Monday, March 31, 2008

Uh Oh

Why does the phrase "Train Wreck" spring to mind here?

Philadelphia suspends sales of foreclosed homes
By Jon Hurdle

PHILADELPHIA (Reuters) - Authorities in Philadelphia will suspend foreclosure sales of homes whose owners have fallen behind on adjustable-rate subprime loan payments -- potential relief for tens of thousands of struggling debtors.

Sheriff John Green said on Friday he would halt sales of foreclosed properties in April and would seek a court order extending a moratorium for an unspecified period...

Now multiply this by about 100 other municipalities in the United States and you have a recipe for disaster in the market for buying homes with borrowed money.

That said, you also have the potential for investors who know how to game the system in their localities to strong-arm mortgage companies and banks into off-loading the affected properties - for those of you with money and connections, if this type of intervention comes to a city near you (and I strongly expect that to happen - this kind of thing has strong socionomic tailwinds to it) you might see where you can pick up some property on the cheap, even if the title might be a bit muddled.

Saturday, March 29, 2008


Let's take a moment and lift our eyes from the individual trees of the fighting in Southern Iraq, the ongoing rumblings in Pakistan, the potential chaos lurking in the wings if the run-up in commodities prices collapses (something that would certainly hit close to home for those of us here in the FutureJacked Bunker out in the wilds of Missouri) and the slow-motion avalanche of the credit crisis and focus on a potential macro development of enormous proportions.

Let's start with a story, review and little history and ponder what that may mean for the future of the United States of America.

Treasury’s Plan Would Give Fed Wide New Power
By Edmund L. Andrews
WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system...

On the surface, the story is unremarkable for the most part. Another attempt to regulate our way out a mess that was caused by an ugly hybrid of no regulations (hedge funds), bad regulations (the vast incentives to expand credit in the property markets in the form of tax breaks and the million and one other ways property transactions are distorted by laws and regulations), and a Federal Reserve that decided to act like a teenager given the keys to the family liquor cabinet and left alone for a long weekend (Greenspan's 1% rates, encouragement of the most vulnerable buys to take on Adjustable Rate Mortgages at the worst possible moment, his general encouragement of the belief in the 'Greenspan Put' that gave incentive to finance companies to take on insane amounts of leverage).

In addition, the story promotes the plan without any reference to possible Fed culpability in the inflating of the Bubble in the first place. This is like the New York Times running an article about the hiring of a Gambino family operative to run the FBI's anti-mafia operations in New York and running it as straight news. Amazing.

The underlying implications for the "system" are what worries me. Earlier this week, I ranted a bit on what I considered an idiotic comment from Vice President Cheney in Dude, What Are You Smoking (eloquent title, eh?). I'd like to discuss my train of thought and how a stupid comment by the VP on Iraq relates to a potentially stupid shift in the way banks, insurance and mortgages are regulated and disposed of in the U.S.

First, a little history. In my opinion, some of the reasons that the U.S. government maintained a reasonably high level of credibility for over two centuries was because of:

1. A general hands-off approach to economic involvement (note - yes I am aware of the high-level corruptions involved with parceling out railroad land, government contracts for the Army being awarded to insiders, etc. - my focus is on the fact that in a relative sense, there was far less direct involvement of the federal government in the economic lives of U.S. citizens for much of the first 140 years or so of the Republic)

2. The general distrust of bankers in much of the country, especially the areas of the Ohio Valley and the Western Frontier, typified by proponents of Jacksonian Democracy.

3. In the latter half of the twentieth century, the U.S. had grown so wealthy that economic shocks were easier to weather and government assistance began to accepted as a positive thing - and as long as the U.S. has the money to provide all the cash and goodies it has promised, this newer development will still stand.

So what? Well, those first two trends are now long gone, but when they were strong it meant that in times of economic turmoil, recession or depression, the bankers got blamed, the local politicians got blamed, but not usually the federal government. This allowed the feds to build up enormous reservoirs of goodwill in the minds of the public. Again, I am generalizing, but the U.S. government weathered economic storms that toppled governments all through South America and even Europe - so we were doing something right. When the feds weren't directly associated with the day-to-day economic fluctuations in the lives of citizens, it allowed them to be perceived as above the fray.

Well, now we have the Federal Reserve possibly about to move into a position of power over the U.S. economy that is unprecedented. Now, while I don't consider myself a member of the tinfoil hat brigade, I have always regarded the Fed with extreme suspicion. Now the Fed could move into a role where it can regularly buy up assets of the country, set valuations of said assets on a whim (through sham sales at prices it decides, and resulting in 'mark to market' problems for the asset base of those who don't go along with them - and this will be especially powerful if they neuter the SEC in this upcoming regulatory shakeout) and, if the legislation is sweeping enough, gain a say on everything from insurance regulations to commodities trading.

The U.S. will then be in position where the everyday economic life of the citizens are perceived as being directly influenced from Washington D.C. (to the extent that is not already the case). When the ongoing solvency problems continue to wipe out firms, as credit continues to dry up, it will all be laid at the foot of the Fed.

I remarked in the post on Cheney that I cannot understand why the elites are pursuing policies that guarantee their doom. We need elites in the U.S. who are educated, who are far-sighted and who can make tough choices. It appears we are saddled with elites who are book-smart but real-world dumb, who are short-sighted in the extreme and who couldn't face up to tough choices if they had a gun to their collective heads (witness - U.S. Budget Deficit, U.S. National Debt, Medicare Program, Social Security, et al).

When a leader or an oligarchy like we have now, associates their credibility directly with the day-to-day turmoil of market fluctuations in economics or individual battles in war, then they risk the whole system. Those who stay above the fray, allow for the fluctuations and bankruptcies in the econmic realm and allow for setbacks in war by firing those who fail (Lincoln was a master of this, Jeff Davis was not) may suffer at the polls, but the system itself is not thrown into question.

Those leaders who do associate their personal credibility with individual battles by going to the scene and "taking over" (Maliki today in Iraq, the last Russian Czar in World War I) are risking everything on an inherently chaotic process - war. Same for those who associate their credibility directly with economic results - if the Fed does get all these new powers and does become the de jure imperator of the economy instead of the de facto honcho, then when the insolvency crisis really explodes, it will call into question the entire system - the Federal Reserve and the U.S. Executive Branch.

