Welcome to a ZIRP (Zero Interest Rate Policy because Mr. Barrett complains I use too many acronyms) world and the fun and exciting world of quantitative easing! So the Fed decision came out late which is unusual in and of itself. Everyone expected a cut of 50 bps in the target rate. A funny thing happened though and I have to think the reason it was late getting announced was they sat there saying are we really ready to do this? We are Japan and will be having our own lost decade sadly. That is not to say there will not be up years in the market but we will be grinding lower and my guess is the article I read on BBERG last week that said we will bottom out somewhere on SPX 400 is correct. If this does not work the only thing left for the government to do will be to start buying houses directly and becoming the largest landlord in the nation. That will put a bottom in prices for sure but at a particularly nasty price for generations to pay.
I did not quite understand why the SPX rallied so much. Apparently many have yet to realize that all equities are are a perpetual call on a possible future income stream. After talking to some smart people I would have to guess the place to be is in corporates- ideally investment grade- because in a ZIRP world the central bank is trying to disincent investors from being risk averse. The auction today was priced at 0.000%- hello? They are flooding the system with cash and trying to get people to invest it in yes risky but ideally profitable ventures. So I would say junk first but I keep thinking about what my friend the bond guy said that junk will not be a viable investment class in say 5 years as defaults will rise dramatically. So the next thing would be investment grade corporates and then last the perpetual calls- I mean equities. By the way I was told junk is currently pricing in something like a 30% default rate. That is almost unheard of unless you go back to the 1903s. Makes you wonder right?
Looking back at some of my earlier posts I'd have to say I've been subconsciously worried about the risk of a war on a larger scale than the two we are currently engaged in in Iraq and Afghanistan. A couple of weeks ago I was talking to the kid next to me and asked him ok if we are in a depression like the '30s what really ended that? He gave the usual response The New Deal. I disagreed and said really it was the outbreak of WWII. Today the economist from MER said his biggest concern and the largest risk facing the markets in 2009 is rising geopolitical tensions leading to war. I was chatting with a PM about that and he agreed and said the only problem is that we no longer have the industrial base to wage a global war. Roughly 70% of our economy is service based. My response was well I guess we'll have a lot of people drafted to make up for the lack of the industrial base.
Spoke to both of my old partners about all the FofFs who got totally taken by Made-Off. They agree with me that it is a good come-uppance for them after busting our balls and grudgingly giving us money. The only thing I did not know is that one of the partners fraternity brothers who was instrumental in getting us funding went to the unit of MassMutual who had $3.3 billion out of their $5.1 billion in Made-Off. He is out of a job I have to imagine.
The other thing about the whole Made-Off scandal is there is absolutely no way the guy pulled it off himself. I have to guess that it was a family affair and when it came crashing down the old man said he'd take the fall and the blame for everything. I understand that as a father wanting to protect your children so I cant fault him for that instinct. But what I don't get is that if you still had roughly $200 million left why wouldn't you make a run for it? This was not a very well thought scheme. Hell, if I was in his shoes I'd have taken say $50 million, gotten a good plastic surgeon, changed my fingerprints and gone to Brazil or some other South American country and spent the rest of my life in the company of high class rent boys with lots of beer and a personal trainer.
I was supposed to have drinks with JS tonight but his workload is crazy and apparently his boss told him no vacation between now and the end of the year. So we rescheduled for the new year. It worked out well as I finished Christmas shopping and had the estimable intention of finally getting the Christmas cards done. I got home walked and fed the kids, hit the gym and ordered dinner as the husband was out for business drinks. He finally got home after I had put the dinner in the fridge and had a protein shake as I am not a big fan of eating dinner after 9. He was giddy and definitely buzzed even tough he said he only had three drinks- his usual line for the situation, lol. I was not upset as I know tomorrow night the shoe will most likely be on the other foot as it is my company's Christmas party and I will use the line I only had three drinks.
the Childrens Broadcasting News Corporation has been running these ads for Dolce & Gabbana cologne with Matthew McConaughey. He is seriously hot and it is a real distraction. I would be willing to fill in for Lance any time Matthew if you ever read this...
1 comment:
funny I went to read this today because i felt the bottom dropping out from our financial world. I haven't been really freaked since i realized that the price tag of this whole affair was larger than all the wealth on the planet and that rules were going to have to be changed if people wanted the financial edifice to continue at all. But Bernake and Paulson are really scaring me, i was willing to give them the benefit of the doubt for the last two months but their only solution seems to be to spend more money. They aren't making any of the rule changes that would allow banks recoup their losses and
Your right about the war too, WW2 did end the depression by draining the labor pool and than by virtue of the being the only undamaged country left standing. It bankrupted us financially. i've long believed that Obama will most likely take us into war due to his age and relatively thin job experience, in an effort not to appear weak. As much of a humanist/imperialist as I am I still would rather we find another way.
Who doesn't know that the new deal was a failure?
Post a Comment