

The second type of banker is much more dangerous.  This person understands how to control risk within a massive organization, manage political relationships across the political spectrum, and generate the right kind of public relations.  When all is said and done, this banker runs a big bank and – here’s the danger – makes it even bigger.

Jamie Dimon is by far the most dangerous American banker of this or any other recent generation."

It's a bit odd to vilify Dimon for not totally screwing things up like his competitors did, but Johnson's point seems to be that Dimon's success (and yes, I know that Dimon's JPMorgan has benefited vastly from the Government's interventions) makes his bank bigger, more powerful, Too-Bigger-Too-Fail,  and ultimately more dangerous on a systemic level.

-KD

NY Times Link Fest

A bunch of NY Times stories caught my eye recently:

Judge Throws Out Suit against Moodys, S&P

"Plaintiffs, led by the Public Employees’ Retirement System of Mississippi, accused rating agencies and banks of misleading them about the safety of 84 mostly investment-grade offerings of residential mortgage-backed securities.

The plaintiffs said the securities they bought were in fact “not of the ‘best quality,’ or even ‘medium credit quality.’” They said that, after being downgraded to junk status, the securities were worth far less than they paid."

As readers know, I'm all in favor of holding buyers of assets accountable, but if there is one party in the financial crisis that was most grossly negligent, in my opinion it's the ratings agencies.

Extreme Makover:  Wall Street Edition

I was actually going to write a slightly different version of this piece, but Sorkin beat me to it.  I've been arguing with a friend lately who works in a prop trading group at a big bailed out bank.  I tell him that I think that his job will be legislated away by some sort of Volcker rule, and he says it's extremely unlikely that anything actually gets passed and implemented.  When I read statements like the ones out of Jamie Dimon yesterday expressing regret at using the TLGP, and out of Geithner today talking about how unfortunate the bailouts were, it actually makes me think my friend may be right. Wall Street is starting to wake up to the fact that the public is furious.  Unfortunately, a fear is that they try to TALK over the issue, to avoid having legislation passed against them.

More Struggling Borrowers Face Pay Garnishment

I'll let you read this one on your own.  Again, readers know that I'm in favor of debtors bearing responsibility for their actions, but I wonder if the HSBC spokesman's statement “We are confident we are treating our customers fairly and with integrity,” isn't a bit of a stretch when they were charging in excess of 27% interest on a judgment for a loan that they were already owed, WHILE garnishing the borrower's wages...

Finally, a 3 week old headline:

Should the U.S. Provide A Ponzi Scheme Bailout?

I may have actually written about this one already, but I included it because today the headline was still on Dealbook's front page, and I misinterpreted the headline.  After all, we've already provided multiple massive Ponzi-esque bailouts:  the Fed buying up all the bad debt on the planet, ZIRP, TLGP, etc... Then I realized that the article was talking about bailouts for victims of actual Ponzi schemes, like Madoff, who lost "false" wealth that never really existed...

-KD