At this point it is too late to reverse such a trend, so I ask that you just think about the implications. Millions of home-debtors will be facing an economy with very bleak prospects. Many will be booted from their homes, with all the psychological baggage that goes along with it. They'll have someone to blame - but these days it will be the federal government.

What types of people will rise to popularity in such an environment? What happens when the very institutions that are the basis of the government lose all credibility?

Sorry for the rambling nature of this post, but I am trying to get my head wrapped around what I consider a potentially explosive, if not revolutionary, mix of circumstances that could bring the whole welfare-warfare state crashing down.

Thursday, March 27, 2008

Taking Infrastructure Attacks to a New Level

Well, in the past few days we've seen evidence that the Taliban and Iraqi globalguerrillas are paying more attention to infrastructure attacks. Looks like Hizbullah has the potential to take an infrastructure attack to a whole new level:

Israel: Hezbollah Increases Rocket Range
By Matti Friedman
JERUSALEM (AP) — With Iranian backing, Hezbollah guerrillas have dramatically increased their rocket range and can now threaten most of Israel, senior Israeli defense officials said.

The Lebanese group has acquired new Iranian rockets with a range of about 185 miles, the officials said Wednesday. That means the guerrillas can hit anywhere in Israel's heavily populated center and reach as far south as Dimona, where Israel's nuclear reactor is located...

Now, as with anything, we need to take this with a few grains of salt. We don't have a way of confirming the allegation. And, even if the rockets can reach Dimona, we have no data on the containment dome and what kind of damage engineering analysis says it can withstand. If those Hizbullah rockets (assuming they exist, assuming they can be targeted reasonably accurately) do have the ability to reach Dimona, even if they can't damage the containment structure, just hitting the facility would strike a huge propaganda blow for the group.

Picture of the Dimona nuclear facility from

And if they could crack the containment dome and do damage to the core, then we are talking about the Mother of All Infrastructure Attacks. Unlikely, but it is something that must be considered...

The New Frontier - Squatting

In several of the case studies and scenarios presented in Catastrophic Abundance, we reviewed the potential for huge change in the way people, especially those under financial or legal stress, will deal with issues of shelter in the coming years.

Here is an article out of Vegas that describes the Wild West nature of the new frontier of foreclosed homes and the rough inhabitants of that territory:

Attack on Real Estate Agent Has Other Realtors on Alert
by Adrienne Augustus, Las Vegas Now

A real estate agent is recovering at the hospital after being attacked in a vacant home. One source tells Eyewitness News, the man beat the woman so badly she needed brain surgery. Adrienne Augustus has details about this disturbing crime that has realtors here on alert.

It happened in a home near Anasazi and Summerlin Parkway. This isn't the first brutal crime against a real estate agent inside a vacant home here in the valley. Although the suspect in this crime is in custody, it doesn't mean local realtors have let down their guard.

Realtor Magdalena Chonis is on guard even before she walks through the door of a home she is trying to sell. "I check the windows, I check the doors, make sure everything is intact before walking in."

Once she goes inside, she takes safety a step further. "I walk with my client and do a visual. Make sure there [are] no sleeping bags, make sure there is nothing in the house that could indicate that there is someone in the house."

The Mahdi Army Can Read

Looks like Muqtada al-Sadr's folks are brushing off copies of Brave New War, same as the Taliban -

Iraq: Clashes Hit Oil Export Capability
from Stratfor, March 27, 2008

...The Zubair-1 crude oil export pipeline in Basra in southern Iraq was bombed March 27, and as a result of the blast and fire, the main pumping station was shut down. The Zubair-1 pipeline transports crude oil to tanks at Iraq’s two exporting terminals on the Persian Gulf. Iraqi oil officials said March 27 that exports from Basra will return to normal levels later in the day. Earlier, a Southern Oil Co. official said it would take three days to repair the pipeline.

Ninety percent of Iraqi crude is exported through the Basra infrastructure. The production and movement of oil will be cut by roughly one-third until the Zubair-1 pipeline is repaired. The damage will take exports from about 1.54 million barrels per day down to 1.016 million. Therefore, Iraqi authorities will need to move quickly on both the repair and security fronts to prevent any further disruption of oil production and export...

...Operational pipelines in the south also have been shielded from attacks because the central government refrained from upsetting the balance of power in the area. However, the damage to the Zubair-1 pipeline is not surprising, given the ongoing security operation against Shiite militias and oil mafia in the Basra region. Unless the security situation is brought under control quickly, Iraq’s only source of income could take a severe hit...

The move by Maliki and the Badr Brigades to marginalize Sadr's people in the run-up to elections this year could blow up in everybody's faces. Literally.

Time to Re-Read Your Socionomics Texts

The almost monolithic happy-happy-happy mood that has dominated economic surveys for nearly a decade is turning sour. I've held off on commenting, mainly because surveys of such things as "confidence" often don't give you much information that is useful in the real world of trading stocks, of planning your financial future or of giving you a signal of when to maybe add to your emergency supply stash (you do have one, right?).

Well, a couple of items make me think that the herds of men and women that make up markets and political voting blocks (herds that include yours truly) are starting to move towards the negative end of the spectrum described by socionomics.

A few anecdotes for you to think about - feel free to add to this list with your own observations:
Consumer confidence crumpling
by James P. Miller, Chicago Tribune
...The Conference Board numbers, said Merrill Lynch economist David Rosenberg, "suggest that consumers are on the verge of the worst downturn since the 1970s." The Federal Reserve's interest rate cuts and pending tax rebates from the U.S. government "are proving no match for rocketing pump prices, intensifying real estate deflation, the worst financial crisis in decades and a deteriorating economic and employment backdrop," he said...

And, this one I found very interesting. Nassim Taleb's work on "black swans" is very interesting and a is a theory that is very much against the whole mindless "buy and hold" and "buy the dips" mantras that have been repeated to investors for the last couple of decades. Both the headline and the fact that the work itself is opposed to much of what Greenspan preached (well, mumbled in his incoherent style) throughout the 1990's and the early 2000's points to a shift in the attitudes of the editors at Bloomberg, however subtle -

Taleb Outsells Greenspan as Black Swan Gives Worst Turbulence
By Stephanie Baker-Said, Bloomberg
...Taleb argues that history is littered with high-impact rare events, known in quantspeak as ``fat tails,'' for their shape when plotted on a bell curve. He cites the Latin American debt crisis of 1982, the collapse of hedge fund firm Long-Term Capital Management LP in 1998 and the crash of the U.S. stock market in October 1987, to name a few...

