More on "The Big Lie"

This is the transcript from an explosive interview on Bill Moyers' journal with William Black, formerly a scourge of the S&L scandal and crisis, and now one of the prominent voices speaking clearly on the current, worse scandal and crisis involving the largest financial institutions in the Western world.  There is nothing to add, except that the number of sophisticated observers who were fooled by and are now disillusioned by Barack Obama continues to surprise EBR as that number grows.  Please read the entire transcript, reproduced below, if you did not happen to watch the show.

April 3, 2009

BILL MOYERS: Welcome to the Journal.

For months now, revelations of the wholesale greed and blatant transgressions of Wall Street have reminded us that "The Best Way to Rob a Bank Is to Own One." In fact, the man you're about to meet wrote a book with just that title. It was based upon his experience as a tough regulator during one of the darkest chapters in our financial history: the savings and loan scandal in the late 1980s.

WILLIAM K. BLACK: These numbers as large as they are, vastly understate the problem of fraud.

BILL MOYERS: Bill Black was in New York this week for a conference at the John Jay College of Criminal Justice where scholars and journalists gathered to ask the question, "How do they get away with it?" Well, no one has asked that question more often than Bill Black.

The former Director of the Institute for Fraud Prevention now teaches Economics and Law at the University of Missouri, Kansas City. During the savings and loan crisis, it was Black who accused then-house speaker Jim Wright and five US Senators, including John Glenn and John McCain, of doing favors for the S&L's in exchange for contributions and other perks. The senators got off with a slap on the wrist, but so enraged was one of those bankers, Charles Keating — after whom the senate's so-called "Keating Five" were named — he sent a memo that read, in part, "get Black — kill him dead." Metaphorically, of course. Of course.

Now Black is focused on an even greater scandal, and he spares no one — not even the President he worked hard to elect, Barack Obama. But his main targets are the Wall Street barons, heirs of an earlier generation whose scandalous rip-offs of wealth back in the 1930s earned them comparison to Al Capone and the mob, and the nickname "banksters."

Bill Black, welcome to the Journal.

WILLIAM K. BLACK: Thank you.

BILL MOYERS: I was taken with your candor at the conference here in New York to hear you say that this crisis we're going through, this economic and financial meltdown is driven by fraud. What's your definition of fraud?

WILLIAM K. BLACK: Fraud is deceit. And the essence of fraud is, "I create trust in you, and then I betray that trust, and get you to give me something of value." And as a result, there's no more effective acid against trust than fraud, especially fraud by top elites, and that's what we have.

BILL MOYERS: In your book, you make it clear that calculated dishonesty by people in charge is at the heart of most large corporate failures and scandals, including, of course, the S&L, but is that true? Is that what you're saying here, that it was in the boardrooms and the CEO offices where this fraud began?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: How did they do it? What do you mean?

WILLIAM K. BLACK: Well, the way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there's going to be a disaster down the road.

BILL MOYERS: So you're suggesting, saying that CEOs of some of these banks and mortgage firms in order to increase their own personal income, deliberately set out to make bad loans?

WILLIAM K. BLACK: Yes.

BILL MOYERS: How do they get away with it? I mean, what about their own checks and balances in the company? What about their accounting divisions?

WILLIAM K. BLACK: All of those checks and balances report to the CEO, so if the CEO goes bad, all of the checks and balances are easily overcome. And the art form is not simply to defeat those internal controls, but to suborn them, to turn them into your greatest allies. And the bonus programs are exactly how you do that.

BILL MOYERS: If I wanted to go looking for the parties to this, with a good bird dog, where would you send me?

WILLIAM K. BLACK: Well, that's exactly what hasn't happened. We haven't looked, all right? The Bush Administration essentially got rid of regulation, so if nobody was looking, you were able to do this with impunity and that's exactly what happened. Where would you look? You'd look at the specialty lenders. The lenders that did almost all of their work in the sub-prime and what's called Alt-A, liars' loans.

BILL MOYERS: Yeah. Liars' loans--

WILLIAM K. BLACK: Liars' loans.

BILL MOYERS: Why did they call them liars' loans?

WILLIAM K. BLACK: Because they were liars' loans.

BILL MOYERS: And they knew it?

WILLIAM K. BLACK: They knew it. They knew that they were frauds.

WILLIAM K. BLACK: Liars' loans mean that we don't check. You tell us what your income is. You tell us what your job is. You tell us what your assets are, and we agree to believe you. We won't check on any of those things. And by the way, you get a better deal if you inflate your income and your job history and your assets.

BILL MOYERS: You think they really said that to borrowers?

WILLIAM K. BLACK: We know that they said that to borrowers. In fact, they were also called, in the trade, ninja loans.

BILL MOYERS: Ninja?

WILLIAM K. BLACK: Yeah, because no income verification, no job verification, no asset verification.

BILL MOYERS: You're talking about significant American companies.

WILLIAM K. BLACK: Huge! One company produced as many losses as the entire Savings and Loan debacle.

BILL MOYERS: Which company?

WILLIAM K. BLACK: IndyMac specialized in making liars' loans. In 2006 alone, it sold $80 billion dollars of liars' loans to other companies. $80 billion.

BILL MOYERS: And was this happening exclusively in this sub-prime mortgage business?

WILLIAM K. BLACK: No, and that's a big part of the story as well. Even prime loans began to have non-verification. Even Ronald Reagan, you know, said, "Trust, but verify." They just gutted the verification process. We know that will produce enormous fraud, under economic theory, criminology theory, and two thousand years of life experience.

BILL MOYERS: Is it possible that these complex instruments were deliberately created so swindlers could exploit them?

WILLIAM K. BLACK: Oh, absolutely. This stuff, the exotic stuff that you're talking about was created out of things like liars' loans, that were known to be extraordinarily bad. And now it was getting triple-A ratings. Now a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk. That's why it's toxic. And you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise. And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it's scandalous what came out. What we know now is that the rating agencies never looked at a single loan file. When they finally did look, after the markets had completely collapsed, they found, and I'm quoting Fitch, the smallest of the rating agencies, "the results were disconcerting, in that there was the appearance of fraud in nearly every file we examined."

