Wednesday, March 10, 2010

Don't Squeeze the U.S.!

Shares of fully or partly owned government stocks have been going bananas this week (which makes perfect sense given the nature of our government these days). Rumors on everything from "short squeezes" to government withdrawal from companies such as AIG and Citi have catapulted them and an anemic volume market higher. Jan. 12 calls on Citi as recommended here just a few weeks ago are up over 50%. Not unlike the stress test scenarios which were "too easy to fail," implicit government backing puts a low-end on these once bankrupt or should have been bankrupt entities.

An excellent article from one of the BBB's favorites today, Randall Forsyth of Barron's, explains why we should temper enthusiasm over this jobless recovery. Real measures of money supply (the government stopped printing M3 years ago so we wouldn't know what the hell they were doing) are actually shrinking despite over a trillion dollars in printing press dole outs to banks over the last 2 years. So if money supply is shrinking, uh, where are the small business loans coming from? Nowhere. They don't exist.

Recently we've seen a market celebration of increasing productivity with decreased employment and work weeks. Is this good news? Think again. Even Bernanke has admitted that as companies have found a happy medium between profits and payroll, they have destroyed jobs forever. With acknowledged unemployment at 16.8% and ticking up again, and the Senate scrambling to extend jobless benefits for the rest of the year, I see no hope for mass job creation even if we were to stop shedding jobs for a brief time.

Again, in the short term all we can do is embrace it. Over a million contracts on March and April $4 Citi calls this week, with Citi alone supplying more than the average daily volume. Maybe somebody knows something and maybe somebody doesn't, but those calls went up 1,000% in 3 days. Goldman anyone?

1 comment:

Tiger Coach said...

Ax,

I hope you are staying dry down there... saw some flooding pictures in Cape Coral.

I am curious about your take on metals prices and the yuan. China is/was hoarding gold... SLv is off its highs... Oil production is down, exports of oil are down, yet the prices have hit the 80s again...

Still too are we to assume that the toxic debts will remain off bank books, and on the Fed's balance sheet 4 EVER?