Bear Mountain Bull

It’s time again for a little BMB R&R, especially with the market behaving as bizarrely as it’s been. Maybe if we stop watching it start to behave a little better…

Posting will be very light and variable over the course of this week, but we’ll put up an open thread each market day for our readers to comment on the day’s market activity or to post any interesting links they might run across.

Check the space below for whatever the latest might be during this ‘off’ time, and please visit the various sites in the ‘Links’ and ‘Regular Stops’ for up-to-date market news and analysis.

BMB will be back in full swing by next weekend.

On inflation. But so far, that’s all it is. Just talk.

From Bill Fleckenstein this week:

In a speech last week, Dallas Federal Reserve Bank head Richard Fisher covered a lot of ground, innocently noting many problems (the worst of which the Fed has created). He discussed the nation’s massive, long-term unfunded Social Security and Medicare liabilities, putting the amount at roughly $99 trillion.

But what I found objectionable was his temerity in commenting: “We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid.”

Of course, this is exactly the policy the Fed has pursued, will pursue and that Fisher himself has voted for. This is a classic example of the Fed’s MO: Talk tough and run the printing press at full speed.

Fisher even had the nerve to point out the insidious, corrosive long-term problems caused by Fed-sponsored inflation: “I have said many, many times that inflation is a sinister beast that, if uncaged, devours savings, erodes consumers’ purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency.”

All of that is true. But if Fisher or any other of the incompetent, irresponsible money printers at the Fed believed that, they would immediately stop targeting interest rates and start targeting some supply-based measure of monetary growth or create some variation of the gold standard.

But the Fed obviously doesn’t care about the effects of inflation, which is a direct result of its money printing. And, as I pointed out in my book, “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve,” it is this action that’s put middle-class Americans in the pickle they’re in — whereby their home values have caved in and their houses are worth less than the debt held against them. Meanwhile, they’re being eaten alive by the vagaries of inflation.

Putting more lipstick on more pigs. Or should I say, on the same pigs. You’d think they’d eventually run out of lipstick.

From Mish’s blog:

Deutsche Bank AG’s asset management business may join other firms in repackaging their home-loan bonds into new securities without creating collateralized debt obligations, which are being shunned by investors.

The unit of the Frankfurt-based bank has studied using the technique on bonds in the portfolios it oversees, Julian Evans, a director who helps manage insurer money at Deutsche Asset Management, said in an interview yesterday. Bankers including Goldman Sachs Group Inc. and JPMorgan Chase & Co. have created more than $5 billion of new home-loan securities called Re-REMICs out of existing ones this year, newsletter Inside MBS & ABS says.

—

“It’s what financial engineering and securitization is all about: It’s taking something nobody wants and creating something people will want, be able to finance, or able to hold,” said James Grady, a managing director at the New York-based unit, which has $240 billion of fixed-income assets under management.

“It’s what financial engineering and securitization is all about: It’s taking something nobody wants and creating something people will want, be able to finance, or able to hold.“

Excuse me for being cynical but isn’t that what CDOs, CMOs, and arguably the Fed sponsored TAF, PDLF, TSLF swap-o-ramas were supposed to do? (See Fed Is Not King Midas for the Fed’s non-solution to the problem). The misguided and now disproved theory on swap-o-ramas was that if the Fed was willing to take it someone else might too.

Furthermore, weren’t the senior tranches of those CDOs supposed to be safe? Now we are taking existing garbage, and repackaging it as something called “Re-REMIC” and people are supposed to want to buy it? Perhaps they will but how many times can suckers be fooled with all this financial engineering?

Given that there was $500 billion of mortgage CDOs sold to fools last year, and none this year vs. a mere $25 billion in issuance of Re-REMICs, it does appear that there is a healthy bit skepticism towards this latest product. Rightfully so.

The way I see it, s**t on a stick is still s**t, isn’t it?

Notes on the latest moves in the industry groups:

• The Dow may appear to be “holding up” alright after its bounce off the March lows, but there are some very ugly charts in that index.
• The commodities and energies remain the strongest areas, though they got bounced around this week.
• The banks remain a large concern. Despite much of the market getting a little move up this week, these stocks did not.
• Much of health care is still dragging badly.
• Many tech charts are looking like bananas. I’ll have to check my TA books for the ‘Chiquita pattern’ to see what it means…
• For a more detailed breakdown of group movement over various time periods, try Prophet.net’s Industry Rankings page., or the Industry Group Tracker at WSJ Online.