BILL MOYERS: So if your assumption is correct, your evidence is sound, the bank, the lending company, created a fraud. And the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud. Both parties are committing fraud by intention.

WILLIAM K. BLACK: Right, and the investment banker that — we call it pooling — puts together these bad mortgages, these liars' loans, and creates the toxic waste of these derivatives. All of them do that. And then they sell it to the world and the world just thinks because it has a triple-A rating it must actually be safe. Well, instead, there are 60 and 80 percent losses on these things, because of course they, in reality, are toxic waste.

BILL MOYERS: You're describing what Bernie Madoff did to a limited number of people. But you're saying it's systemic, a systemic Ponzi scheme.

WILLIAM K. BLACK: Oh, Bernie was a piker. He doesn't even get into the front ranks of a Ponzi scheme...

BILL MOYERS: But you're saying our system became a Ponzi scheme.

WILLIAM K. BLACK: Our system...

BILL MOYERS: Our financial system...

WILLIAM K. BLACK: Became a Ponzi scheme. Everybody was buying a pig in the poke. But they were buying a pig in the poke with a pretty pink ribbon, and the pink ribbon said, "Triple-A."

BILL MOYERS: Is there a law against liars' loans?

WILLIAM K. BLACK: Not directly, but there, of course, many laws against fraud, and liars' loans are fraudulent.

BILL MOYERS: Because...

WILLIAM K. BLACK: Because they're not going to be repaid and because they had false representations. They involve deceit, which is the essence of fraud.

BILL MOYERS: Why is it so hard to prosecute? Why hasn't anyone been brought to justice over this?

WILLIAM K. BLACK: Because they didn't even begin to investigate the major lenders until the market had actually collapsed, which is completely contrary to what we did successfully in the Savings and Loan crisis, right? Even while the institutions were reporting they were the most profitable savings and loan in America, we knew they were frauds. And we were moving to close them down. Here, the Justice Department, even though it very appropriately warned, in 2004, that there was an epidemic...

BILL MOYERS: Who did?

WILLIAM K. BLACK: The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle. And that they were going to make sure that they didn't let that happen. So what goes wrong? After 9/11, the attacks, the Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents. So even today, again, as you say, this crisis is 1000 times worse, perhaps, certainly 100 times worse, than the Savings and Loan crisis. There are one-fifth as many FBI agents as worked the Savings and Loan crisis.

BILL MOYERS: You talk about the Bush administration. Of course, there's that famous photograph of some of the regulators in 2003, who come to a press conference with a chainsaw suggesting that they're going to slash, cut business loose from regulation, right?

WILLIAM K. BLACK: Well, they succeeded. And in that picture, by the way, the other — three of the other guys with pruning shears are the...

BILL MOYERS: That's right.

WILLIAM K. BLACK: They're the trade representatives. They're the lobbyists for the bankers. And everybody's grinning. The government's working together with the industry to destroy regulation. Well, we now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.

BILL MOYERS: But I can point you to statements by Larry Summers, who was then Bill Clinton's Secretary of the Treasury, or the other Clinton Secretary of the Treasury, Rubin. I can point you to suspects in both parties, right?

WILLIAM K. BLACK: There were two really big things, under the Clinton administration. One, they got rid of the law that came out of the real-world disasters of the Great Depression. We learned a lot of things in the Great Depression. And one is we had to separate what's called commercial banking from investment banking. That's the Glass-Steagall law. But we thought we were much smarter, supposedly. So we got rid of that law, and that was bipartisan. And the other thing is we passed a law, because there was a very good regulator, Brooksley Born, that everybody should know about and probably doesn't. She tried to do the right thing to regulate one of these exotic derivatives that you're talking about. We call them C.D.F.S. And Summers, Rubin, and Phil Gramm came together to say not only will we block this particular regulation. We will pass a law that says you can't regulate. And it's this type of derivative that is most involved in the AIG scandal. AIG all by itself, cost the same as the entire Savings and Loan debacle.

BILL MOYERS: What did AIG contribute? What did they do wrong?

WILLIAM K. BLACK: They made bad loans. Their type of loan was to sell a guarantee, right? And they charged a lot of fees up front. So, they booked a lot of income. Paid enormous bonuses. The bonuses we're thinking about now, they're much smaller than these bonuses that were also the product of accounting fraud. And they got very, very rich. But, of course, then they had guaranteed this toxic waste. These liars' loans. Well, we've just gone through why those toxic waste, those liars' loans, are going to have enormous losses. And so, you have to pay the guarantee on those enormous losses. And you go bankrupt. Except that you don't in the modern world, because you've come to the United States, and the taxpayers play the fool. Under Secretary Geithner and under Secretary Paulson before him... we took $5 billion dollars, for example, in U.S. taxpayer money. And sent it to a huge Swiss Bank called UBS. At the same time that that bank was defrauding the taxpayers of America. And we were bringing a criminal case against them. We eventually get them to pay a $780 million fine, but wait, we gave them $5 billion. So, the taxpayers of America paid the fine of a Swiss Bank. And why are we bailing out somebody who that is defrauding us?

BILL MOYERS: And why...

WILLIAM K. BLACK: How mad is this?

BILL MOYERS: What is your explanation for why the bankers who created this mess are still calling the shots?

WILLIAM K. BLACK: Well, that, especially after what's just happened at G.M., that's... it's scandalous.

BILL MOYERS: Why are they firing the president of G.M. and not firing the head of all these banks that are involved?

WILLIAM K. BLACK: There are two reasons. One, they're much closer to the bankers. These are people from the banking industry. And they have a lot more sympathy. In fact, they're outright hostile to autoworkers, as you can see. They want to bash all of their contracts. But when they get to banking, they say, ‘contracts, sacred.' But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.

BILL MOYERS: The cover up?

WILLIAM K. BLACK: Sure. The cover up.

BILL MOYERS: That's a serious charge.

WILLIAM K. BLACK: Of course.

BILL MOYERS: Who's covering up?

WILLIAM K. BLACK: Geithner is charging, is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion — a trillion is a thousand billion — $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have masses losses, and that they're fine.