Time to go to the library (your personal investment library or the public one in your community) and reread the basic texts on socionomic theory. More and more applications of that group of case studies and theoretical leaps are popping up every day.

Wednesday, March 26, 2008

Iran, Again

While I'm still in the camp of expecting a diplomatic solution to U.S.-Iranian difficulties, Vice President Cheney's recent road trip to the Middle East has given me pause. As for the results of a potential U.S. assault on Iran, I defer to Defense and the National Interest's Bill Lind:

On War #255: Operation Cassandra
By William S. Lind

...Here’s roughly how it might play out. In response to American air and missile strikes on military targets inside Iran, Iran moves to cut the supply lines coming up from the south through the Persian Gulf (can anyone in the Pentagon guess why it’s called that?) and Kuwait on which most U.S. Army units in Iraq depend (the Marines get most of their stuff through Jordan). It does so by hitting shipping in the Gulf, mining key choke points, and destroying the port facilities we depend on, mostly through sabotage. It also hits oil production and export facilities in the Gulf region, as a decoy: we focus most of our response on protecting the oil, not guarding our army’s supply lines.

Simultaneously, Iran activates the Shiite militias to cut the roads that lead from Kuwait to Baghdad. Both the Mahdi Army and the Badr Brigades — the latter now supposedly our allies — enter the war against us with their full strength. Ayatollah Sistani, an Iranian, calls on all Iraqi Shiites to fight the Americans wherever they find them. Instead of fighting the 20% of Iraqis population that is Sunni, we find ourselves battling the 60% that is Shiite. Worse, the Shiites logistics lie directly across those logistics lines coming up from Kuwait...

Logistics Logistics Logistics. That is the reason the U.S. won't (or at least shouldn't) attack Iran. As much as I believe the current generation of governing elites is short-sighted and corrupt, I can't believe that they are that terminally stupid. You throw the dice here and you risk it all - with very little upside.

UPDATE: Check out this article from Asia Times Online about possible diplomatic maneuvers aimed at a rapprochment between the U.S. and Iran.

Tuesday, March 25, 2008

The Taliban Can Read

Looks like the Taliban have been reading copies of Brave New War:

Dozens of NATO oil tankers destroyed on Pakistani-Afghan border

Islamabad (dpa) - Dozens of tankers carrying oil for NATO forces were destroyed Sunday in a bomb blast targeting a Pakistani border crossing where they awaited clearance to enter Afghanistan, officials said.

"The explosion took place this evening when the oil tankers were parked in the parking lot of Torkham border in the tribal town of Landi Kotal. More than 60 tankers caught fire and 35 of these were completely destroyed," a government official Bismillah Khan told Deutsche Presse-Agentur dpa...

Monday, March 24, 2008

Dude, What Are You Smoking

What the hell. Did Vice President Cheney wake up and decide now was a great time to piss off every relative of every Soldier, Marine, Airman and Sailor who has served in Iraq? What is he smoking that keeps him so far out of touch with reality?

Cheney on Iraq: 'It's Important to Win'
By Martha Raddatz, Ely Brown and Jennifer Parker

..."[The 4,000 dead Americans milestone] obviously brings home I think for a lot of people the cost that's involved in the global war on terror in Iraq and Afghanistan," Cheney said in the interview, conducted in Turkey. "It places a special burden obviously on the families, and we recognize, I think — it's a reminder of the extent to which we are blessed with families who've sacrificed as they have."

Cheney: 'The All-Volunteer Force'

"The president carries the biggest burden, obviously," Cheney said. "He's the one who has to make the decision to commit young Americans, but we are fortunate to have a group of men and women, the all-volunteer force, who voluntarily put on the uniform and go in harm's way for the rest of us..."

Okay, note to self - El Presidente has the biggest burden here - not the wives and husbands of the troops serving their rotation in Iraq, not the Soldiers and Marines sweating out patrols under the hellish Iraqi sun, not the officers who lead those Soldiers and Marines into harm's way every grinding day - nope, it is Bush 43 with the biggest burden - he gets to sit in an air conditioned office, make sweeping decisions and lie his way through every mistake, be held unaccountable for a meatgrinder of a war that has gone horribly wrong and for a budget deficit and national debt that will leave the next three generations of Americans debt slaves to the world. Wow, what a burden.

Now, I will agree that the opprobrium history will heap upon Bush 43 for his decisions will be so vast that probably no male child will be named George for a century after the Collapse sets in, but for now, to trot out a draft-dodging Vice-President to mock the sacrifice of military families with the suggestion that Bush 43's burden is greater than theirs is obscene.

What in the world are the elites thinking? Why do they insist on trying to burn down the very house that gives them shelter? Why utter such a stupid statement on the occasion of the 4,000th dead American in Iraq?

Sorry to get so fired up - but this is such an absurd thing to say. The war is what it is. Poor decisions were made. Bush, for all the mistakes I believe he has made, has, if nothing else, proven himself to be steadfast in pursuit of what he believes to be interests worth sending others to fight for. Fine. That is the nature of war - old men sending young ones off to fight, but damnit, save the sanctimonius moaning about how tough it is to be the big shot - it is an insult and the kind of thing that can come back to haunt a man.

Votes for Blackouts

A part of me hopes the ecos and the politicos get their wish in New York and Indian Point is not relicensed:

Indian Point Under Fire
Idaho Samizdat
...At a time when many large utilities, such as TVA, do not see any alternative for base load demand, besides nuclear energy, to the problem of greenhouse gases from coal-fired power plants, the issue of what would happen if Indian Point were shut down seems to have been set aside. Locking up and shutting down nuclear energy seems to be the more general goal of opponents of the Indian Point nuclear power plant...

And when the brownouts stretch into blackouts, when average citizens who once could rely on reasonably priced and readily available electricity from the grid are subject to wild price fluctuations as their electricity providers go begging on the spot market, when the Northeast becomes an energy colony of Canada - then maybe, just maybe, these fools in the political establishment will wake up.

