The Haiku of Finance for 05/31/23

Vote on debt ceiling

Markets await the outcome

Everything at risk

The Haiku of Finance for 04/17/23

Debt ceiling standoff

Taunt the global bond market

Risking the dollar

Leading GOP Candidates Stand Nowhere On US Fiscal Sanity

The first Republican Party presidential debates for the 2016 elections are happening tonight.  I am not watching them because I do not watch TV.  I tried to keep up with a couple of live blog feeds but the posts were not very enlightening.  Most of the contenders seem to be sniping in sound bites.  Politicians have little control over cultural matters but some voters insist on hearing about such distractions.  I would like to know where these politicians stand on fixing the US government's fiscal imbalances.

The Bowles-Simpson National Commission on Fiscal Responsibility and Reform laid out a plan to balance the US government's finances.  The rest of Washington, DC did not take it seriously.  Both major parties would rather use select line-items as political footballs and campaign stunts.  The signed audit statements for the federal government's major entitlement programs show them continuing to accrue unfunded liabilities.  The difficult policy choices that could resolve those liabilities grow more difficult with each passing year.

The financial markets ignore the US government's perennial deficits while our dollar is strong.  Petrodollar recycling supports demand for our sovereign debt as long as Saudi Arabia is OPEC's swing producer, and as long as that monarchy remains politically stable.  The US has not yet met Greece's fate.  The President we elect in 2016 will face the wrath of the world's financial markets if the US government is unable to stabilize its finances.  Our popular fascination with candidates' one-liners and hairstyles will not excuse us from history's judgment if we cannot get solid financial solutions from them before we give them our votes.

The Haiku of Finance for 10/07/13

Shutdown endgame near
Some deal already agreed
Conflict just for show

The Haiku of Finance for 12/31/12

Fiscal cliff is here
No one wants to admit it
We can't pay our bills

Financial Sarcasm Roundup for 12/31/12

The waning hours of 2012 have reached the Pacific coast and I'm blogging away into the new year.  Here comes one final blast of sarcasm to close out this calendar.

The U.S. Senate and the White House have made a fiscal cliff deal, but the House of Representatives took a breather until tomorrow.  The lower house of Congress is missing all the fun.  I hear there's free booze for anyone who sticks around and passes the anti-cliff bill tonight.  My theory is that someone started a rumor that a "bungee jump" off the fiscal cliff meant a real bungee cord would be installed on the Capitol, and the House adjourned early when they didn't see a jump platform around.  Tomorrow they'll figure out that the actual "bungee" is the retroactive provision they can write into the deal that will take back any harsh spending cuts or tax increases that will occur on January 1, 2013.

The French aren't having any more success with their own fiscal mess.  The 75% tax on the super-rich is now null and void, so Gerard Depardieu can breathe easier during his self-imposed exile in Belgium.  I think France should cut the subsidies its wine makers get from the EU.  French wine is overrated anyway and California wine can definitely compete in quality.  I don't drink French wine but if the euro collapses the EU will try to hyperinflate it back to life, and then French wine would be dirt cheap measured in my dollars.  

Here's wishing you all a happy 2013.  It will be happy for me as long I'm sarcastic.  

The Limerick of Finance for 12/30/12

This year has wound down to an end
A "fiscal cliff" deal still not penned
Some plan will get done
That will please no one
More posturing just 'round the bend

Financial Sarcasm Roundup for 12/26/12

It's one day after Christmas and I'm not any less sarcastic than I was yesterday.

The fiscal cliff is approaching and the relevant parties just can't stop launching trial balloons to impress the folks back home.  Both parties want to lower corporate tax rates in the name of competitiveness.  There's no way such a complicated reform will get done this year but that won't stop the preening and posturing.  Lowering the corporate tax rate while eliminating deductions probably won't raise revenue but it will make CFOs' jobs easier, so maybe some grateful corporate treasuries will step up their giving to super-PACs.

Japan is going nuts.  Their ruling political coalition has voted specifically to destroy the yen with monetary stimulus.  That's like putting some anemic patient on a cocaine diet in the hope that it will accelerate their metabolism.  Forget about structural reforms.  I'm so glad I don't own Japanese stocks or yen.

Some New Jersey union pension fund is suing to block the NYSE-ICE merger.  Come on already.  They should be grateful anyone wants to buy an American exchange at what is likely the high point of the U.S. equity market.  That means ICE is probably at its high-water mark too, and competition from dark pools and internal crossing networks make this merger all the more fortuitous for both exchanges' shareholders.