These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: Well, Geithner has, was one of our nation's top regulators, during the entire subprime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So, in his phrase about legacy assets. Well he's a failed legacy regulator.

BILL MOYERS: But he denies that he was a regulator. Let me show you some of his testimony before Congress. Take a look at this.

TIMOTHY GEITHNER:I've never been a regulator, for better or worse. And I think you're right to say that we have to be very skeptical that regulation can solve all of these problems. We have parts of our system that are overwhelmed by regulation.

Overwhelmed by regulation! It wasn't the absence of regulation that was the problem, it was despite the presence of regulation you've got huge risks that build up.

WILLIAM K. BLACK: Well, he may be right that he never regulated, but his job was to regulate. That was his mission statement.

BILL MOYERS: As?

WILLIAM K. BLACK: As president of the Federal Reserve Bank of New York, which is responsible for regulating most of the largest bank holding companies in America. And he's completely wrong that we had too much regulation in some of these areas. I mean, he gives no details, obviously. But that's just plain wrong.

BILL MOYERS: How is this happening? I mean why is it happening?

WILLIAM K. BLACK: Until you get the facts, it's harder to blow all this up. And, of course, the entire strategy is to keep people from getting the facts.

BILL MOYERS: What facts?

WILLIAM K. BLACK: The facts about how bad the condition of the banks is. So, as long as I keep the old CEO who caused the problems, is he going to go vigorously around finding the problems? Finding the frauds?

BILL MOYERS: You--

WILLIAM K. BLACK: Taking away people's bonuses?

BILL MOYERS: To hear you say this is unusual because you supported Barack Obama, during the campaign. But you're seeming disillusioned now.

WILLIAM K. BLACK: Well, certainly in the financial sphere, I am. I think, first, the policies are substantively bad. Second, I think they completely lack integrity. Third, they violate the rule of law. This is being done just like Secretary Paulson did it. In violation of the law. We adopted a law after the Savings and Loan crisis, called the Prompt Corrective Action Law. And it requires them to close these institutions. And they're refusing to obey the law.

BILL MOYERS: In other words, they could have closed these banks without nationalizing them?

WILLIAM K. BLACK: Well, you do a receivership. No one -- Ronald Reagan did receiverships. Nobody called it nationalization.

BILL MOYERS: And that's a law?

WILLIAM K. BLACK: That's the law.

BILL MOYERS: So, Paulson could have done this? Geithner could do this?

WILLIAM K. BLACK: Not could. Was mandated--

BILL MOYERS: By the law.

WILLIAM K. BLACK: By the law.

BILL MOYERS: This law, you're talking about.

WILLIAM K. BLACK: Yes.

BILL MOYERS: What the reason they give for not doing it?

WILLIAM K. BLACK: They ignore it. And nobody calls them on it.

BILL MOYERS: Well, where's Congress? Where's the press? Where--

WILLIAM K. BLACK: Well, where's the Pecora investigation?

BILL MOYERS: The what?

WILLIAM K. BLACK: The Pecora investigation. The Great Depression, we said, "Hey, we have to learn the facts. What caused this disaster, so that we can take steps, like pass the Glass-Steagall law, that will prevent future disasters?" Where's our investigation?

What would happen if after a plane crashes, we said, "Oh, we don't want to look in the past. We want to be forward looking. Many people might have been, you know, we don't want to pass blame. No. We have a nonpartisan, skilled inquiry. We spend lots of money on, get really bright people. And we find out, to the best of our ability, what caused every single major plane crash in America. And because of that, aviation has an extraordinarily good safety record. We ought to follow the same policies in the financial sphere. We have to find out what caused the disasters, or we will keep reliving them. And here, we've got a double tragedy. It isn't just that we are failing to learn from the mistakes of the past. We're failing to learn from the successes of the past.

BILL MOYERS: What do you mean?

WILLIAM K. BLACK: In the Savings and Loan debacle, we developed excellent ways for dealing with the frauds, and for dealing with the failed institutions. And for 15 years after the Savings and Loan crisis, didn't matter which party was in power, the U.S. Treasury Secretary would fly over to Tokyo and tell the Japanese, "You ought to do things the way we did in the Savings and Loan crisis, because it worked really well. Instead you're covering up the bank losses, because you know, you say you need confidence. And so, we have to lie to the people to create confidence. And it doesn't work. You will cause your recession to continue and continue." And the Japanese call it the lost decade. That was the result. So, now we get in trouble, and what do we do? We adopt the Japanese approach of lying about the assets. And you know what? It's working just as well as it did in Japan.

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: You are.

WILLIAM K. BLACK: Absolutely, because they are scared to death. All right? They're scared to death of a collapse. They're afraid that if they admit the truth, that many of the large banks are insolvent. They think Americans are a bunch of cowards, and that we'll run screaming to the exits. And we won't rely on deposit insurance. And, by the way, you can rely on deposit insurance. And it's foolishness. All right? Now, it may be worse than that. You can impute more cynical motives. But I think they are sincerely just panicked about, "We just can't let the big banks fail." That's wrong.

BILL MOYERS: But what might happen, at this point, if in fact they keep from us the true health of the banks?

WILLIAM K. BLACK: Well, then the banks will, as they did in Japan, either stay enormously weak, or Treasury will be forced to increasingly absurd giveaways of taxpayer money. We've seen how horrific AIG -- and remember, they kept secrets from everyone.

BILL MOYERS: A.I.G. did?

WILLIAM K. BLACK: What we're doing with -- no, Treasury and both administrations. The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.

Where Congress said, "We will not give you a single penny more unless we know who received the money." And, you know, when he was Treasury Secretary, Paulson created a recommendation group to tell Treasury what they ought to do with AIG. And he put Goldman Sachs on it.

BILL MOYERS: Even though Goldman Sachs had a big vested stake.

WILLIAM K. BLACK: Massive stake. And even though he had just been CEO of Goldman Sachs before becoming Treasury Secretary. Now, in most stages in American history, that would be a scandal of such proportions that he wouldn't be allowed in civilized society.

BILL MOYERS: Yeah, like a conflict of interest, it seems.

WILLIAM K. BLACK: Massive conflict of interests.

BILL MOYERS: So, how did he get away with it?