But by then, it will be too late and New York will be left behind, it's slogan "The Empire State" a joke at best and a pitiful reminder of a greatness that has long sinced passed that state by.

FYI, for those interested in the nuclear business, I highly recommend checking out Idaho Samizdat on a regular basis. Dan Yurman knows his stuff.

Another Tense Border

We go from a tense-but-manageable border situation between Russia and Georgia to a tense-but-potentially-catastrophic situation on Israel's northern border:

Syria Deploys Three Military Divisions on the Border with Lebanon

Syria has deployed three military divisions along the borders with Lebanon amidst mounting tension in the region, press reports said Sunday.

The leading daily an-Nahar attributed the report to well informed sources, noting that the deployment backs a similar massing of fighters by pro-Syrian Palestinian factions in the Bekaa valley, especially Ahmed Jibril's Popular Front for the Liberation of Palestine-General Command (PFLP-GC) in the Qoussayah area.

The development followed Hizbullah's open war declaration against Israel after the Feb. 12 assassination in Damascus of the party's Imad Mughniyeh by a bomb explosion.

Hizbullah is sponsoring a major rally in south Beirut's suburb of Rweis on Monday to commemorate Mughniyeh, labeled commander of the "two victories" in reference to the Liberation of south Lebanon from Israeli occupation in May 2000 and the 34-day war against Israel in the summer of 2006.

Hizbullah leader Sayyed Hassan Nasrallah has pledged that "thousands of Imad Mughniyehs would confront the Zionist enemy if it invades Lebanon."

Israel has ordered its troops on alert to confront a possible attack by Hizbullah operatives when the party marks Mughniyeh's memorial rally on Monday, 40 days after his assassination.

I haven't found confirmation in mainstream media sources yet, so this could be some hyperventilating over nothing. More to come (or, frankly, hopefully nothing more to come than just an exchange of nasty newspaper articles between the Israelis and Syria and Hizbullah).

Catching Up

I take a few days off, think I'm leaving on a high note, as expressed in Some Good News and come back to find:

Duma Backs Georgia's Two Separatist Republics
By Steve Gutterman, The Associated Press

The State Duma has urged the Kremlin to consider recognizing the independence of Georgia's separatist regions of Abkhazia and South Ossetia, stepping up the government campaign to keep Georgia out of NATO.

The Duma, which overwhelmingly adopted the nonbinding declaration Friday, is dominated by United Russia. The measure would not have passed had the Kremlin opposed it.

Georgia's state minister for reintegration, Temuri Yakobashvili, dismissed the Duma declaration as "a propaganda step," Itar-Tass reported.

The Duma said the government must protect the residents of Abhkazia and South Ossetia -- most of whom have Russian citizenship -- against Georgia's push for NATO membership. It suggested that Western recognition of Kosovo's Feb. 19 declaration of independence from Serbia gave Moscow more flexibility in its approach to the breakaway regions, which it said have "far greater grounds to seek international recognition than Kosovo does..."

We'll see if they take it further. If Russia does decide to take it from a "non-binding resolution" to something more significant, then we can expect a significant confrontation, especially if the BTC Pipeline is threatened.

What to watch for: If our Russian friends want to send a strong message over the issue of Kosovo being sheared off from Serbia, then expect pressure on Georgia, via Abkhazia and South Ossetia. However, the first, and possibly strongest, moves will probably be made against Bosnia -Herzegovina with the agitation by Serbian political elites in Republika Srpska to formally break away from Bosnia and join up with their co-ethnics in Serbia.

I'm not sure this rises to a direct threat for you or your interests unless you live in Georgia or the Balkans, but if a conflict with Georgia were to get out of hand and the pipeline infrastructure were to become a target of Iraq-style violence, then this could destabilize oil markets for a time.

Wednesday, March 19, 2008

Some Good News

I spent a good bit of time last year covering the variety of tensions between our Russian friends and the Republic of Georgia (A New 4GW Theater on the Horizon?, Rocking in the Caucasus,
Georgia On My Mind, Chechens in Georgia).

I had also worried that with the U.S. and Europe supporting the official declaration of independence by Kosovo, that Russia might increase pressure on Georgia by supporting a more aggressive posture in Abkhazia and North Ossetia. Instead, it looks like relations are beginning to thaw just a bit.

Russia Restoring Air Link With Georgia
By Vladmimir Isachenkov

MOSCOW (AP) — Moscow agreed Tuesday to restore air travel between Russia and Georgia, more than 17 months after imposing a sweeping transport blockade amid tensions between the ex-Soviet neighbors.

Russia's Transport Ministry said in a statement that it would restore the air link starting March 25, after Georgia agreed to pay a debt for navigation services provided to its planes over Russia.

There was no immediate comment from Georgian officials.

Russia suspended the air link with Georgia in October 2006, severed postal connections, and launched a massive crackdown on Georgian migrants after Georgia briefly detained four Russian military officers it accused of spying.

These kinds of small steps in the right direction can add up over time. Good luck to Georgia in her ongoing, delicate dance with the Bear.

The Unthinkable

How's this for a money quote:

Households face the unthinkable: budgeting
By Nick Carey

"...Simply put, that means Americans are spending more on servicing their debt than they do on food," Rosenberg said. "This is not just affecting stressed-out or soon-to-be-foreclosed home owners. This hurts everybody..."

That which can't continue indefinitely, won't.

Monday, March 17, 2008

Cramer on Bear

Question: Should I be worried about BSC, in terms of liquidity, and get my money out of there?

Cramer: "No, no, no! BSC is fine! Do not take your money out... If there's one takeaway on a plus-400 day... BSC is not in trouble. I mean, if anything, they're more likely to be taken over. Don't move your money from BSC! That's just being silly! Don't be silly!"

- Jim Cramer, March 11, 2008

UPDATE: Here it is, in all its video glory:

Sunday, March 16, 2008

Remain Calm All Is Well (Part Nineteen)

Well, while I still think there is potential for a short and vicious bear market rally, the efforts by the Fed to keep the system of Wall Street Financial Alchemy operating in the manner it has become accustomed over the last fifteen years are beginning to look panicky:

U.S. Fed Cuts Discount Rate, Says Dealers May Borrow
by Scott Lanman, Bloomberg

March 16 (Bloomberg) -- The Federal Reserve, in an emergency weekend decision, cut the rate on direct loans to commercial banks and opened up borrowing at the rate to primary dealers in government securities.