Here comes the mother of all re-fis.  The Administration is considering a refinancing handout to even more borrowers, along with nationalizing the rest of the secondary mortgage market.  I knew all along that Washington was going for it but it's still thrilling to see my suspicions confirmed in print.  I invite my readers to search my blog articles throughout 2011 and 2012.  You'll find several articles where I propose that large-scale mortgage modification programs would be a transmission mechanism for a wage-price spiral if the federal government flooded them with cash.  If this latest policy boondoggle is enacted, the necessary mechanism to launch hyperinflation will be in place.

The primary Treasury dealers are dumber than ever.  They're hoarding bonds and reducing sales to the Fed. This is the wrong thing for a dealer to do with the U.S. bond market at an all-time high.  The smart thing to do is unload winning positions onto the last sucker in the room - the Fed, of course - and shift the bank's business lines into things like non-dollar debt from emerging markets.

Shoppers didn't come through for retailers this year.  I've been waiting for a downturn in retail activity and this one's been a long time in coming.  Better late than never.  The average American probably has enough unused stuff in their closets and storage sheds to equip several emerging market households, and yet buying more stuff is in our cultural DNA.  The silver lining to any hyperinflationary period is that ordinary folks will be cured of their impulse to consume with abandon.

Finally, the SEC gets my Alfidi Capital award of the day (okay, there's no such thing but it sounds generous) for innovation.  The agency charged with regulating our capital markets is finally acquiring a system that allows it to watch the capital markets.  Funny, I've been using ordinary financial websites and online brokerages for almost two decades.  In true government contracting fashion, they bought a complete system rather than subscribe to terminals and feeds from Bloomberg and Dow Jones.  I recall reading during the financial crisis of 2008 that the Treasury Secretary had the ability to monitor credit markets in real time from his desk.  I don't have to name the Wall Street players who have a vested interest in the keeping the SEC blinded, in exchange for future private employment for the agency's top investigators.  In that context, I expect the SEC's new market monitoring system to work exactly as intended, especially since initial access to the system will be limited to a handful of people.  Read between those lines.

Financial Sarcasm Roundup for 12/25/12

The capital markets are closed for Christmas but Alfidi Capital never sleeps.  The holidays are a perfect time to get sarcastic.

The stealth nationalization of health care payments will really get going in 2013 with new tax increases.  I fully expect employer-sponsored health insurance plans to be taxed as the equivalent of income.  I admit the principle of taxing a benefit makes sense; after all, if cash compensation from employment were higher then workers could pay for health insurance out of pocket.  Employees really don't know the difference because this tax break encourages companies to enroll their workers in plans.  The health insurance sector will love this tax but most small businesses will hate it.  I also expect small businesses to accelerate the transformation of full-time positions into part-time jobs to avoid providing health care and paying this tax.  The insurance sector has begun its sea change toward a system with the federal government as single payer.  You will be forced to pay a premium for routine access to an overstressed system because the government isn't the least bit interested in controlling costs.

Unionized labor is about to deliver a very unwelcome post-holiday gift to the economy.  Stupid ILA dockworkers are about to launch a Maine-to-Texas strike that will curtail or shut down shipping at every East Coast and Gulf port for weeks.  Even dumber, the ILWU is threatening to strike at Northwest grain ports.  Midwestern farmers ought to be up in arms about the prospect of their grain being shut out of Asian markets.  The National Retail Federation isn't taking the ILA threat lying down; they urge the Administration to force workers to stay on the job under Taft-Hartley.  Fat chance.  This Administration is a big friend of organized labor and is not at all inclined to use the law as it was intended.  I expect a strike, and a big hit to the stock prices of carriers transporting containerized cargo.

It's hard to ignore the scary headlines about no fiscal deal forthcoming in Washington.  Hitting the fiscal cliff would be good for America so we can all get the shock of living within our means and living with reduced benefits from our government.  Politicians don't want that to happen but don't want to explain anything to folks back home.  The real deal will still get done in a couple of days, just like the last debt-ceiling emergency, and everything will be fine until the bond market boycotts a U.S. Treasury auction.

I hope you're all enjoying this year's winter solstice. That's what Christmas used to be before Emperor Constantine foisted monotheism upon the Roman Empire and politically appointed clergy began appropriating pagan holidays.  I celebrate today with the original intent in mind, devoid of late-Roman innovations.

The Haiku of Finance for 12/11/12

Mayans got it wrong
World does not end with this year
Nor does fiscal cliff

The Haiku of Finance for 12/07/12

Fiscal cliff deal close
Two leaders now talk alone
Time the announcement

The Haiku of Finance for 12/03/12

Phony fiscal cliff
Solution already done
Not a thing will change

Financial Sarcasm Roundup for 12/03/12

My sarcasm spews forth in a torrent of verbiage.  It will cease when I am no longer alive.  No one can silence me; many have tried and none were successful.  I am genius personified.