WILLIAM K. BLACK: I don't know whether we've lost our capability of outrage. Or whether the cover up has been so successful that people just don't have the facts to react to it.

BILL MOYERS: Who's going to get the facts?

WILLIAM K. BLACK: We need some chairmen or chairwomen--

BILL MOYERS: In Congress.

WILLIAM K. BLACK: --in Congress, to hold the necessary hearings. And we can blast this out. But if you leave the failed CEOs in place, it isn't just that they're terrible business people, though they are. It isn't just that they lack integrity, though they do. Because they were engaged in these frauds. But they're not going to disclose the truth about the assets.

BILL MOYERS: And we have to know that, in order to know what?

WILLIAM K. BLACK: To know everything. To know who committed the frauds. Whose bonuses we should recover. How much the assets are worth. How much they should be sold for. Is the bank insolvent, such that we should resolve it in this way? It's the predicate, right? You need to know the facts to make intelligent decisions. And they're deliberately leaving in place the people that caused the problem, because they don't want the facts. And this is not new. The Reagan Administration's central priority, at all times, during the Savings and Loan crisis, was covering up the losses.

BILL MOYERS: So, you're saying that people in power, political power, and financial power, act in concert when their own behinds are in the ringer, right?

WILLIAM K. BLACK: That's right. And it's particularly a crisis that brings this out, because then the class of the banker says, "You've got to keep the information away from the public or everything will collapse. If they understand how bad it is, they'll run for the exits."

BILL MOYERS: Yeah, and this week in New York, at this conference, you described this as more than a financial crisis. You called it a moral crisis.

WILLIAM K. BLACK: Yes.

BILL MOYERS: Why?

WILLIAM K. BLACK: Because it is a fundamental lack of integrity. But also because, if you look back at crises, an economist who is also a presidential appointee, as a regulator in the Savings and Loan industry, right here in New York, Larry White, wrote a book about the Savings and Loan crisis. And he said, you know, one of the most interesting questions is why so few people engaged in fraud? Because objectively, you could have gotten away with it. But only about ten percent of the CEOs, engaged in fraud. So, 90 percent of them were restrained by ethics and integrity. So, far more than law or by F.B.I. agents, it's our integrity that often prevents the greatest abuses. And what we had in this crisis, instead of the Savings and Loan, is the most elite institutions in America engaging or facilitating fraud.

BILL MOYERS: This wound that you say has been inflicted on American life. The loss of worker's income. And security and pensions and future happened, because of the misconduct of a relatively few, very well-heeled people, in very well-decorated corporate suites, right?

WILLIAM K. BLACK: Right.

BILL MOYERS: It was relatively a handful of people.

WILLIAM K. BLACK: And their ideologies, which swept away regulation. So, in the example, regulation means that cheaters don't prosper. So, instead of being bad for capitalism, it's what saves capitalism. "Honest purveyors prosper" is what we want. And you need regulation and law enforcement to be able to do this. The tragedy of this crisis is it didn't need to happen at all.

BILL MOYERS: When you wake in the middle of the night, thinking about your work, what do you make of that? What do you tell yourself?

WILLIAM K. BLACK: There's a saying that we took great comfort in. It's actually by the Dutch, who were fighting this impossible war for independence against what was then the most powerful nation in the world, Spain. And their motto was, "It is not necessary to hope in order to persevere."

Now, going forward, get rid of the people that have caused the problems. That's a pretty straightforward thing, as well. Why would we keep CEOs and CFOs and other senior officers, that caused the problems? That's facially nuts. That's our current system.

So stop that current system. We're hiding the losses, instead of trying to find out the real losses. Stop that, because you need good information to make good decisions, right? Follow what works instead of what's failed. Start appointing people who have records of success, instead of records of failure. That would be another nice place to start. There are lots of things we can do. Even today, as late as it is. Even though they've had a terrible start to the administration. They could change, and they could change within weeks. And by the way, the folks who are the better regulators, they paid their taxes. So, you can get them through the vetting process a lot quicker.

BILL MOYERS: William Black, thank you very much for being with me on the Journal.

WILLIAM K. BLACK: Thank you so much.

Copyright (C) Long Lake LLC 2009

Yves Smith Says Team Obama Uses "Big Lie" Technique, and Other Unpleasantries of the Day

Today is another busy news day.

The Economic Cycle Research Institute is out with its monthly U. S. Future Inflation Gauge.  ECRI has maintained this measure for over 60 years.  It has fallen massively over the past 18 months and is back near its lowest level in history at 79.3, at about a 51-year low.  Inflation probably averaged 1% in the next 5 years after sinking to that level, only rising after the guns-and-butter Viet Nam era (1964 onward).

ECRI also reports another marginal uptick in its Weekly Leading Indicator, which remains well below its very low level of November 2008 and still at a very severe 22% below year-ago level.  This suggests a continued slowing of the economy through year-end, with stabilization at very low levels of economic activity.  

I intend to do a post on the ECRI and its usefulness, or lack of such, to investors, in the near future.

Consistent with the above, there is truly bad news behind the headlines of the Labor Department's unemployment report.  Not headlined are two data points.  The average supervisory work week has shrunk to a record low since records began in 1964:  33.2 hours.  

And, consistent with the lack of work available and the very low USFIG, January's unemployment number was revised upward substantially, from 655,000 to 741,000.

Labor Department's broadest measure of unemployment is U-6, which can be found on Table A-12 of the basic unemployment report available at www.bls.gov, shows that almost 1 in every 6 members of the labor force is either unemployed, underemployed or too discouraged by labor market conditions to bother actively looking for work.  While comps are difficult to obtain, it would appear that the definition of unemployment used in the 1930s is more like U-6 than the headline U-3 (8.5% in March).  Given that the Obama "stimulus" program has no relation to FDR's emergency work programs, it is virtually certain that U-6 will hit 18% sooner rather than later.

(Note also that ADP's March non-farm job loss count was 742,000, exactly the current Labor Dep't count of Jan. job losses.  The ADP and Labor numbers have tracked each other very well for some months now (www.adpemploymentreport.com); expect further downward revisions in the Labor numbers for Feb. and March, I'm afraid.)