In an announcement before the start of trading on the Tokyo Stock Exchange, the Fed lowered its so-called discount rate by a quarter of a percentage point to 3.25 percent. The central bank also approved the financing of JPMorgan Chase & Co.'s purchase of Bear Stearns Cos., including support for as much as $30 billion of Bear's assets.

Fed Chairman Ben S. Bernanke is stepping up efforts to keep strains in financial markets from spiraling into a full-blown meltdown. Last week the central bank agreed to emergency loans to a non-bank, Bear Stearns, for the first time since the 1960s. Fed officials also announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities...

Oh yeah, and then there is Tibet burning, bombings of non-state targets in Pakistan, oil over $100 per barrel, gold over $1000 per ounce and a United States that has not used the lull in Iraqi violence to forge a final deal with Iran or to "declare victory and go home". In short, things are fine.

Go out and buy an SUV. Above all - remain calm, all is well, the elites tell us so...

UPDATE: Bear Stearns is going to be sold off to JP Morgan for $2 per share. Two freaking dollars per share - for one of the great old names of Wall Street. The brain death that occurred on Wall Street over the last 15 years or so is finally catching up to the firms themselves. When finance went from being a mechanism to fund productive behavior to an end in itself, we get what we have today. Does the Fed have one last rabbit to pull from their collective hat? We'll see - but just know, whatever "they" do to shore this situation up, it will be only temporary.

Your house best be in order by now. The hour is late. We are about to enter into the long, painful transition period before we finally arrive at "What Comes Next" for our society.

The Muddled Metaphor Index

The VERY bright minds over at Calculated Risk (warning - Credit Market UberNerd Content is high) have trotted out their Muddled Metaphor Index again in tracking this ugly unwind.

MMI: We're All Icebergs Now

Dr. Krugman has inspired me to get back to the Muddled Metaphor Index. Longtime readers will know that the MMI emerged last summer as one of our blog's tools for measuring distress in the credit markets. The MMI is calculated by plotting the disintegration of metaphoricity in reports of credit market events against the general unwillingness to recognize reality until it bites you on the shoulderblade, and then chortling over the results. Some people question the science here, but we tell them to go jump in a desert.

Today's text is the reliable New York Times on Thornburg Mortgage's problems. Personally, the thing I like best about this article is that it makes no sense whatsoever to anyone who doesn't already know what Thornburg's business plan is...

They may be onto something here - socionomics informs us that magical thinking takes over from rational thinking during downswings in social mood. I personally still regard the "magical thinking" period as a transition state that spans the final leg of the social mood upswing (people begin to believe impossible things because conditions have been so good for so long by then) and the early days of the downturn. Rational thinking returns, but only near or at the bottom, which allows a society to clear the debris of the old system and ready itself for the next wave up.

Saturday, March 15, 2008

Deaths Per TWh for All Energy Sources

I have no comment other than to say thank you the blogger at Next Big Future for posting this:

Deaths per TWh for all energy sources: Rooftop solar power is actually more dangerous than Chernobyl
Comparing deaths/TWh for all energy sources

The ExternE calculation of death/TWh from different energy sources (not including global warming effects and is the average for European nations). This draws on data from 4290 energy-related accidents, 1943 of them classified as severe, and compares different energy sources. It considers over 15,000 fatalities related to oil, over 8000 related to coal and 5000 from hydro...

I stand by my thesis that it will take a die off of the Silent Generation and the Baby Boomers before the U.S. can institute a sweeping, rational energy policy which will include nuclear as a significant component, but the facts continue to build in its support.

Thursday, March 13, 2008

Bear Trap Rally Ahead?

Both George Ure over at UrbanSurvival (morning update for Wednesday, March 12, 2008) and Charles Hugh Smith over at Of Two Minds have thrown out the possibility of a sharp, sustained bear market rally that levitates the Dow Jones Industrial Average in the coming weeks if not months.

You can also follow along at Prudens Speculari if you want to see real-time trading by a professional.

Is The Market Setting Up for a Huge Rally?
March 13, 2008

Ever the contrarian, I look at charts and wonder: is the market setting for a huge rally that will decapitate all the supremely confident Bears?

Yes, we all know the economy is sliding into recession, and very likely a deep, prolonged one; that oil is $109 and heading who knows how high; that the credit bubble has popped; that the dollar continues downward in what looks like a death spiral; that trillions in derivatives are poised to tumble into the abyss--the list of ailments is so long that we wonder why the patient hasn't just expired from exhaustion.

I brought up the possibility of a real rally on January 30--not just a one or two-day short covering blip, but the real deal: We Told Ya So--But So What?

In the face of overwhelming evidence that the stock markets should fall another 30%, or perhaps 50%, why do I persist in looking for the chimera of a rally?

Fabius on Iraq

Fabius Maximus has a post entitled The Oddity of Reports About the Iraq War that is an attempt to advance the debate a step beyond the reflexive, and useless, "pro-war" vs. "anti-war" screaming match that has been going on for five long years. It's worth your consideration, in my opinion:

The oddity of reports about the Iraq War
...Let us hope that the debate about the Iraq War gets re-started, so that a resolution comes before either events in Iraq decide the conflict for us (perhaps unpleasantly), or we spend McCain’s one hundred years garrisoning Iraq (as he said here and here). Even an acrimonious debate might be better than the air boxing we have today...

Wednesday, March 12, 2008


A Chinese Proverb came to mind as I was reviewing the U.S. situation in regards to national debt, credit markets and the current overseas military adventures:

If we do not change our direction, we are likely to end up where we are headed.

Which should give every thinking American pause...

Miss Atom 2008

The Russian nuclear industry folks are at least trying to market nuclear in a positive light with the Miss Atom 2008 contest. I applaud their efforts...

Tuesday, March 11, 2008


Another mile marker on the road it the Iraqification of Pakistan was passed today:

Twin suicide blasts kill 24 in Pakistan's Lahore
By Mubasher Bukhari

LAHORE, Pakistan (Reuters) - Two suicide car bombers struck in the Pakistani city of Lahore on Tuesday, killing 24 people and wounding scores, most of them in an attack on a government security office, police and officials said.

