Thirty More Years

Since most folks are mostly invested in equities, I thought I'd provide an example of what's happening in the bond world. This's a very subjective data-point (my 401k), but it shows the perspective that the big financiers have on things pretty well.

This's also a good testament to the fact that one should adjust risk tolerance over time -- this is a diversified bond portfolio, but it's still much higher risk than someone near retirement should have had. Looking at a 401k like this just prior to retirement can really swing your perspective towards socialism, fast.

Luckily, many of us have 30 more years for things to work out. :)

ADVANCED MICRO DEVICES INC 7.75000% 11/01/2012 ↓-32.87%
AMKOR TECHNOLOGY INC SR NT 9.25000% 06/01/2016 ↓-34.36%
AVENTINE RENEWABLE ENERGY HLDG 10.00000% 04/01/2017 ↓-73.97%
BOSTON SCIENTIFIC CORP 5.45000% 06/15/2014 ↓-11.98%
BOWATER INC DEB 9.50000% 10/15/2012 ↓-71.62%
CENVEO CORP SR SB NT 7.87500% 12/01/2013 ↓-27.05%
CHESAPEAKE ENERGY CORP 6.87500% 11/15/2020 ↑4.25%
CHIQUITA BRANDS INTL INC 7.50000% 11/01/2014 ↓-21.38%
CLEAR CHANNEL COMMUNICATIONS DEB 7.250% 10/15/2027 ↓-75.49%
CLEAR CHANNEL COMM NOTES 5.500% 09/15/2014 ↓-67.57%
COLUMBIA HCA HEALTHCARE MTN BE 8.70000% 02/10/2010 ↓-8.92%
COLUMBIA HCA HEALTHCARE MTN BE 7.75000% 07/15/2036 ↓-41.17%
DEAN FOODS CO SR NT 6.90000% 10/15/2017 ↓-15.75%
DENNYS HLDGS INC SR NT 10.00000% 10/01/2012 ↓-22.00%
DILLARD DEPT STORES INC 6.62500% 01/15/2018 NT ↓-48.89%
DOLE FOOD INC SR NT 8.87500% 03/15/2011 ↓-31.11%
FORD MTR CO DEL DEB 8.87500% 01/15/2022 ↓-67.18%
FREEPORT-MCMORAN COPPER & GOLD 8.37500% 04/01/2017 ↓-3.49%
HERTZ CORP SR SB NT 10.50000% 01/01/2016 ↓-43.47%
ITT CORP NEW DEB 7.37500% 11/15/2015 ↓-25.14%
LIBERTY MEDIA CORP DEBENTURES 8.500% 07/15/2029 ↑11.49%
LOWE'S COMPANIES INC BONDS 5.500% 10/15/2035 ↓-30.60%
MAGNACHIP SEMICONDUCTOR S A 6.87500% 12/15/2011 ↓-91.22%
MEDIACOM BROADBAND LLC & MEDIA 8.50000% 10/15/2015 ↓-7.06%
MICHAELS STORES INC SR SB 11.37500% 11/01/2016 ↓-72.00%
NEIMAN MARCUS GROUP INC 9.00000% 10/15/2015 ↓-46.03%
PEP BOYS MANNY MOE & JACK 7.50000% 12/15/2014 ↓-47.90%
QWEST COMMUNICATIONS INTL INC 7.50000% 02/15/2014 ↓-24.99%
R H DONNELLEY CORP SR NT-1A 6.87500% 01/15/2013 ↓-73.41%
REMINGTON ARMS INC NEW 10.50000% 02/01/2011 ↓-23.12%
RITE AID CORP SR NT 8.62500% 03/01/2015 ↓-64.77%
SMITHFIELD FOODS INC SR NT 7.00000% 08/01/2011 ↓-21.50%
SOLO CUP CO SR SB NT 8.50000% 02/15/2014 ↓-24.44%
SOUTHWEST AIRLS CO DEB 7.37500% 03/01/2027 ↓-23.30%
STONE CONTAINER CORP SR NT 8.37500% 07/01/2012 ↓-47.30%
TIME WARNER COMPANIES INC 6.87500% 06/15/2018 ↓-18.94%
TIMES MIRROR CO NEW DEB 7.25000% 03/01/2013 ↓-80.89%
TRIBUNE CO NEW NT 4.875% 08/15/2010 ↓-65.62%
U S CONCRETE INC SR SB 8.37500% 04/01/2014 ↓-25.40%
UNISYS CORP SR NT 8.00000% 10/15/2012 ↓-41.58%
UNISYS CORP SR NT 8.50000% 10/15/2015 ↓-42.17%
UNITED RENTALS NORTH AMER INC 7.00000% 02/15/2014 ↓-23.58%
WEYERHAEUSER CO DEB 6.95000% 10/01/2027 ↓-30.83%

Relax

In these days of financial doom and gloom, with taxpayer bailouts being used to fund christmas bonuses on wall street, I thought it might be nice to bespeak the good news:

...