Moving along to the blogosphere, it is interesting to observe how certain passionate critics of the Bush-Paulson approach to the financial crisis have stayed objective after Mr. Obama became President, and others have kind of sort of joined "Team O" while trying at the same time to be interesting and objective.

Amongst the former, I would note Mish at www.globaleconomicanalysis.blogspot.com.  He has a series of posts excoriating the PPIP and has not fallen for Team Obama hype.  Mish is of the Austrian school of economics and has an amazing track record of forecasting the economic downturn and the low-inflation/deflation environment.  He also is a darn good market timer.

Another blogger who was definitely in the Obama hope-change camp is Yves Smith of www.nakedcapitalism.com.  She has definitively changed her tune, and her site is currently displaying a variety of well-informed opinions and reports.  Here is a quote from Yves herself from the conclusion of today's post, Treasury Trying to Defend Bank Gaming of Public-Private Partnership:

The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.

Well!  Obama-phile no more, it would appear.

Finally, also on NC is the overlooked report that Hedge Fund Bridgewater Says No to Public Private Partnership Program:

Now illustrating our (Ed:  Yves'/NC's) latest concern, that the Treasury may turn out to be the Gang That Can't Shoot Straight, our ongoing reservation, that there may be no way to make the program work for banks and investors even with hefty government subsidies, may be coming to pass. . .

The turndown by Bridgewater is particularly significant.  (Ed: They only manage $80 B!)

Is this the beginning of the end for PPIP?

What Nouriel Roubini recently called the "Made-Off" economy, with Ponzi schemes built into the system of much greater scale than the Madoff one, is currently on a glide path to a 1995 level of economic activity, if one takes the numerical ECRI weekly leading indicator as predictive.  Given potent deflationary forces and "crowding out" of private borrowing by the massive projected Federal deficits, the outlook for business remains unexciting, and when brilliant thought leaders such as Yves Smith start describing Team Obama as using a technique associated with Team Hitler, one should watch out for the public to gradually adopt that viewpoint.

Copyright (C) Long Lake LLC 2009 

G20 Provides an Excuse for the Stock Market to Rally While Truly Good News Remains Scarce

Now that the London G20 meeting has ended with filet mignon for lunch in honor of the billions of poor people in this world and the numerous unemployed and newly homeless in the "rich" world, the stock markets have been partying while both the real economy and the financial world continue to deteriorate.  There's no business like the money-printing business! (Unfortunately, it's more addicting than alcohol.)

In the real economy, microscopic month-to-month alleged improvements in business are cheered while massive year-to-year changes are ignored.  For example, while the Labor Department headlined that new orders for manufactured goods in February rose 1.8% from January (seasonally adjusted), it minimized that shipments fell 0.1%  and buried on page 2 that year on year, shipments were down 18.6% and new orders were down 23.1%.  Recalling that manufacturing has been in a downturn for some time, this is not good news and has no predictive value that any upturn is in the offing, and if it is coming, how long and strong it will be.

Regarding the continued dismal new and continuing claims for unemployment, Wall Street is as usual schizophrenic, both loving "slack" in the labor market but wanting more consumption.

In a cravenly concession to Congressional pressure, FASB today relaxed the mark-to-market rules for financial institutions.  The Big Lie here is that the CDOs and other securities that are allegedly "illiquid" were of course designed to be traded- that is their entire raison d'etre.  Big Finance simply does not like the market price, though whenever it can foist these or any other securities off on a buyer- preferably the uninformed public a la 1999, it is a big fan of "free market" pricing.  So a complaisant administration and Congress cow FASB (with what implied penalty?) into changing nothing except appearances.

(Let us recall that because Citi et confreres needed saving, last year FASB delayed its requirement that off-balance sheet items had to come on-balance sheet.  Will that delay be repeated?)

The whole valuation exercise of mark-to-market or mark-to-fantasy is a sham.  The idea that a publicly-0wned company can put its own valuation on any assets is immoral and should be illegal.  An independent third party auditor (or two) should value these assets.  They can use predicted cash flows and market values, and both should be disclosed.  If the financial institution does not like that, it can go private.  More broadly, why should a depository institution that accepts FDIC insurance put complex securities on its books?  Let's bring back Glass-Steagall or its equivalent and let the investment bank, not the depository bank, gamble on that sort of stuff.

Meanwhile, criticisms of the PPIP bail-out continue to surface, in Business Week, out of brokerage houses, in the WSJ, out of academia, etc.; one wonders if this transparent giveaway to Pimco and Blackrock will actually go forward.

We need to go back to the situation that prevailed in the U. S. in the 1950s, when high-quality stocks had high yields, there were dozens of AAA-rated corporations, high-quality government bonds had low yields, Glass-Steagall served us well, bankers followed the 3-6-3 rule (borrow at 3%, lend at 6%, and be on the golf course by 3 PM), the Federal Government's debt's share of GDP shrank dramatically, individuals carried little debt, and once the shooting stopped in Korea, the U. S. stayed away from involvement in foreign wars.

America is being drained just as all prior empires have been, from unproductive but over-influential money-changers, dealmakers and pencil-pushers at home and by military adventures abroad.

This is why despite a massive rally, the stock market remains at least 10% below its 2002/3 low in real dollars (the only kind) and living standards have been stagnant to down for most Americans for years despite the inexorable march of science and medicine forward.

Copyright (C) Long Lake LLC 2009

 

I Was Not Comfortable

Here are snippets from a "must read" at Bloomberg.com, in "Honest Man Emerges From Muck of Banking Crisis: Jonathan Weil":

April 2 (Bloomberg) -- Remember this man’s name: Charles Bowsher. He’s one of the few people leaving the banking crisis behind with his reputation enhanced.

Bowsher, who was comptroller general of the U.S. from 1981 to 1996, had a simple reason for resigning last week as chairman of the Federal Home Loan Bank System’s Office of Finance. He didn’t want to put his name on the banks’ combined financial statements, because he was uncomfortable vouching for them. Bowsher, 77, had held the post since April 2007. . .