More than 500 people have been killed in Pakistan this year in militant-related violence, including a campaign of suicide bombings.

One bomb went off near the entrance of the city-centre Federal Investigation Agency (FIA), badly damaging the multi-storey office and nearby buildings. The agency focuses on illegal immigration and people smuggling.

"It is now more obvious that the terrorists are targeting the law enforcement apparatus of the state," city police chief Malik Mohammad Iqbal told reporters...

The attacks are still targeting just the apparatus of state control - we haven't descended into wholesale slaughter with a goal of inciting total tribalization of Pakistan. Yet. As I mentioned in Gathering Up Some Thoughts, Pakistan is a key marker of whether stability in South Asia has a chance (by that I mean stability in the arc of countries from Saudi Arabia over to India) and if that pillar falls, then nightmare scenarios like nuclear arms proliferations or a bombing campaign against Iran become far more likely.

Sunday, March 9, 2008

Prince Harry

I wholeheartedly agree with Soob on this one, when he discusses the recent "outing" of Prince Harry's deployment to Afghanistan in Harry the Lionhearted. I especially like the way the young man downplayed his efforts and gave credit to his men. I wish I had been even half as mature at that age.

Something to Ponder

As the slow-motion train wreck in the credit markets continues, here's another dark corner of the financial "industry" that is worth looking into. I first heard about this type of scam in the mid-1990's when I was subscribed to an investment newsletter called "Vantage Point Investing" (I think) which was edited by James Dale Davidson. I had (and still have) enormous respect for Mr. Davidson as he edited Strategic Investment for many years and wrote a couple of books that have helped form how I look at the world (The Great Reckoning and especially The Sovereign Individual).

Some of the small start-ups he was pushing in his newsletter suffered the same problems that Mr. Byrne discusses in this fascinating piece. Mr. Davidson spent several pages of his newsletters railing against the SEC for not doing anything to pursue fraudulent short sales. At the time I figured that Mr. Davidson was just trying to find someone to blame for the poor performance of some of his picks and ignored the story.

I also thought the same thing a few years back when I heard Mr. Byrne speak to the topic. But - by then I was a good bit more cynical than I was a decade and a half ago and so I did some looking into it on my own and came around to the conclusion that this is a very real, very ugly and very significant problem that is slowly metastisizing in the equity markets.

Makes me wonder if this might be yet another shoe ready to drop in the ongoing breakdown of the financial system:

An Overview of Deep Capture

January 24th, 2008 by Patrick Byrne

Dear Reader,

Since early 2005 I have been criticizing our nation’s financial system. Some recent news stories displayed confusion regarding my claims. I will therefore state them here in a way that will be difficult for others to misunderstand or misconstrue. Then in subsequent posts I will review evidence that has emerged over these past two years and evaluate the degree to which that evidence has confirmed or falsified my claims.

I can reduce my theory to ten simple claims:

1. The Securities & Exchange Commission, regulator of our nation’s capital markets, has been partially captured by financial elites to the point that it favors Wall Street over Main Street.

2. A clear regulatory violation (in fact, a crime) is routinely occurring in our capital markets, but it is enormously profitable for Wall Street banks and hedge funds so they prevent the SEC from addressing it.

3. As a result of this crime, while Wall Street profits, corporate governance in America has been shattered.

4. As a result of this crime, while Wall Street profits, companies (often innovative tech and biotech companies) are damaged or destroyed and Americans are robbed of their savings (often without any awareness on their part beyond their and their pensions’ losses in the stockmarket).

5. This crime has become so extensive that it may have created in our country’s financial system a crack so deep it could trigger a systemic collapse.

6. The relationship between Wall Street and the financial media is inappropriately cozy.

7. Though economists have produced data supporting the view that this has the makings of the financial scandal of our lifetime, most in the financial media have proven themselves incapable of bringing a critical mindset to this issue because of their too-cozy relationship with Wall Street (some elements of the financial media actually seem to be engaged in a cover-up on behalf of financial elites they

8. Within “social media” (blogs, message boards, and wikis) evidence for the preceding points has been pieced together, but as a result, there is a campaign to hijack the social media discourse.

9. I will describe the evolution of a group of players who have come to dominate Wall Street and who turn up wherever this crime is occuring. Some of them have long-standing connections with media figures who are promulgating the cover-up in the financial press. Some also have discrete relationships with those who are hijacking social media to the same effect.

10. I will describe the pawns, that is, those figures from the world of financial journalism and social media who engage in blue-smoke-and-mirror attempts to obfuscate the issues and even cover-up on behalf of the people implicated in this crime.

To many, the preceding will appear a bald and unconvincing tale, too fantastic for even the loopiest Hollywood thriller (in fact, when I first began discussing these claims, The New York Post ran a photo-shopped picture of me with a flying saucer coming out of my head). For two years the profession of financial journalism has demonstrated that in its view there are, in fact, two subjects beyond critical examination: Wall Street, and the profession of financial journalism.

In the chapters that follow I will examine evidence that has emerged over the last two years and the degree to which it confirms or falsifies these claims.

I thank you for the courtesy of your visit and the gift of your attention.


Patrick M. Byrne

Saturday, March 8, 2008

Decentralized Reliable Nukes

I continue to believe that small-scale nuclear power will be a key source of electricity as we transition through this messy period of skyrocketing costs for large power plants.

Looks like the Air Force agrees:

A Nuclear Renaissance Via the Air?

According to a recent article in Energy and Environment News, the Air Force is planning to build a 100-225 megawatt nuclear power reactor. It will not only provide affordable, reliable electricity to an Air Force base, which has yet to be chosen, but will also be used as a power source for the local community. This is a departure from the usual news regarding the comeback of nuclear power.

These stories generally revolve around plans to build large, 1000-1600 megawatt commercial reactors to increase power supplies to consumers that rely on the current electricity grid (also known as base load capacity expansion).

While such planning certainly signals a new day for nuclear power, it does not necessarily represent the full scope of a true nuclear renaissance. The Air Force’s decision, however, demonstrates a growing recognition that nuclear energy has applications beyond simple base load expansion. And that is an indication that a nuclear renaissance is truly underway.

