Financial Sarcasm Roundup for 04/22/13

Whether good news or bad news, the news stream in business never ends.  That is why my sarcasm will never end.

The grand poobahs of world finance have anointed the global economy as just fine, except for weak growth and not enough jobs.  That kind of logic is so tortured it might as well reside in Torquemada's dungeon.  If GDP growth is weak and job growth is scarce, then there is no real global recovery.  The top dogs don't keep their jobs by generating spooky headlines but it's high time someone called them out.  I have no idea what these fools are smoking but I'm glad I've never smoked anything (except a couple of perfectly legal cigars on special occasions).  Oh, they're also giving moral cover to Japan's debt-fueled stimulus and currency devaluation because they can't think of anything better to do.  Lots of policymakers are backing away from austerity now that economists are questioning the Reinhart-Rogoff 90% debt/GDP formulation.  Austerity is on the ropes and Krugmanite stimulus is ascendant, with no brakes.  The die is cast for hyperinflation and currency collapse in most of the developed world.

Fitch is flushing the UK's credit rating down the tubes.  This is going to happen more frequently as the G-20 consensus referenced above endorses more mad Krugmanite spending and inflating.  The UK's finance minister still pushes austerity but the IMF gave him a polite reminder that the global consensus is shifting to super-stimulus.  Do they have any real sterling left to back the pound?  Or will they pledge the Crown Jewels and the Queen's silver flatware as collateral to stem a run on the pound?  When the dust settles they'll have to find a hard asset pool to back the value of Pound 2.0, or neo-pound, or whatever.  I'd suggest pledging North Sea oil reserves but production may have peaked.

Budget pressure on the air traffic controller workforce is forcing flight cancellations.  This is why I don't invest in airline stocks.  Too much union influence and too much debt hurt profitability.  Now a ceiling on human infrastructure is limiting the daily revenue passenger miles of the industry.  I suspect the USDOT directed the furlough to a sector that would immediately cause the public an inconvenience, in the hope that travelers would whine loudly to elected officials about restoring full budgets.  That's a cute trick.  It will last until dollar devaluation forces a bond market exodus that denies deficit spending.  The hyperinflation that follows will drive fuel costs through the roof and make airline travel unaffordable for anyone except Donald Trump.

I've got other material to write about so I'll finish with some sarcasm about my worthless alma mater, Notre Dame.  Their star football player from these last few seasons is now getting mentioned as an active prospect for the NFL.  The pro teams don't seem to care that this player had an imaginary girlfriend and that the school lied to cover up his friend's deception.  It just goes to show that you don't have to be smart or honest to succeed at Notre Dame.

US And UK Have Their Own Cyprus Bank Plan

Cyprus delivered bad news to a lot of good folks who thought their money was safe in banks.  Don't think it can't happen here, in the U.S. of A.  It can, and it probably will.  The U.S. and U.K. have jointly developed a resolution plan for insolvent banks.  The good news is that the plan is designed to avoid tapping out taxpayers the way Hank Paulson's emergency $800B TARP did back in 2008.  The bad news is that this plan will hit depositors where it hurts.

Bank depositors are in fact unsecured creditors of a corporation.  Think about it; you're loaning money at interest to a business that promises to pay you on demand.  If that business goes bust, you lose what you loaned.  Federal deposit insurance masks the risk that a depositor will not get back all of their money.  I have no problem with depositors taking a hit on sums over and above anything covered by insurance as long as such risk is explained to them in writing when they open a bank account.  Plenty of people don't read the fine print.  I do read account fine print, and I also read financial statements to ensure I stay away from troubled banks.  

The joint U.S./U.K. plan is designed to wind down parts of troubled banks while preserving other parts that provide vital services to the economy.  The goal is to keep thinks like merchant services and check clearing functional while derivatives books are unwound.  The impetus for the 2008 mega-bailout was that viable non-bank companies faced the very real chance of getting locked out of short-term credit markets and not being able to pay their vendors.  That would have destroyed healthy parts of the economy.  No one wants to go through that again. The plan to avoid a repeat of that scenario is now in the public domain and the troika is using parts of it in Cyprus.  The experiment so far is proving successful in keeping the economy of Cyprus functioning.