The job Bowsher left is a crucial one. The Office of Finance issues and services all the debt for the 12 regional Federal Home Loan Banks. That’s a lot of debt -- $1.26 trillion as of Dec. 31, making the FHLBank System the largest U.S. borrower after the federal government. . .

“I was not comfortable as an audit-committee member in signing off on the financial statements, after I became aware of the standards and processes for valuing the mortgage-backed securities,” Bowsher told me. . .

The year-end balance sheet at the FHLBank of Seattle, for example, showed $5.6 billion of non-government mortgage-backed securities that it says it will hold until maturity. Yet the estimated value of those securities was just $3.6 billion. The bank, which reported a $199.4 million net loss for 2008, said the declines were only temporary. They’ve been anything but fleeting, though. Most of those securities have been worth less than they cost for more than a year.

The FASB’s rules on this subject, which have never been well defined, are now in flux. Today, after caving in to pressure by the banking industry and members of Congress, the Financial Accounting Standards Board is set to vote on a plan to relax its rules on mark-to-market accounting, so that companies can disregardmarket prices and ignore losses on their securities indefinitely.

Pressing for Change

While that wouldn’t make the banks any healthier, it would make their numbers look prettier. The FHLBanks have been among the most vocal lobbyists pressing for the change.

Bowsher said the process of valuing such assets was fraught with doubt already. “Now if you think about it, the FASB might be changing the whole thing, and everybody might mark their assets up,” he said. “Who wants to be part of that?

Meanwhile, Fidelity has a new way to market itself and stocks:  talk like an idiot.  Here is a Fido ad:

Question: I've lost a lot of money during this financial mess and I'm wondering when I should go back to putting 15% of my salary into my 401(K)? --Michelle Bonds, Rocky Mount, N.C.

Answer: Uh, how about like, right now? . .

Oh, I suppose if I really thought about it I could envision some rationale for paring contributions temporarily. . .

So for the sake of your future retirement security, I implore you to get back to contributing to your 401(k).

For companies that sell securities, there's of course never a bad time to make a sale!  Uh, and oh . . 

Who is more believable, Mr. Bowsher saying he is not comfortable, or the casual-talking respondent to Ms. Bonds imploring her to make sure to keep the securities-trading industry from going the way of manufacturers of real things like automobiles that actually keep our world functioning?

Copyright (C) Long Lake LLC 2009

News Review

In these consequential times, there continue to be any number of reports comments from across the Web upon which to report.  These are predominantly from yesterday.  

First, from a Japan the stock market of which is surging, some record-low business readings (from RGE Monitor, subscription required):

• The closely-watched quarterly Tankan survey (Japan business outlook), released in March, showed sentiment among Japan’s largest manufacturers fell to a record-low
• The BoJ index gauging sentiment among big manufacturers slid to minus-58, more than double the minus-24 in the previous quarterly survey 
  
• This signaled companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession
• Development in Tankan survey is consistent with a sharp contraction in the Japanese economy driven mainly by weak exports and corporate capital expenditures
• Big manufacturers expect to slash their capital spending by 13.2% in the year to next March, a much bigger drop than the previous year’s 2.4%
• Tankan suggests GDP will contract sharply in Q1.

Next, some disquieting commentary from the Online WSJ re the PPIP:

Treasury's Very Private Asset Fund

The investment community was already suspicious last week when Secretary Timothy Geithner unveiled his plan, announcing that Treasury would select four or five companies as "fund managers" to purchase toxic securities. Given that the whole idea is to create a liquid market for these assets, we'd have thought Treasury would encourage as many players as possible.

But the bigger shock was when Treasury released its application to become a fund manager, a main rule of which is that only firms that already have a minimum of $10 billion in toxic securities under management can apply. Few hedge funds, private equity players or sovereign wealth funds come near this number. The hurdle would bar many who specialize in the very distressed assets that the Obama Administration is trying to offload from banks. . .

"This is ugly," says Joshua Rosner, the managing director of Graham, Fisher & Co., an independent research firm. "As long as they are experienced, there is no rational reason for creating limitations on who becomes a bidder and manager of assets. It doesn't serve the public good, though it may serve those few large firms that appear to have a privileged relationship with Treasury."

We have no idea if Treasury is playing favorites, but it certainly doesn't look good. All the more so given that some of these big players may have consulted informally with the Obama Administration as it was writing the plan. Not to mention that the big asset management companies that are most likely to land plum fund-management jobs are also the ones that have been most vocally praising the Treasury plan. (Treasury declined to comment.)

None of this bodes well for the bank rescue.

The banksters appear ready to party again.  Bankster-in-chief Geithner already has had enough of conservatism:

Geithner’s remarks reflect the view of some analysts that the worst of the economic downturn may be past, even as some banks are likely to fail and unemployment is set to worsen. The Treasury chief said the main danger is that banks and investors take too little risk and refrain from betting on a recovery.

One wonders if this is prudent advice.  Outside of a truly innovative product, what is in short supply that requires "betting"?  What about old-fashioned investing rather than gambling?

Meanwhile, Bloomberg.com had an interesting slant re the old debate about how much did Greeenspan mess things up while running the Fed, in (title misleading; Hitler of no real relevance to the article):

Hitler’s Specter Inspires Bill White to Battle With Greenspan

April 1 (Bloomberg) -- William White’s tussle with Alan Greenspan is spilling into their retirements as world leaders meet in London to try to prevent the next financial meltdown.

White challenged the former Federal Reserve chairman’s mantra that central bankers can’t effectively slow the causes of asset bubbles when he was chief economist at the Bank for International Settlements.

As heads of state gather for tomorrow’s Group of 20 summit, several former central bankers and regulators are advising them to advance the same arguments White has made for more than a decade: raise interest rates when credit expands too fast and force banks to build up cash cushions in fat times to use in lean years.

“We started worrying about this at the same time that Alan Greenspan started worrying about irrational exuberance” in 1996, said White, a Canadian who has remained in Basel, Switzerland, since retiring from the BIS in June. “The difference was he stopped worrying about it, or at least he stopped worrying about it publicly, and we didn’t.” . . .

“There has never been an instance, of which I’m aware, that leaning against the wind was successfully done,” Greenspan, 83, said in a Feb. 27 telephone interview. He added that spotting a bubble is easy. What’s hard is predicting when it will pop.

