Are We There Yet?

I was asked a few mornings ago with some other colleagues from different asset classes, what we felt might be the biggest impediment to the rehabilitation of the economy and markets over the next number of months. My response and concern was based on the reality of a market that seems hell bent on reading the tea-leaves as being positive for the market at all times and with every piece of data.
This should worry pretty much everyone. In particular the idiotic blabbers at CNBC (though there are a few there that should be paid attention to including the Guru of the Pit _ Rick Santelli) and their desire to find positive headlines and put positive spin on pretty much anything.

The most recent example was Mondays "New Home Sale" figure, which came in as up 11%. Sure its a good number; but the reality is that the number has to be understood in context, and that context represents a number of things that should provide food for thought. First no mention was made of the fact that median prices had dropped by over $13,000 from May at $219K to June at$206K as the folks at Housing Bubble put it

***This is pure economics with prices falling you will expect new home sales to increase especially in the spring and summer months which are normally stronger.**** http://www.doctorhousingbubble.com

This is hardly about being pessimistic and more about realism and pragmatism. The same article points to the growing and largely forgotten Alt A and ARM's situation that's still ahead especially in California.

However a recent publication this week on ZeroHedge's website by Tyler Durden with David Rosenberg (he of ex-Merrill fame and now brightening the firmament at Glusken Sheff here in Toronto) should be read for a reality check. While the document seems long, it’s primarily graphical and makes some very salient and focused points on the economy. It produces data with a little more depth and insight and is sufficiently worrying to leave one floundering in that the overly upbeat prognostications from government and media alike should be taken with more than just a grain of salt.

Specifically in its introduction it shares the following

“We believe an aggressive “fact-finding” investigation into the true depths of the recession is critical due to increased pressure by members of the Mainstream Media and conflicted Investment Banks to present a myopic, unjustified opinion. Furthermore, opinions based on overoptimistic projections and “hope” is the primary reason the Credit Bubble persisted as long as it did.

- As there is an all too real threat of a relapse into the same kind of optimistic zeal and the resultant formation of yet another asset bubble, Zero Hedge is presenting the factual side of the story . We demand that readers question any and all assumptions presented herein (as well as everywhere else) on this most critical subject “ - ZeroHedge Article

Here are a couple of morsels for general consumption that I found particularly chilling.
UNEMPLOYMENT: People have been on unemployment insurance so long it has expired. Benefits exhaustion rate hit a record 50%. Americans are rolling into various extended benefits programs such as Emergency Claims and Extended Benefits, which surged by 170,000 in the last week alone. While “unemployment” is still below 10%, U-6, or the broader underemployment metric is at 16.8%, 6.5% higher from a year ago
HOUSING: NAHB housing market improved in July… To 17 from 15 the 8th worst print on record. Sales outlook is stuck at 26, and anything under 50 is a contraction RealtyTrac disclosed that Q2 foreclosure activity was the highest on record. 􀁠 1.9 million foreclosure filings in the first half of 2009, a 15% increase from the prior year period *June foreclosure filings of 336,173 were the fourth straight month exceeding 300,000 *One in 84 housing units received at least one foreclosure filing in the first half and all this is occurring on the backdrop of an industry-wide housing moratorium *According to Whitney Tilson, foreclosures have been temporarily cut by 66% through moratoria which reduce supply *At some point the banks will need to release the flood gates – watch out below as millions of units in shadow inventory are unleashed on the few buyers out there

The full document can be found at this URL http://zerohedge.blogspot.com/ It is worth the time and effort to give it the once over.


My personal take is that we are some ways along in the process of rehabilitation and that it’s definitely not a V; but looking more like the W.
The kind of percentage returns that we have seen this year in the equity markets and in the S&P in the last couple of weeks alone should suggest that they are hardly likely to continue.

Undoubtedly risk appetite is back markets are on a better footing and business is once again underway; nonetheless the amazing compression in corporate and high grade spreads experienced over the last few months seems over done and unsustainable. Driven by supply (or rather lack of) and demand factors, that do not necessarily reflect the reality of the underlying US economy.
Even as our own Governor at the Bank of Canada tells us that we will be out of recession in Q3, I wonder about his certainty. Maybe it’s the rainy weather that has me all afoul and in need of amore upbeat disposition this week.

Man Without a Plan?

The other Bernanke my good mate Jimmy!

Maybe its the cynic in me; but I have read a any number of articles t his weekend dealing with Ben Bernanke's testimony last week and whether or not he will be re-elected in January of next year for another 4 years. There are the pros and cons; but before I deal with that there is still the conflicting statements of how he will take monetary policy ahead. Back in May I noted an article in market News that stated that the FED and Bernanke would try and adopt a two track approach to monetary policy within the very easy liquidity arrangements that have been instituted to drag us out of the current economic and credit malaise.
In this weeks testimony to Congress and even prior to that in a WSJ article the day prior to his confessions to Congress, Dr. Bernanke once again reflected on the trail balloon of May, the implications of which are t hat he could essentially drain the system very quickly, by paying for excess reserves held at the FED by banks at the same level as the Fed funds rate, while potentially retaining quantitative easing (vis-à-vis purchase of Mortgages and Treasuries).