The fiscal cliff nonsense continues unabated and the non-Beltway media personalities hyping this non-event can't see through the smoke.  Republicans say they want big cuts in Medicare and Social Security.  That position is for the benefit of home audience voters, just as the President's opening offer of massive tax increases on the rich was for the benefit of his party's base.  The intractability of both sides' positions isn't a signal that they can't agree.  They have agreed to disagree for years while raising the debt ceiling time after time.  The dollar's reserve status and the Fed's bond buying have enabled this charade to continue.  Whatever 11th-hour legislation is needed to keep kicking this can has already been drafted and merely awaits some signal from both parties' Congressional leadership that they've "given up" on negotiations.  The can-kicking bill will then fly through a joint session at warp speed and the President will sign it with a wink and nod.  Presto, crisis avoided.  Our elected leaders have done this many times before and are practiced hands at getting it done.  They will continue this behavior until the bond market rejects dollar-denominated sovereign debt.

Europe's leaders have obviously been taking notes on how to avoid solving fiscal problems.  The Continent's finance ministers are coming up with some very creative ways to pretend to bail out Greece.  Athens continues to oblige them with creativity of its own.  I believe Greece will have no difficulty forcing some hedge funds to disgorge the Greek sovereign debt they own at far less than 30% of face value.  All of the cards are on Greece's side in this game; Greece can walk away from buyback talks and immediately tank the secondary market for its debt.  Athens can risk panicking its EU/IMF creditors for a few days because that's all it will take to force hedge funds back to the table.  The half-life of a hedge fund's margin call is a lot shorter than a European finance minister's conference call.  Quite a few hedge fund managers are about to learn that they were too smart for their own good.  The only winners might be the ones who took out short-duration CDS spreads in hope of a blowout.

The European ministers' negotiating leverage with Greece is also deteriorating.  The credit ratings of their bailout funds are in perpetual jeopardy.  Greece knows it can force further downgrades just by making some aggressive noises about noncompliance.  The mechanisms' credit ratings downgrades do not mean Europe's bailout artists will be unable to borrow.  The Federal Reserve's unspoken arrangements will see to it that the funds' coffers are filled, with the U.S. central bank demanding a higher risk premium as appropriate compensation.  This is why the European ministers hold the weakest hand in these multilateral negotiations.  They are simultaneously subject to Greek threats of nonpayment and American threats of higher costs for dollar swaps.  The financial media reports the tips of icebergs.

Sometime next year I'll be laughing very hard at a lot of broke money managers who went long Greek bonds, long the euro, long China, long U.S. housing, and long other things.  I just continue to marvel at how high the ruling elite can stack its house of cards.  They're quite skilled but not omnipotent.

The Limerick of Finance for 12/02/12

Fiscal cliff talks have hit a stalemate
Pundits worry and claim it's too late
But the real deal is done
No concessions were won
Kicking can until some future date

We've Already Passed The Fiscal Cliff

I am totally sick and tired of hearing about the so-called lack of progress in Washington on avoiding the fiscal cliff.  The activity that media outlets are passing off as initial posturing prior to serious negotiations is probably nothing more than each political party pandering to its base.  Politicians want to go on record with campaign-ready soundbites favoring more unsustainable promises just before they quietly vote to do pretty much nothing.

This past election cycle revealed that neither major party is serious about cutting spending on unfunded middle class entitlements.  The leaders of both parties in Washington have sufficient political skill to engineer a legislative solution to the fiscal cliff that does nothing more than continue the status quo indefinitely.  In practical terms, I would not be surprised to learn that Congress' leaders already have a draft bill ready for voting that does nothing more than raise the debt ceiling and extend any spending sequesters for a few more months.

The euro's weakness enables temporary U.S. dollar strength, which in turn enables the Fed's unlimited U.S. government securities buying in support of unlimited deficit spending.  That's why politicians think they can get away with business as usual.  The end of the euro, whenever that happens, will begin the countdown to the end of the dollar as the world's reserve currency.  Then it will be business as unusual when Washington will have to force financial repression on America's middle class.

The United States government passed its point of no return when its debt/GDP ratio breached 100% in 2011.  We've already passed the fiscal cliff and are now in a Wile E. Coyote midair suspension, willfully unaware of our situation until gravity turns our forward momentum into a downward parabola.

Greece And U.S. Don't Really Have Two Years

Here's today's "whoa Nellie" moment.  There will be more in years to come.  Europe is willing to give Greece two more years to meet its fiscal adjustment targets.  That's pretty silly considering Greeks are rioting right now over cuts to government spending.  They'll really light things up the longer that two-year reprieve window drags out their pain.  Leaving the euro for a hyperinflating neo-drachma will be just as painful but will probably end sooner.