In fact, Greenspan used to say that bubbles could only be recognized in hindsight.  The old Fed from the 1950s used to stop bubbles from forming and popping by famously taking away the punch-bowl before partiers got drunk.  But that was when America was an exporting power, both in terms of capital and physical products; in other words, financial engineering had been deemed a failure given the Depression experience.  Given the obvious incorrectness of what Sir Alan is reported above to have said that leaning against the wind has never been successfully done by the Fed, we can only hope that he is not suffering from the early stages of dementia.

  Meanwhile, back on the home front, not all is going as advertised with the administration's plans to prop up the economy:

Federal Plan to Aid Small Businesses Is Flawed, Lenders Say

Officials Call It a Work in Progress

Two weeks after President Obama announced a $15 billion initiative to spark lending for small businesses, every major provider of these kinds of loans says the plan will not work as designed.

The conditions attached to the program, which require these financial firms to surrender ownership stakes to the government and limit executive pay, are so off-putting that these companies say they will not participate.

Industry officials and congressional sources said these issues were raised with the administration before the small-business initiative was unveiled. Nonetheless, administration officials accelerated the announcement, moving quickly to show they were using financial rescue funds to aid not only big Wall Street firms but Main Street businesses as well, sources familiar with the matter said.

Administration officials acknowledge the initiative is not yet ready and say they are reworking the proposal.

On the day of the unveiling, Obama said: "We will immediately unfreeze the secondary market for SBA [Small Business Administration] loans and increase the liquidity of community banks."

Oh well.  Just so Big Finance gets its gifts.  

While some stabilization at very low levels of production is occurring in auto and home sales, this is at an amazing cost to the Feds re Fannie/Freddie subsidies and from auto makers and dealers, using our money as well:  (from a Bloomberg.com article today) -

Annualized industry sales of cars and light trucks in the U.S. are forecast to fall below nine million in March, compared with 9.12 million in February, which was the lowest sales figure since 1981.

To jump-start sales, U.S. auto makers offered, on average, a record $3,169 in incentives on each vehicle sold in March, said car-shopping Web site Edmunds.com. The figure represents a jump of $733, or 30.1%, from a year earlier and $171, or 5.7%, from February.

Meanwhile, it is harder and harder to find a bear remaining, now that Doug Kass has grown horns and is snorting away.  

Many is the earnings season that has disappointed the bulls.  One would want to think that all the bad news is priced into stock prices.  On that front, there will be greater clarity in the very near future.

Copyright (C) Long Lake LLC 2009

Not Getting Better All the Time

Things look as bad in the "advanced" economies today than they did in 1998 at the peak of the roiling economic/financial crisis in the emerging economies.  Please click on the link to the first graph that shows one measure of how much stress our financial system is under:  Econbrowser.

Beyond this, the "second derivative" of this economic contraction is much talked about elsewhere:

The Institute for Supply Management’s factory index rose to 36.3 last month from 35.8 in February. Readings less than 50 signal a contraction

“The pace of decline is slowing down, that’s important,” David Wyss, chief economist with Standard & Poor’s in New York, said in a Bloomberg Television interview. “It is too early to look for a turnaround, but maybe it is time to start saying that things are not getting as bad as quickly as they were earlier.”

This business that things are getting bad less rapidly, so don't worry-be happy is a little loony from EBR's standpoint.  Think of a dieter who gains rather than loses weight, but for a couple of weeks, he only gains one pound weekly rather than 2 pounds.  This is progress?

Dr. Wyss knows full well that he was at best exaggerating when he said "that's important" in the quote above.  It's not only not important what the second derivative of growth is for most people, but it is completely irrelevant from a stock investment standpoint, where the almost inevitable slowdown in deterioration in the speed of the recession is, mechanically, supposed to herald the up-phase of the "U"-shaped recession- the unsaid message being that you had better be in stocks or you will never ever get another chance to buy at such marvelous ridiculous bargain prices! . . .   He and his ilk are like late-night TV pitchmen.  As Graham and Dodd pointed out, individuals who need their capital should only buy stocks when there is a sufficient level of undervaluation to justify the risks, and in that case, the precise jigs and jags of the economy, and which phase of the recession we are in, would be of little importance.  But then we would not need economists to provide quotes for Bloomberg to aid the stock-trading community, would we?

The counter-example is that Japan has been alternating between getting better and getting worse for almost 20 years, and the stock market now contains a large number of truly undervalued equities.  The dinosaurs of growth in this country, GM and JPMorgan Chase, for example, have resorted to tricks to show growth for years, but their stock charts do not lie.

Legitimate secular growth stocks at fair valuations are still difficult to identify.

Copyright (C) Long Lake LLC 2009

EBR to Get Its Wish: Geithner Out?

Sometimes dreams do come true.

Geithner Out at the Treasury: Source

By PAUL JACKSON
April 1, 2009 8:31 AM CST

Despite assurances to the contrary, President Obama has personally asked Treasury Secretary Timothy Geithner to step down, sources told HousingWire early Wednesday morning. Geithner, who has seen a whipsaw of public opinion over his handling of bonuses at American International Group(AIG: 0.98 -2.00%) and the introduction of a so-called public-private investment program designed to clear bad assets off of bank balance sheets, has been the subject of strong criticism from Republicans and even a few prominent Democrats.

The stunning move comes after Geithner’s popularity on Wall Street has gained momentum in the past week, as investors have largely cheered a proposal to see the Treasury, Federal Reserve, and FDIC partner with private investors to clear toxic assets off of of the hands of troubled banks.

“It’s being done quietly, but the President has asked Geithner to step aside,” said a source close to the Cabinet with knowledge of the decision. “He feels there is too much of a lack of trust, and he was frankly expecting more of a bounce in financial markets from the PPIP than what’s been seen so far.”

The Geithner-led Treasury has had difficulty filling key positions since his appointment. After the fourth potential senior Treasury roster nominee dropped from the running earlier this month, sources told the Washington Post that under-staffing issues might hamper the Treasury’s ability to handle the financial crisis.