OK, that was short. In the absence of any really particularly good news, I instead offer two opportunities for relaxation and cheerfulness. Remember, it's the relaxed person who survives the car crash....

Getting Ready for the Plunge

Forget everyone who's been talking about when the recovery'll start; we're just about to take the big dive....

Wonks everywhere have been panicking about the Baltic Dry Index, which represents the amount of good being shipped in containers over the seas. As this article mentions, global orders are down precipitously (Volvo's YoY truck orders are down 99.6% from 41,970 to 155!). With no-one buying goods, who needs employees? Retail's gonna get creamed; demand for short-term commercial loans will skyrocket to cover the fact that no-one's buying, and demand for retail loans will plummet. Visa(V) has already taken it in the proverbial shorts (pun intended), but all those banks who've been using the projected proceeds from usurious lending rates will find themselves in deem kim-chee.

Pension funds are also in big trouble:1,2,3,4,5,6, and CalPERS, for locals.

Like I said, hang onto your hats, 'cuz it's gonna be scary.

Exploding Money Supply

Ben Bernanke is known, among other appellations, as "Helicopter Ben", because he believes that the Federal Reserve Bank caused the Great Depression by reacting to the financial crisis of the time by killing the nation's money supply. His response, when interviewed years ago, as to what he'd do in a similar situation was to drop money from helicopters if necessary to preserve money/credit liquidity. As you can see from the chart below, this's pretty much exactly what he's doing:


All the folks who claim it's the Great Depression all over again are wrong: last time the spike was in the opposite direction. Here's the broader picture:

As you can see from the picture, what we're currently doing is exacerbating the symptoms of the current problem, as opposed to what they did last time, which was to look at the symptoms and say "Whoa -- we've gotta put a break on this!"

Both, though are approaches to dealing with the primary symptom of the real problem: the overexpansion of money supply through loosening credit standards. There are a lot of dollars in circulation that only exist for real if you pretend their corresponding IOU's don't exist, just like the situation that occurred last century. In both cases, the result is a vastly increased number of dollars representing the same actual amount of national wealth. Thus each dollar represents much less wealth than it used to. But when credit increases like mad, people don't tend to keep their dollars -- they offload their dollars fast, converting them into assets instead. This is relatively OK if the assets themselves were paid for with cash, but when those assets were paid for with money that was itself purchased, that IOU sits out there demanding more cash to repay it. If the IOU is small, then it can be paid down and there's no big deal. If it's big, though, then when a hiccup hits the economy the demand for money suddenly outstrips the demand for assets, since the banks won't let us pay off our credit-cards by mailing them fancy sneakers. All the IOUs come home to roost and the money that people thought they had starts going "poof" -- suddenly cold hard cash looks much nicer than a shiny IPod and everyone starts taking money out of circulation if they can, or else they do the whole matter-antimatter thing and pay down their debts, destroying the illusion of wealth that wasn't really their in the first place (and in a real panic, selling the Lexus for $10k). This's the exact opposite of the "wheelbarrow of money" scenario of Weimar Germany and Zimbabwe, but just as bad.

Bernanke's attempting to snatch stagnation from the jaws of implosion by running the printing presses hard; maybe it'll work.

But in the long run, all those dollars will be coming out of our hides in the form of higher interest rates (to halt hyperinflation), vastly higher taxes (if we figure out how to borrow the money instead of print it), or some combination of the two. Regardless of how that plays out, we're dodging Scylla by stearing straight at Charibdis, so hang onto your hats, 'cuz the next decade's gonna get rough.

Nuff Said: Sinfest on Paulson's New Bailout Plan

Paulson: <Vader>I am altering the deal. Pray I don't alter it any further.</Vader>
(UPDATE:
According to the Washington Post, the deal is not voluntary.

Federal regulators said they did expect some banks to volunteer, though none stepped forward yesterday. But they added that they would not rely on volunteers. Treasury will set standards for deciding which banks can be helped, and the regulatory agencies will triage the banks they oversee: The institutions faring best and worst will not receive investments. The institutions in the middle, whose fortunes could be improved by putting a little more money in the bank, will be pushed to accept the money from the government.

)





Clearly someone gets it.