Saturday, October 20, 2007

The Island of Misfit Debt

...WASHINGTON, Oct 19 (Reuters) - The U.S. Treasury Department on Friday said it is seeking bond dealer advice on whether it should change its auction schedule to be in line with current fiscal and economic conditions.

Here, let me make it clear. Nobody, and I mean nobody wants US denominated debt anymore. Look at the ABX, look at exchange rates individually. Now the Treasury can't even keep printing the paper they've been recently been pawning off as money. The jig is up.


Tyrone said...

Oh, man, first, murst, baby!!!

Akubi said...

Who really wants to ponder how f-ed up the economy is on a Saturday night? Cute photo though.

Peripheral Visionary said...

Well, clearly somebody's pondering it.

And I found this interesting article:

Wall Street Remains Bullish Despite Data

"With all the predicaments facing the markets these days -- credit growing scarcer, oil near a record $90 a barrel, home prices in the dumps -- it would be logical if investors were shoving money under their mattresses, instead of into stocks."

"But logic doesn't always prevail on Wall Street."

"The Dow Jones industrial average plunged almost 400 points on Friday, its fifth-straight loss for the week. Yet, Wall Street's pundits did not waver on projections that share prices will rise again after companies finish reporting quarterly financial results."

That should set contrarian alarm bells ringing. The last time the Dow headed down there was a lot of bearish sentiment, and when the market turned it turned up in a big way. But when most everyone is bullish, that means that most everyone is long stocks, and that means fewer buyers. As much as the market hates the bears, they're the ones who provide a floor for the market when it drops; no bears means no floor.

And I love that "logic doesn't always prevail on Wall Street"--you can say that again.

FlyingMonkeyWarrior said...

The jig is up Alpha Dawg, but now what?

Rob Dawg said...

I'm thinking that we'll get all kinds of hybrid financial instruments that are exactly like the M-LEC. The plan will be to keep getting new investors each taking a first failure hit until all the losses are distributed. Anything except the namks taking the hit. Mostly because they don't want to lose money but also because they can't take these loses without blowing the whole game. Reserve requirements and honest accounting properly applied would spoil their inside track.

FlyingMonkeyWarrior said...

Nice, hang out your shingle, Rob, you are probably right. Sleazy and sad, but logical.
Additionally, I think some of the good guys (the minority) have already cut their losses and are heading for the energy sector as a safe haven.

TK said...

Great synopsis by Barry Ritholtz at the Big Picture of a piece in Barrons. Some scary commentary from the Chairman of Morgan Stanley Asia.

"[Roach] notes that the bursting of the dot-com bubble seven years ago caused a mild recession but, more importantly, a collapse in business capital spending both in the U.S. and abroad. The subprime-mortgage fiasco, he warns, is only the tip of a much larger iceberg.

The consumer, who has indulged in the greatest spending binge in modern history, now accounts for 72% of our GDP. Steve reckons that's five times the share of capital spending seven years ago. Reason enough to suspect the impact of a sharp contraction in consumer spending could be considerably more pronounced than the damage wrought by the end of the capital- investment boom at the turn of the century."

Rob Dawg said...

Barry is one class act. His blog is on in my top 5. He's also a Mac afficianado like me but soemtimes... those ties. I only hope he wears them to annoy Kudlow.

Roach is correct. 70% of US GDP tied to consumer spending is too much. How we got here makes sense and some of those structural changes in the economy will help us get out of this mess quicker. We tested several modern financial theories to breaking. Consumer credit cannot be risk compressed. Debt cannot be infinitely rolled over. Margins cannot be be small when lending against assets. Pooled risk is not less risk. Exotic debt instruments cannot be leveraged any greater than can their components. Once instruments and methods become large enough to influnce their markets they need to be regulated and transparent. Yes, hedgies I'm talkin' 'bout you.

And finally, there is a market out there for professional "ombudsmen of common sense." I like to imagine I could do that job.