In the dark
Our fire lit the forest
Dimly. So we laughed
Reservedly, gathered up our shadows
Quickly, ate what keeps us quiet,
And spat upon the flames.

Across the stream
The leaves are silent on the earth.
So brown and dry, they shiver now.

The wind might tempt them,
But they will not live again.
And that is where I'd like to be.

So. Might I take a chair and join them?
I will cross the stream without shoes upon my feet:
Lovely.

God bless a mortal man
Who seeks some silence in the woods.

U.S. Retail Sales Fall Again

When will menu prices fall, since people are eating out less, grain is down, and we're all poorer?It's a sticky conspiracy! (Link to Mankiw on sticky prices). Worry more though about the fact that apparently deflation isn't enough to get people out and about in the stores, which indicates to me that the fall in prices is still proportionate to the fall in general purchasing power. If there were a disconnect, i.e., prices fell faster than real disposable income, then we'd be in good shape. But they didn't. So we're not.

McMoPain

This observation from John Nadler should be enough to curdle your blood. "Goldman Sachs Group estimates that FreeportMcMoRan was among the most frequent stocks to appear in lists of top-10 holdings of major hedge funds, as of sept 30." FCX is down 74% since then. FCX is one of the three major base metals producers, and the world's larget public copper miner. The implications of this for the developing world are awful. If you think mining is bad for the environment, imagine what having no national product does to a struggling state. Think about what this does to the mindset of future investors. There will be no investment in this stuff for years.

Beware Deflation

The rapid strengthening of the dollar against all basic materials means that manufacturers can acquire what they need for less. But it has also taken needed infreastructure investment out of the resource sector. When it comes time to mine nickel, zinc, copper and molybdenum again, many major deposits which were on track to be on-line in this cycle now won't be. We will be hit once again by crippling inflation. My next question is: when will the cost of beer go back down? Of course it won't. It's a menu item, which are notoriously sticky. Now that we've been trained to accept $6 pints, they won't let us go back.

Civil Service

I believe that the election of Barack H. Obama as president may draw a spirit of civil service out of the electorate, but not only the type of service that expects, wants or may effectively demand. The economic slowdown, exacerbated by his election and likely protectionism, will have stunted the aspirations of many ambitious men and women. These pragmatic, libertarian leaning cosmopolites will ignite a new post-Buckley fire under the local and state levels of the Republican party. There will be firebrands. The know-nothing Pailinites will fight back. But a new generation of practical leadership will begin work on restoring American rights to the American people in oppostion to the mob-mental neo-left.

There will be great fractiousness, and both parties are going to have to work very hard to reign in the anarchists; but it wil be the Dems in power, and the Republican will need only denounce and work for something positive. The Dems will have to deal with the consequences.

Sickness

Everyone in New York seems to be getting sick. I think it's psychosomatic.

Listen To This

Mogambo.

A Quaking Of Cemeteries

Go here. Read Trakl.

Life In The Shadows

"The hunter has become the butterfly." - Franz Kafka, The Hunter Gracchus

A Welfare State For Putative Libertarians

Andrew Sullivan furthers my argument that Alaska is essentially a federal territory operated as a welfare state. Palin is Queen Bee. Which places her in opposition to the other half of her ticket. Or rather, McCain means nothing that he says, except apparently for the vile stuff, which he is quite good at topping off.

This Is Your Modern Conservative

Sometimes I get an e-mail like the one below. I like the guys who write these. Because my experience tells me that they're correct. Lately though, I get these e-mails forwarded from people who laughed at a particular man, who though notable for several faults of un-nuanced thought, was the major political proponent of a basic truth: 0-10 = (10). When you have (10) you have less than naught.

And the ostensible conservatives gave him up for this. A Fraud. Knowing this is the truth.

I know gold bugs inside and out. They're odd.

But a party which ignores principles they once espoused in favor of jingoism and perfidy is odder.

You'll excuse me, but this was my topic a year ago.

-----
Money and Markets 2008 Archive
The Ultimate Wall Street Nightmare
by Martin D. Weiss, Ph.D.

Dear Drury,

[http://images.moneyandmarkets.com/1083/martin-weiss.jpg]

In the wake of Lehman's demise, Fed Chairman Bernanke and Treasury Secretary Paulson will try to put out the word that it's no great trauma.