One of the advantages of nuclear power is its flexibility, which the Air Force has recognized with its decision. These small reactors share many of the advantages of their larger counterparts. They produce massive amounts of power, run on inexpensive uranium, require infrequent refueling, and are environmentally friendly.
Smaller reactors have some unique advantages as well. First, they allow its users to insulate themselves from an increasingly unreliable U.S. power grid. This vulnerability was demonstrated last week when a relatively minor disturbance on the grid caused massive blackouts across Florida. They are also physically smaller so that they can be constructed in more isolated locations. This would obviously be attractive to the armed forces, which relies on a distributed system of sometimes remote installations and bases...

Friday, March 7, 2008

Remittances Decelerate into Mexico

For those of you doing business in Mexico or the border region, please take note of yet another anecdotal warning sign of the trouble to come down Mexico way:

Remittances to Mexico see biggest drop in 13 years
By Afredo Corchado for The Dallas Morning News

MEXICO CITY – Remittances to Mexico were down nearly 6 percent in January, the biggest drop in 13 years, which experts attributed to a downturn in the U.S. economy and anti-immigrant policies.

In its report this week, Mexico's central bank, known as the Bank of Mexico, said remittances fell to $1.65 billion in January from $1.76 billion a year earlier, signaling the biggest decline since the bank began recording remittances in 1995. Remittances are the second-biggest source of foreign currency inflows behind oil exports for Mexico, though they comprise just about 3 percent of the country's gross domestic

Let's not forget that Mexico is in the depletion phase of her oil production and that, barring some miracle, that income stream will be threatened in the coming years as well.

Thursday, March 6, 2008

'Nuff Said

As Stan Lee often put it in the many Marvel Comics I read as a yute, 'nuff said:

Financial System Broken - Markets 'Utterly Unhinged'
-Mike "Mish" Shedlock

...But let's not be too gloomy here.

Other than overleverage, bad debts, sinking home prices, no jobs, shrinking wages, cash strapped US consumers, rising oil prices, a sinking US dollar, $500 trillion in derivatives not marked to market, rampant overcapacity, underfunded pension plans, looming boomer retirements, no funding for Medicaid, no funding for Medicare, and no Social Security trust fund, everything is just fine.

And even though the Fed, central bankers in general, and governments combined to create this problem, the irony is nearly everyone is begging for them to fix the problem by encouraging still more speculation in housing, commercial real estate, and the markets.

Sorry folks, it's the end of the line and payback time for the world's most reckless financial experiment in history. The deflation genie can't be put back in the bottle until leverage everywhere is unwound.

Like an exponential function, we are slowly creeping up the curve. How soon before we go parabolic into uncharted disarray in markets? Who knows, but exponential functions are tricky beasts, whether you are talking about the stability of a nuclear reactor, which is governed by exponential characteristics, or the stability of a system dependent upon massive leverage and when you turn that corner, it is too late to turn back.

Ladies and gentlemen, we are about to enter one of the most exciting periods of history in the last 100 years. Great fortunes will be made and lost. Massive changes will flood over governments and societies. New ways of living and thriving will spring up, nourished in the ashes and debris of the dying system.

The quick, the bright, the lucky - they will find the collapse of the decaying order to be a time for action and bold moves.

The dull, the fearful, the unlucky - they may be cursed by a collapse of "the way things work" so complete that their minds will never adjust and they will live out their days a worker bee on some corporate plantation, paying off a credit card debt or household slave to a wealthy family who bought up mortgage notes.

We are all about to get FutureJacked. I hope you are ready to move fast, live brave and make history.

Yet Another Canary Drops Dead

That sickening thud you heard was the sound of yet another canary dropping dead in the coal mine that is the debt-based socio-econo-political system that has metastisized throughout the U.S. since the founding of the Federal Reserve.

Homeowner Equity Is Lowest Since 1945

NEW YORK (AP) -- Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.

Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent.

That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945...

Action Items on this News

Nothing new. If you are not prepared by now, then I assume you don't think anyting truly bad is going to happen in the markets or the economy in general. Here's hoping you are right.

The markets are strangely quiet on wave after wave of absolutely horrible "fundamentals" (another reason I find technical analysis far superior to "fundamental" analysis when examining equities and bonds). I wouldn't be surprised at all if we see a massive short squeeze that takes the DJIA over 13,000 - but I ain't betting on it.

When the floor gives out under the market, it is going to be a long drop to a sustainable level.

Tuesday, March 4, 2008


Take a few minutes and meditate on the following story and what it signals about the "value system" of modern U.S. citizens.

U.S. Marines are taught to kill. Over the past five years, they've been killing and killing and killing in Iraq. They swore an oath to defend the constitution, their civilian leaders gave them a mission and they've worked hard to complete that mission in circumstances where military power is not always the best first or second choice.

There have been tragedies - innocent Iraqis killed, the grinding campaigns in Fallujah, the endless patrols in the scorching sun amongst a hostile populace. The geniuses in the Pentagon have extended their rotations, their families have come under stresses few civilians can imagine.

And the people of the United States have gone along with it. Expending those lives so the U.S. can have a base of operations to project power in the Middle East and allow all that oil to continue to flow in the directions we want it to - for plastic goodies at Wally World, for cheap gasoline to power a civilization that has bet all its cards on a non-renewable resource.

And now, after half a decade of stressful combat, some Marines are showing signs of being desensitized to violence and suffering PTSD? And U.S. citizens are suddenly outraged? They aren't outraged over the ineptitude of the civilian leadership in D.C. that has been the root of this. They aren't even outraged over "collateral damage" of innocent Iraqis. They are outraged over a dog being killed. Seriously. Are you f*cking kidding me?

As a country, we are going to get what we deserve. Heaven help us.

Marines Investigate Puppy-Throwing Video

The United States Marine Corps is investigating one of its own after a disturbing video appeared on YouTube showing a Marine apparently throwing a puppy off a cliff in Iraq.

The grainy images look as if they may have been shot by a cell phone camera. In the video, a uniformed Marine holds a small black-and-white puppy by the scruff of the neck and says, "Cute little puppy, huh?"

Then he launches the dog over the cliff. The puppy's yelps can be heard until it hits the ground below. Then the Marine shrugs his shoulders while another Marine standing nearby laughs and says, "That was mean."