The U.S. probably doesn't have two years either to solve its fiscal shortfalls but we don't know it yet thanks to the dollar's ever-more precarious status as the world's reserve currency.  Lining up business leaders to provide cover for tax increases will probably help but there shouldn't be any promises of business tax breaks in return for support.  Wealthy investors selling assets now are getting ahead of the game, so let's not count on any giant revenue boosts next year from higher capital gains taxes.  The Laffer Curve's implication that higher tax rates don't necessarily raise gross collections is becoming a self-fulfilling prophecy.

Jobless benefits are a potential casualty of the fiscal cliff but IMHO the federal government is not likely to slaughter this sacred cow.  The lesson of last week's election is that working-age Americans like their free handouts and will punish politicians who talk about taking them away.  Americans have become more like Greeks than they know.  Whatever compromise comes out of Washington will probably impact the rich first and the poor last, until hyperinflation makes everyone poor.

I have no idea whether Americans deprived of government benefits will be up in arms like Greeks.  America got its history of social unrest and agitation out of its system by the late 1960s thanks to an elite consensus in favor of a welfare state.  The end of the welfare state's income-support programs and lifestyle entitlements (SocSec, Medicare) will test our social fabric, and our elites are willing to postpone that day of reckoning even if it means they continue to bear a proportionately large share of the nation's income tax burden.

Financial Sarcasm Update for 10/29/12

This is an exciting week thanks to an unpredictable presidential election and a big 'ole storm headed for the Eastern Seaboard.  I'm going to make it even more exciting with some financial sarcasm.

U.S. markets are closed for extremely bad weather.  This is more than a puncture wound to the self-made myth of Wall Streeters as indestructible masters of the universe.  It's a sign of how vulnerable equity markets are to the physical isolation of a single city block.  There is no substitute market if the NYSE were forced to shut indefinitely after a physical catastrophe.  The dark pools of liquidity sponsored by major asset managers are not sufficiently transparent to substitute immediately for an open market.  The internal crossing networks of major asset managers are pretty robust but firms like BlackRock and State Street would be reluctant to immediately open them without strong-arming from the SEC.  This country is in serious trouble without a decentralized equity trading market, but unfortunately that's just the way our mandarin class wants to treat us.

US and UK regulators are ready to sweep the Libor scandal under the rug with a few slaps on the wrists at money-center banks.  Business as usual!  The fraud and rigging will continue so insiders can keep getting rich at the expense of outsiders.  Read my blog articles from some months ago.  I predicted this outcome.

If the above items haven't got you depressed, the next phase of Great Depression 2.0 will do the trick.  The fiscal cliff's negative impact on the economy will be exacerbated by reduced consumer spending.  Call it the flip side of the marginal propensity to consume; poor folks spend proportionately more of their income and will have less of it to spend once layoffs really get rolling in first quarter 2013.

We've finally hit the peak of the junk bond curve.  Companies with deteriorating credit quality can issue more high yield debt than ever and investors just eat it all up.  How stupid can hedge funds be?  They're the ones driving this nonsense because their market-lagging returns push them farther into losing territory.  They'll reach for extra yield even if it means reaching for junk bonds that should default.  Most hedge funds should just close up shop rather than chase each other over a cliff, but I'll enjoy watching them hit the wall.  Maybe the biggest intellects really do gravitate to private equity, since they're driving this junk bond issuance to extract the last drop of dividend juice from their portfolios before the big collapse.

Wild pursuit of dividends for their own sake can make any investor dumb.  Money managers are actually considering special dividend payouts as a type of special situation investment.  That's really dumb.  Experienced investors should know that exchanges reduce the price of a stock on the dividend payout date by the dividend's amount, with no guarantee that the share price will recover in subsequent trading.  These portfolio managers will have to explain to their clients why they went for the amateur's trick of "trading dividends" (a tactic I outgrew years ago, thank you, after a run of good luck).  The fiscal cliff will do a lot more than force temporary changes in corporate dividend policies.  It will hammer the prices of stocks that investors bought on the cusp of a recession.

I can't let myself feel sad about all of this pending misfortune.  Professional investors have access to all of the information I have and then some, and they still buy the wrong investments at the wrong times for the wrong reasons.  I am very happy that hard times will flush these people out of finance and put their assets on sale just for me.

The Haiku of Finance for 10/27/12

Early fiscal cliff
Layoffs and spending delays
Already hurting

The Haiku of Finance for 10/25/12

After election
Winner must solve fiscal cliff
A losing prospect

The Haiku of Finance for 10/13/12

Fiscal cliff answer
Throw too-big banks over edge
Fill up debt canyon