But it's a bluff and they know it. If they openly admitted that the Lehman collapse will paralyze Wall Street, torpedo the stock market and sink economy, they'd have to pony up $100 billion or more to support it. Instead, their agenda has been to push big banks to put up the money.

Either way, there's no denying that the Lehman debacle is a massive and immediate threat to U.S. and global markets. At the latest reckoning, Lehman had $691 billion in assets. That makes it bigger than Wachovia, twice as big as Washington Mutual, and over sixteen times larger than Schwab.

Lehman's debts? at $668.6 billion? are also enormous. Even if you added together all the debts of TD Ameritrade, E-Trade and Schwab, you'd still have only $108.5 billion, or less than one-sixth the total debts which Lehman reports.

Defaults on Derivatives

We've lost count of how many times the authorities have virtually sworn on a stack of Bibles that "our financial system is fundamentally sound."

But no one could possibly lose count of their recent desperate efforts to prevent the system's collapse -- actions which directly belie their words:

One? the coordinated efforts by central banks to flood the global economy with liquidity in the summer of 2007.

Two? the hasty bailout of Bear Stearns in March of this year.

Three? the giant Fannie and Freddie rescue announced just eight days ago.

Each time they intervene, they say "we must not reward CEOs who deceive the public and walk off with multibillion dollar bonus checks." And each time they say it's the "last time we'll make an exception to that rule."

But then they go ahead and do it anyhow, not only breaking their own word ... but also trashing the long tradition of restraint established by their predecessors since the Great Depression. . .

Derivatives are essentially bets on interest rates, foreign currencies, stocks or specific events like the bankruptcy of a particular company. The interest rate-related bets are by far the biggest. But the bets on bankruptcies ? called credit default swaps ? are the fastest growing and the most volatile. . .

Here's the great dilemma: The tangled web of bets and debts linking each of these giant players to the other is so complex and so difficult to unravel, it may be impossible for the Fed to protect the financial system from paralysis if just one major player defaults. And if Lehman is not that player, the next one will be.

To understand why, put yourself in the shoes of a senior derivatives trader at a big firm like Morgan Stanley (which has $7.1 trillion in derivatives on its books and about $10 billion in capital). By itself, that would be a huge risk. But you're not worried because you have a similar bet with Bank B that interest rates will go up. It's like playing roulette, betting on both black and red at the same time. One bet cancels the other, and you figure you can't lose.

Here's what happens next ...

* Interest rates go up, reflecting a 2% decline in bond prices.

* You lose your bet with Bank A.

* But, simultaneously, you win your bet with Bank B.

* So, in normal circumstances, you'd just take the winnings from one to pay off the losses with the other? a non-event.

But here's where the whole scheme blows up and the drama begins: Bank B suffers large mortgage-related losses. It runs out of capital. It can't raise additional capital from investors. So it can't pay off its bet. Suddenly and unexpectedly ...

You're on the hook for your losing bet. But you can't collect on your winning bet.

You grab a calculator to estimate the damage. But you don't need one? 2% of $500 billion is $10 billion. Simple . . .

Chickens Just Back From The Shore

Give her a medal. Feist has made life better on Earth in one fell swoop. "Ba ba b-Ba, ba ba b-Ba . . ."

That's Right, I Said "McShouldn't."

I've called him unprincipled, but he and his friends certainly have many of the wrong principles. Perhaps "incoherent" is more accurate.

The modern Republican party is so illiberal, so childishly unfixed and populist and pathetically unhinged that they have chosen to be led by a demented opportunist and a pleasant, ruthless lady who should never have been promoted past the executive of a frontier territory.

What's the answer? And I mean the real answer, not the fun-house mirror image on the other side of the aisle.

"A Quick Look In The Mirror Will Show"

Is the Governor of Alaska the Billy Collins of the political world? You may ask what that means, to which I can reply, "You are the dew on the morning grass," or any other such banality. He's not bad. He can toss a good line out there every now and then. And he has a perspective . . . on things . . . that exist . . .

Mrs. Smith Gone To Washington?

Palin: No, I don't believe she will be "Mrs. Smith," the earnest martyr. She's the cynic's pick, an eager pol. But in America Everyman is a politician to some degree. She'll be tactically competent, gapingly ignorant in some spots, and destiny charged.

