Wednesday, June 10, 2009

Blood In, Blood Out

Also known as "Bound By Honor," this is a fantastic epic depicting the struggles of a Chicano family in East L.A. torn apart by violence, drugs, and prison/gang ties. The movie stars a young Benjamin Bratt, but features a star cast who mostly play serious criminals like Delroy Lindo, Ving Rhames, and even Billy Bob. Of course, you can't have a prison movie without the ever present Danny Trejo (a real ex-con) there to shiv somebody if needed.

In reference to our current economic catastrophe, the "bloodmoney" we've pumped in has temporarily functioned as life support for our banks, but may be quickly pumped out due to the massive debt/GDP ratio we're establishing.

First, oil cracked $71 today and with summer driving season here, don't expect a collapse yet. Second, and maybe a much more ominous sign, Russia declared that they will dump U.S. treasuries for IMF bonds, a mere $10 billion worth. A drop in the bucket for now, but if China and Japan follow suit, we will be left holding an even larger toxic bag. Finally, mortgage applications continue to plummet at an accelerated pace. With 30-year rates rising to the mid 5% range, and let's be honest, nobody is actually getting a mortgage at that rate without paying points, and let's be honest, nobody can afford to pay points, so the average is actually sitting closer to 6%.

So again I ask, rising mortgage rates despite massive government intervention, a sharp rise in commodity prices, specifically oil, and fears over our inability to sell more debt to foreign countries being realized, doesn't this seem like last year?

Any chance Elizabeth Warren gets her way and we re-stress test the banks with the criteria on the table this time for all to see? Probably not, but would be nice. Also, should be interesting to see Obama's plan for corporate governance next week. Will this include further breach of current contract law as we've seen with the Chrysler sale where preferred bondholders just got screwed out of their turn? Any of the lawyers out there care to comment on this?

http://www.marketwatch.com/story/russia-to-reduce-us-treasury-holdings-reports

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZb6bu33Whng

4 comments:

Tiger Coach said...

Ax...
Funny you should bring up mtg. apps. After a few upgrades to our home, we placed it on the market... We have found an aggressive agent (MOT)and I am definitely seeing a general lack of interest out there... Four showings in four weeks...

Meantime, let us weigh the value of a $4500.00 tax rebate on a clunker for cash scenario... I think thre will be an initial interest in the new cars... then, a resounding thud as this measure will only underscore the need of credit... and credit worthy buyers...

Still my friend, let us not be fooled as there seems to be a number of options that can be played... consider a $8000 tax credit for all home-buyers...

Also consider the option of rolling Chrysler and GM retirees onto a govt. sponsored benefit program... Long-term funding of this liability coupled with outlays on SS and Medicare...

Last, make no doubt about it. Obama's "visit to the Saudis" like Bush's was a simple recognition of our need for their continued support of our debt... Yet, can a "green" Presdient really gain that type of traction?

Finally, I am certain that a wink and nod in oil output, and continued support for higher oil process were only a slight piece of that conversation?

AX said...

That tax credit may go up to $15K for any homebuyer, new or otherwise. The store is open, all things are on the table in this Ponzi economy. Our govt. has no idea what it's doing. Even the GS CEO said today that the market rally is strictly due to govt. intervention. Perhaps he's ready to go short?

Anonymous said...

Ax...
In your humble opinion, to what extent did TARP funds fuel this rally? Now that banks are starting to pay back the money could this suggest a market that will sink once again?

Secondly, there is an estimate that if banks have to place all derivative losses on the books that there will be 4 trillion dollars in debt which appears on bank balance sheets...as of now, Enron acounting standards are acceptable for banks...

AX said...

Indirectly, TARP funds fueled the rally entirely as banks posting "record" profits have the full backing of the treasury. That, and a new set of accounting rules that doesn't make them write down CDO losses and allows them to take losses on their own debt as profits. Unbelievable. If derivatives losses are placed back on the books, it won't be done in such a way as to wreck most banks, just the bottom losers. What will bring about the crash again is the death of optimism through higher unemployment and prices.