And just to avoid the hyperventilated emails this kind of post will generate - I am going on record stating that I in no way condone the mistreatment of animals. What I also don't condone is sloppy logic and misplaced rage...

Monday, March 3, 2008


The hand that controls the valves of the natural gas pipelines that feed Europe is getting itchy. Our Russian friends frame it as a dispute solely between Gazprom and Ukraine, but the message itself couldn't be clearer - those who rely on Russian natural gas will learn to play ball the Russian way. Period. End of story.

Russia Cuts Gas Exports to Ukraine as Debt Talks Fail
By Torrey Clark and Daryna Krasnolutska

March 3 (Bloomberg) -- OAO Gazprom, Russia's state-run natural-gas export monopoly, cut natural-gas shipments to Ukraine after failing to resolve a debt dispute, raising concern European supplies may be disrupted.

Gazprom lowered deliveries to Ukraine by 25 percent at 10 a.m., spokesman Sergei Kupriyanov told reporters today in Moscow. Gazprom will supply European consumers in full, he said.

Russia has portrayed the conflict as a commercial dispute, while Ukraine has accused Moscow of leveraging energy to maintain regional influence.

The standoff echoes Gazprom's cutoff of gas supplies to Ukraine in January 2006, which disrupted exports to the European Union. About a fifth of Europe's gas travels through Ukrainian pipelines from Russia...

I wonder if Russia will eventually demand that all of their Ambassadors to European capitals be referred to by the title "Daddy" in the future?

All except for France - who will just smile and continue to run a highly efficient fleet of nuclear power plants while Germany denuclearizes and the rest of Europe rolls over and sucks up Russia natural gas.

Saturday, March 1, 2008

Crystalizing It

From the comments section in John Robb's must-read post entitled Home to House in response to this question:
...I would agree with the point I think you make in that a shift of thinking has enabled folks to take a "just walk away" mentality, but I think it is symptomatic of a larger malaise that has been festering and growing in America for a long time.

I would ask though - where on a continuum of moral responsibility would you place the following groups (list of the usual suspects in the unfolding credit debacle)..

Mr. Robb's reply: None. It was the global marketplace at work. It turns everything into an cost/risk calculation, devoid of moral/ethical/emotional content. The market enabled an arbitrage opportunity -- the delta between the "historical moral/ethical/emotional relationship between and owner and home" and the market reality of the "cost/risk relationship between investor and house." This delta was exploited and will soon be completely eradicated. How can we blame the market for doing what markets do, if we hold it to be the best way to run our society?

Precisely. Markets are natural phenomena among social animals. The downsides to their effects need to observed the same way we observe the laws of physics.

If you smash your hand with a hammer, it will hurt you. If you allow an economy based on fiat money and fractional reserve banking to run loose of any sort of rational underwriting constraints, you will get a credit implosion.

If a big corporation closes a factory or a branch office in a city because it is not profitable enough, the papers will report to you that it is "just business". Well, considering how stupid the finance geeks were over the last decade with their lending practices, the fact that individuals are now making the same kinds of arguments shouldn't come as a surprise. But the fact that it does sickens me. Do the elites in finance and government really wake up each day completely oblivious to things like history, trends, case studies, etc.? I don't think I want to know the answer to that...

Gathering Up Some Thoughts

I haven't been paying much attention to the world recently, but let's see if I can do a bit of a recap of some of the themes we've been following here at FutureJacked and try to peer forward into 2008.

Georgia - Russia
For much of the latter part of 2007 I was worried that Georgia (the one the BTC pipeline runs through) was going to become a flaming 4GW tinderbox. There is talk of improving ties between the two countries. But then again, we also just had a bombing in South Ossetia that could signal a push by Russia to repay the west for Kosovo's independence. That said, the rhetoric has been damped down, so hopefully this will just simmer a bit, but not boil over.


This is bad. We've been following this for some time and in my opinion this is the calm before the storm. The anti-Musharaff coalition may hold together long enough to indict him or chase him out of the country, but as for addressing this issue of salafists, Taliban elements, ethnic divisions, blowback from Afghanistan and tensions over Pakistan's nuclear weapons - these things will not go away. Do please keep an eye on this.

For those of us in North America, you may ask why. Well, basically, Pakistan is the one true nuclear weapons proliferation risk in the world right now, in my opinion. Iran is distraction - they don't have a proven ability to manufacture an HEU or Pu warhead. India won't be selling any weapons to anyone. China, Russia, France, the U.K., the Israelis and the U.S won't be selling nukes or nuke tech to anyone in the Middle East or other developing regions.

If Pakistan goes all Iraq or Lebanon on us, well, you can start having real concerns over weapons proliferation.


The official Iran WarWatch is still closed. This situation looks perfect for a major diplomatic initiative that resolves many of the disputes between the U.S. and Iran. The deal with the Devil that U.S. forces have struck with Sunni tribals allows for a window of opportunity for a deal. The Iraqi state will never be reconstituted (in my opinion), but maybe the U.S. can move on with Iran. The wildcards here are held by our Israeli friends. If their shadow war with Hezbollah were to spill over into a hot war with Iran, then it gets ugly. But it is so obvious that a deal will benefit both Iran and the U.S., even the elites running both countries should be able to see it.


The Economy
I'll let you review Nouriel Roubini's testimony to Congress for a summation of the issues credit markets face in the U.S.

I expect one last flare to the upside in the stock markets, but folks, it is bad. When the credit markets themselves are wrecked, then it spells absolute Armageddon for a country that relies on a fiat currency and fractional reserve banking system.

Get your fiscal house in order. Have cash on hand (like real folding money). There are lot's of folks out there much brighter than I following this slow motion crash. I suggest you leverage their analysis. They include, but are not limited to:

Elliott Wave International

Calculated Risk




Random But Important

Check out a blog post by Jeff Wells over at Rigorous Intuition. It is entitled Empire on the Verge of a Nervous Breakdown. While I don't agree with his politics, he has an uncanny knack for linking together events that go on in the underbelly of politics and life and produce insights worth at least paying attention to.

Let's all remember that we shouldn't just be reading news. We need to be acting and readying ourselves for major changes in the way the world has worked for decades, if not centuries. Act, don't just consume.