She's complicated, bright, shrewd and common. Dangerous.

A Girl In Short Shorts likes her.

A primary problem is this: She may be exceptionally common, but is she exceptional among the commoners?

A more important question: Why are we being forced to ask that question in the first place? Politics has become a game of Hearts; the object is to divest yourself of all your cards to win.

I wonder about this this though: isn't Alaska less a state than a Federal welfare corporation for ostensible libertarian-type individualists? And if they're so libertarian, why don't they send those oil check back to the state and go to work for the oil companies.

ADDENDUM (From CATO): She's pragmatic. In a sorta erratic way.

Call The Roller Of Big Cigars: The Ecomomy In Raw Materials

I've heard that it's a "Jewish curse," but don't see why it should be particularly Jewish: "May you live in interesting times." As a curse though, it cuts deeper than any obscenity I know. On the phone, in the office, on the street, when beaten into baffled incoherence, I hear it leaping up from smoldering piles of incinerated assumptions. How "interesting" things are.

This is a superficially dry subject for my first post after the hiatus, but if you are an old reader, you know I was bearish on the market too early, and paid for it in heartburn. Also that I ran with the gold price up, only to watch my investments in mining companies buckle under the very inflation which was driving up the price of the metals. Extremely "interesting."

Mining companies finance their exploration through issuing stock, and fund their mine development through debt. They can't borrow now because of the credit crisis and they can't issue stock because their share prices have been beaten down by as much as 80% (see below). In order to raise the requisite cash, these operations have to issue so much stock that their current shareholders would be diluted into oblivion. Imagine you once had 10% of a $100 M market cap company. Suddenly you have less of a bigger pie. You don't necessarily get more shares to compensate. Most investors capitulate and move on.

But these are stocks with tight capital structures and which are thinly traded. Liquidating a position gets everyone's attention. They join the rush. But potential buyers have fled and the sell orders are falling into a vacuum. And you get a chart like this:









A "vicious, sick beast," that one, which used to be a really beautiful silver company in Wallace, Idaho. They couldn't make money however when silver was $20/oz, a historic high. Silver is now around $13/oz.

This is a phenomenon that has deep implications for the economy. If is impossible for companies to profitably produce metals, then the price of the metal will have to rise again. But raw materials drive up the price of everything from heavy equipment to labor.

I suspect that we are in for some very ugly shortages which will not be adequately met by the securities markets. Alternatively, the market could be presupposing a tremendous slowdown in the BRIC countries.

In which case we can get on the phone to The Roller of Big Cigars.

A Hiatus

I was gone for a good two months, and am now at school for a heavy semester, so while I don't anticipate blogging as frequently as I used to, perhaps you'll check back in on maybe a weekly basis.

N.C. has withdrawn. Thanks to her, this page was more diverse and strange than I could have hoped. I'd like to thank her for measurably enriching the page while she was here.

Cheers,

Brian

Dripping in the Brit-Pop

I am undecided if this is too Brit pop for me, but it is fun and catchy and nice for summertime:



Oh jeez, that is the dude from the Arctic Monkeys, isn't it. Not sure I'll be able to get over that.

*Echo*

Uh, hmm. I can't see comments to approve them, so if you've tried to post your comments here in the past two weeks or so that B. has been away, then I am sorry. Come Saturday I will be going off to the moon, for awhile, so it might get even lonelier.

The Real Adbusters

I am not sure why, but I think that this idea is very interesting. Living within close proximity to a gigantic intersection of two major Toronto streets, I never even thought that the big vinyl signs pasted on the Holiday Inn or above the 7 Eleven advertising H+M or The Dark Knight were illegal. What an interesting way to combat the magazination (I just made that word up) of our cities, and preserve our head space for more important things.

But you know what I mean. Taking advantage of the rampant negligence of cities in tracking down and fighting billboard fraud is really cool. And it will undoubtedly restore the urban aesthetic. It's so subtle, but so scary, when you ignore all of these signs and ads to the point of becoming Tom Cruise at the beginning of Minority Report (which in my opinion was a terrible movie). Now here is a movement that might actually be worth believing in.

Here is an example of what an illegal sign might look like, now go outside and see the frightening number of these things decorating your eyes at every step. NYC lovers: this movement is coming from Toronto to save you all too, thank goodness.