Wednesday, December 15, 2010

Nice Afternoon In Greece

The following is a brief glimpse at this afternoon's events on the streets of Greece.  It shows what happens when a government runs a massive deficit that it cannot pay, and is then forced to make drastic cuts in spending when there is a run on the government debt in the financial markets.



In other news, the Senate is pushing through Obama's tax bill extension this afternoon with no additional cuts to spending in other areas of the budget.

Today our debt is the darling of the world just as subprime was back in 2007. 

After a run on subprime we had a housing meltdown and financial collapse.

After the we get the run on our subprime government debt? 

Please see video above.

30 Year Mortgage Rate Chart

A look at the 30 year mortgage rates over the past month paints a frightening picture.  If the artificially suppressed rates were to continue to rise off the historically all time record lows you can quickly do the math on the effect to home prices.

Higher rates = Higher payments = Less Purchasing Power = Lower Prices

That is unless of course employment wages begin to rise along with the cost to purchase. (Sorry, had to throw a joke in there to keep everyone in good spirits)

The Federal Reserve may soon have to step in and announce the purchase of every mortgage in existence to keep rates low.  (About $14 trillion worth)

Ben Bernanke's worst nightmare:


Spain: Downgrade Coming

Spanish government bonds hit a record high this morning on Moody's warning of a coming downgrade on their debt.  The implications of this coming debt default are like a meteor ascending on the financial markets.  Here is the chart showing the interest rate charged to purchase debt.  The higher the rate, the lower the price of the bonds:

Mark Zuckerberg: Person Of The Year

TIME Magazine honored Mark Zuckerberg as person of the year this week.  The founder of facebook is well deserving of the award as he has revolutionized the world of social networking with the creation of Facebook.

"The Social Network" was this year's second best film, (behind "Inception" of course) and I would recommend going to see it in the theatres before it is gone.



I am not a participant in the Facebook network, but I absolutely love entrepreneurs who capitalize on a great idea, create billions of dollars in real wealth, and hire Americans to grow the economy in the process.

It is the absolute exact opposite of how I feel about government bail outs and socialism, which suck the life out of a free market capitalistic economy.

Here's to a successful (and very strange) entrepreneur.  We need more people like him.

Tuesday, December 14, 2010

David Stockman With Dylan Ratigan

Visit msnbc.com for breaking news, world news, and news about the economy

Muni Bond Massacre Begins

A couple of fun charts below showing the massacre currently taking place in the municipal (state debt) bond funds across the financial landscape.  These time bombs are currently exploding (unnoticed) in 401k, pension, and insurance funds as we speak. 

As I've discussed all year, the public has pulled what is left of their life savings out of the stock market and put it into bond funds around the world in search of higher rates and perceived safety.  They have done this at the very peak of the greatest bond bubble the world has seen.

This will be the major story in 2011, and the current proposal in place to not extend the Build America Bond program will be the death knell for state governments on the verge of bankruptcy.  (BAB program was put in place to subsidise state debt with federal tax payer money.  I will discuss its importance in the future when the final decision is made on their existence under the current tax proposal)

In the meantime, enjoy the fireworks as the United States of Greece begins to self implode:

NPI Nuveen Premium Income Municipal Fund



NPP Nuveen Perform Plus Municipal Fund



NPP Nuveen Municipal Advantage Fund



NPP Nuveen Municipal Market Opportunity Fund


h/t MISH

Sunday, December 12, 2010

Jim Chanos: The Next Big Short

The following is an incredible interview with Jim Chanos, who moved his name into the legendary status of hedge fund managers back in 2001 when he took a look at the balance sheet of a company called Enron and decided to short the stock all the way to zero. (The company was the darling of the world at the time)

Since then investors around the world have held on to his every word as he looks for the next big shorting opportunity. (He was all over the real estate credit bubble)

Today he has his sights set on a new opportunity: Chinese Real Estate

He explains why below with some staggering statistics:

The Next Round Of Resets

Back in 2004-2007 a tremendous share of the mortgages purchased during the height of the real estate bubble were 3 year adjustable rate subprime mortgages.

I remember tracking charts back then and imagining how the world would change as the rates reset higher.  Everyone knows how the story ended.  Homeowners could not afford the mortgages at the higher rates, they could not refinance because they were upside down, and the destruction of the subprime market brought the credit crisis during the fall of 2008.

Today we have a new chart.  This one is far more sad because it deals with human lives.  (Someone who loses their home can just rent since we have an endless supply of housing, something our leaders have not yet put together)

The following highlights the peak point of job losses since our depression started in 2007.  These unemployed Americans are now about to become part of the "99ers", which means their 99 weeks of unemployment benefits will expire and they will no longer receive government support.



The current tax bill moving through Congress has no additional weeks of unemployment insurance, even though it extends the already ridiculous 99 weeks currently in place.

If the government decided to artificially support the mortgage market by providing or guaranteeing over 90% of new loans issued (which it currently is today), then they will certainly create a program to deal with this oncoming issue. 

Otherwise there are going to be some very hungry people as we move forward.

The current deficit projection for 2011 with the Bush tax cut extension and additional tax cuts (Obama's sleight of hand stimulus) is at $1,500,000,000,000. ($1.5 trillion)

This does not include the massive "off" balance sheet debt that will need to be financed.

Bernanke has already volunteered to pay for $900 billion of the $1.5 trillion with the printing press, and I fully expect him to pick up the rest of the tab during the second half of the year, especially with interest rates currently rising in the government debt markets. (He certainly does not want foreign investors to see the smoke)

This will take care of the current unemployment problem in America, until the checks coming in the mail for the 99ers or soon to be 299ers, have no value and cannot purchase goods at the store.

Or we could cut some of the other absolutely ridiculous government waste and spending now.  But that is too silly to talk about today, it is far more exciting to wait for a currency crisis and food shortages before cutting a government worker's pay from $175,000 down to.....$135,000?