Financial Sarcasm Roundup for 02/25/13

I didn't watch the Oscars last night because I'm not interested in Hollywood's self-congratulations.  Hollywood should congratulate me for being such a good writer.  Maybe they will someday.  Until that day comes, I have the web traffic of my faithful readers - all three of them - to provide me with accolades.

The Brits are keeping their stiff upper lip rather than bemoan the loss of their AAA credit rating.  Good for them.  The UK can keep up its special relationship with the US as our credit ratings are downgraded together.  Don't expect to hear similar expressions of resolve on this side of the pond.  Americans will wail in pain as our declining credit rating forces real interest rates up.  We are the world's indispensable nation, after all.

Italian voters might get their act together someday but I won't count on it.  Multiple contenders in their national election today portend a muddled result.  The eurozone countries in default are probably better off with Eurocrat carpetbaggers imposed on their systems but that experiment just wasn't palatable to voters who won't accept austerity.  Whoever wins will have to renege on many campaign promises and handle Italy's insolvency, which I believe will require the country to leave the euro and immediately hyperinflate the new lira.  I may still have relatives living in that country but I have nothing in common with them at all.

State governors know the federal sequester will tip some of their economies back into recession.  I say bring it on. The states have relied on federal matching funds for too long and they need to break the addiction.  Funding social services should be decided at the local level anyway, so people can see the impact of taxing and spending decisions in their own communities.  I don't feel sorry for states like Maryland and Virginia that have benefited from exploding federal spending on defense and homeland security since 9/11.  They could learn from California's experience in the early 1990s when defense cuts at the end of the Cold War forced many communities to diversify their economies.  The sequester will probably look a lot like the fiscal cliff debate two months ago, with lots of posturing and last-minute concessions on future spending so deficit spending can go on as usual this year.  The bond market gets the final say on this one.

Strong auto sales?  Yeah right.  Read what I blogged yesterday about the questionable underpinnings of the auto sector's revival.  Look at how fleet sales make up 21% of this month's demand, then look at my paragraph just above this one about what a sequester will do to state budgets.  In case you can't make the connection, the simple math is thus:  Sequester risk + bond market run = end of strong government sales in automobile sector.

The European Commission expects the eurozone recession to continue in 2013.  This is despite unprecedented central bank support for credit markets to stimulate demand.  The Economist notes that central banks are determined to continue the substance of their experiments with finer language as a cloak.  In summary, no one has learned anything, nor is anyone capable of learning anything.  Stupid people are in charge of the developed world and will use their enormous power to ruin life for everyone else.

I am not stupid but I am not in charge.  Someday I will be in charge of something.  It would make a great Hollywood story and I'll bet I'd win an Oscar for writing it.

The Haiku of Finance for 04/26/12

UK recession
Spanish debt gets a downgrade
No way can bulls run

Bank Of England Throws UK Savers Under The Bus

Take note of today's comments from the Governor of the Bank of England.  He does not disguise the fact that quantitative easing - using artificially created money as credit to purchase sovereign debt - is inflationary.  He openly admits that this pro-inflationary policy will hurt savers on fixed incomes and that hurting them is necessary to avoid a new recession. 

The Bank of England has declared war on the most vulnerable people in British society to delay the inevitable destruction of financial asset valuations.  The best we can say is that the BOE is more forthright than the Fed about its true intentions.  The U.S. dollar and pound sterling will soon be in a race to the bottom, right after the euro implodes of course.  If the BOE has to throw savers under the bus, it should at least be a London double-decker bus.  God save the Queen. 

Full disclosure:  No position in the U.K. pound or any derivative thereof at this time.