It seems that Dr. Bernanke is speaking out of both sides of his mouth however or maybe its simple confusion on my part ( certainly wouldn't be a first), in that he is also stating that the Fed will retain rates at theses low levels for the foreseeable future (i.e. into 2010 as opposed to what the market believes is a necessary hike before year end).

Suddenly the unsmiling Dr. Ben is doing a world tour and has had more press in the last week than a politician running for office.
Well I guess he is running for office after all and so it should not be surprising; but I digress somewhat. It would seem that the there is a substantial split however on what and how Dr. Ben has done. I read two op-ed pieces in Sunday's NYT and I was horrified to find that Dr Roubini who wrote one, quite surprisingly was very supportive of the things that Bernanke had done to address the crisis; however I found myself siding with Anna Schwartz, the erstwhile and highly respected economist, who with great aplomb skewered Bernanke for his numerous failures ("Man without a Plan"). I am certainly with her. I was reminded that way too often the current incumbent of the position of Lord of The Universe like his predecessor Guru Greenspan, have chosen to articulate positions on all manner of things and have been horribly wrong in hindsight.

Where I would have to disagree is that part of his plan was always going to be about inflating the FED balance sheet. The 2002 speech referencing the printing press and distributing dollars from a helicopter has come to pass.

****"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined
government can always generate higher spending and hence positive inflation." Dr. Ben Bernanke 2002****

The FED has liabilities galore and continues to print money at an unprecedented rate. This week alone the treasury will be issuing some US$211 bn between T-bills and the auctions for 2Y (42bn); 5Y (39bn) ; 7Y ( 27bn) and the TIPS (6bn).

Its interesting to note that even the disgraced Elliot Spitzer once deemed Wall streets own sheriff for his eager desire to prosecute wrongdoing is now accusing the Creature from Jekyll Island (the place the FED was born) of running a huge ponzi scheme based on discussion with the hubristic and substantially overpaid Dylan Ratigan ( I don't like him).

****Advocating in favour of a House bill to audit the Federal Reserve, Spitzer said: "The Federal Reserve has benefited for decades from the notion that it is quasi-autonomous, it's supposed to be independent. Let me tell you a dirty secret: The Fed has done an absolutely disastrous job since [former Fed Chairman] Paul Volcker left.
"The reality is the Fed has blown it. Time and time again, they blew it. Bubble after bubble, they failed to understand what they were doing to the economy.
"The most poignant example for me is the AIG bailout, where they gave tens of billions of dollars that went right through - conduit payments - to the investment banks that are now solvent. We [taxpayers] didn't get stock in those banks, they didn't ask what was going on - this begs and cries out for hard, tough examination.
"You look at the governing structure of the New York [Federal Reserve], it was run by the very banks that got the money. This is a Ponzi scheme, an inside job. It is outrageous, it is time for Congress to say enough of this. And to give them more power now is crazy." ******** [Source - rawstory.com]

Homecooking......

I cook and have done so for some time. Part of it has to do with my upbringing.
As the eldest of five and with a single parent, I learnt to cook early. Its amazing but cheese on toast with baked beans for 5 seemed back then as challenging as a putting out a beautiful roast rack of lamb with a potato pave, petit pois with carmelised shallots and a nice jus.
Furthermore my very first job and then the jobs that were to follow exposed me to the delights of quality cooking and restuarnats both as client and coverage.

In recent times I have tried to take my knowledge base up, by enrolling at George Brown College for their Continuing Education Series, specifically in Culinary Arts. At the start of the year I did a 12 week course, and I am about to finish a 10 weeks course, with a three week course coming up that will focus my knife skills. That’s my compulsories and over the next 2 years, taking 6 electives will provide me with my Culinary Certification. I think it simply suggest that I have attended and should have garnered some know-how along the way.

From Canada Day

I had pretty good food knowledge going into my courses; but have found that the classes have elevated that base, primarily because it has helped establish a framework for my knowledge thus expanded my understanding, as I have made connections within my knowledge base as well as learning new stuff.

While I knew that I liked cooking, I didn’t appreciate to what extent until I started attending class and found myself as excited as an eight year old on Christmas morning each Saturday, as I gathered my knife roll and other accoutrements for my four hour session at George Brown College.

The interesting thing is that most folks seem to assume that I want to work in or run a restaurant. Nothing could be further from the truth.
I simply want to be able to cook superb meals at home for both my family and friends. I am not talking about simply cooking elegant meals either.

One of the things that I have found out over time is that as much as I enjoy an elegant meal, beautifully cooked and expertly presented, I am as keen or possibly keener when it comes to braised foods. Ultimately it’s the whole low and slow approach, whether BBQ-ing or braising.
Using a relatively cheap cut, good seasoning and the process of low and slow, it is transformed into something super delicious.

This was evidenced this morning at our office, as I had BBQ-ed a pork butt Canada Day and shared the goodness with my colleagues this morning with my home made tangy BBQ sauce. I have posted a few pikkies of the BBQ process on my Big Green Egg (BGE) and some others from items I have made. Enjoy!