Gus O’Donnell, Cabinet Secretary for the British government, suggested to various British media in recent weeks that it has been “unbelievably difficult” to talk to people at the U.S. Treasury, saying “there is nobody there.”

Let's see if the above, reported by Housing Wire.com, is accurate or just a trial balloon that pops.

If it's true, and Paul Volcker comes in from the cold and takes over at least as interim Treasury Sec'y, one could expect a stock market pop as powerful but fleeting as those that greeted Michael Dell's and Howard Schultz's returns as CEO to Dell and Starbucks.

The worst news in the above would be if part of the reason for any dismissal of Mr. Geithner was that the stock market was not happy enough about the PPIP bailout plan for Citi and BofA.

The other worst news would be rehiring Hank Paulson or the equivalent.  What about someone on the side of the customers of Big Finance?

That would be change we could believe in!

Copyright (C) Long Lake LLC 2009

Can't You Hear the Clamor?

Forget glamour.  "Clamor" is in.  Supposedly, the results of money-printing have investor's hearts atwitter to buy, buy, buy:

April 1 (Bloomberg) -- For the first time in six months the market for convertible bonds is open for business as companies whose credit was shut off turn to the securities to refinance debt. . .

“There’s a lot of pent-up financing demand in the U.S. market and people have been waiting for the window to open,” said Robert Aberman, the co-head of convertible origination at Jefferies & Co. in New York, in an interview. “If companies are able to sell securities and investors are clamoring to buy them, it’s definitely a sign that credit markets are healing."

Meanwhile, criminals, or alleged criminals, are dominating the financial news.  Perhaps that represents some true light at the end of this economic tunnel, but for now this sort of stuff appears to be in its own bull market.  Just from Bloomberg.com today:

April 1 (Bloomberg) -- Texas billionaire R. Allen Stanford, accused by the U.S. Securities and Exchange Commission of running a “massive” fraud through his investment businesses, said he has no money to hire an attorney. . .

Last week, Stanford asked Houston criminal defense lawyer Dick DeGuerin to represent him, although he couldn’t pay him a formal retainer. DeGuerin said at the time he wouldn’t represent Stanford for free. . .

DeGuerin declined to say how much he would charge to defend Stanford, saying his legal services are “cheap at any price."

This quote from Mr. DeGuerin is just what you would have heard from a Master of the Universe not long ago.  Cheap at any price!  Meanwhile, the Madoff scandal is enlarging:

April 1 (Bloomberg) -- The assets of Fairfield Greenwich Group and other so-called feeder funds that steered investors to Bernard Madoff were frozen by a Connecticut judge along with those of Madoff’s family members, a lawyer said.

“Everyone has filed suit alleging the feeder funds were negligent,” Golub said. “This is the first complaint to say these feeder funds were involved in the criminal activity.”

In EBR's opinion, not enough attention has been paid to how a supposedly sophisticated fund could have put, kept, and reinvested funds with Bernard Madoff, given his lack of documentation of how he outperformed the market and where his securities actually were held.

Rather, as with the AIG bonus matter, too much attention has been paid to which famous name lost how much rather than the fundamental issue of how a co-founder of the NASDAQ could have attracted institutional money on nothing more than his word. 

Meanwhile, parallel with the above and many other revelations and accusations, the global economy continues to shrink:

March 31 OECD: Economic activity is expected to plummet by an average 4.3 percent in the OECD area in 2009 while by the end of 2010 unemployment rates in many countries will reach double figures for the first time since the early 1990s. international trade is forecast to fall by more than 13 percent in 2009 and world economic activity to shrink by 2.7 percent. The big emerging economies will also suffer abrupt slowdowns in growth. The global recession will worsen this year before a policy-induced recovery gradually builds momentum through 2010.Forecast for U.S.: -4% in 2009, 0% in 2010; Japan: -6.6% (-0.5%); Eurozone: -4.1% (-0.3%). Brazil’s GDP is expected to decline by 0.3 percent in 2009 while Russia’s is projected to fall 5.6 percent.

AND:

April 1 (Bloomberg) -- Companies in the U.S. cut an estimated 742,000 workers in March, pointing to no relief in sight for the labor market amid the longestrecession in seven decades, a private report based on payroll data showed today . . . (Ed:  ADP survey)

This is what we saw during the evolving Watergate scandal.  The economy fell apart at the same time.  Nixon was forced out in August 1974, and the stock market had a double bottom in October and December 1974, ahead of a sharp cyclical upturn in the economy and stocks.  (By the way, did you note the euphemism "seven decades" to avoid the correct term, "since the Great Depression"?)

Finally, American business continues to hardly burnish its reputation.  Two more bits of news from Bloomberg.com today relate to IBM and Intel.  IBM, which recently filed and withdrew a patent application to efficiently outsource jobs, is shrinking, which may call into question its earnings guidance, and Intel is not put in a good light with the following headline:

International Business Machines Corp., the world’s biggest computer-services provider, reduced as many as 5,000 jobs last week, according to a person familiar with the matter. That added to 4,000 cuts already made since the beginning of the year.

“I don’t believe this is the end,” said Lee Conrad, coordinator for an employees’ group pushing for union recognition. “We’re losing jobs at a record rate inside IBM.  (Ed:  Many of them to India)

AND:

Intel ‘Unthinkable’ Exit Robs Philippine Cooks’ Jobs 

While the stock market has been rallying into the bad news, Nouriel Roubini continues to point out that assuming that the bear market will end one day, at some point such a "predictive" rally will be correct.  In the meantime, he has correctly identified all prior rallies since the fall of 2007 as sucker rallies.  He identifies this one similarly, saying that consensus economic estimates are still too optimistic.

Right now, the strongest charts belong to gold, Treasuries (all durations) and mortgage-backed securities.  These have to be where the billions/trillions that the insiders have taken out of the system over the last 10-12 years have been, to large, measure, parked and continue to be, quietly, parked.  The public remains uninvested in gold, and everyone and his sibling "knows" that Treasuries are in a bubble.

Somehow I just don't hear the "clamor" for convertible bonds over the quiet din for high-quality crisis assets as this historic period plays out.

Copyright (C) Long Lake LLC 2009