Month: October 2008

Syria Blowback in Iraq

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Well, we now have a “senior American official” saying that the raid on the Syrian villiage was a warning to Syria.

Some warning, the Iraqi cabinet was already feeling their oats enough to make further changes to the deal, despite US threats to shut down all US operations in Iraq, military and otherwise.

No one believes them, becauseleaving is too politically crushing to Bush and His Evil Minions™.

But as a result of the raid, which was condemned by the government of Iraq, and is looking at further changes in the status of forces agreement to prevent this in the future.

Heck of a job, Condi.

Why Oil Prices are Collapsing

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Well, here’s another insight that I picked up at the by invitation only Stellar Parthenon BBS.

Triutumi pointed me to James Howard Kuntsler, and his explanation makes a lot of sense.

Basically, people who would ordinarily hold oil futures contract are selling them, because they have to answer margin calls on their other investments:

This means especially oil. I hope you’re enjoying the temporarily cheap prices at the gas pumps, because this is purely a function of the compressive deleveraging that is going on right now, as contracts and positions held in energy markets are being dumped by everybody and his uncle to raise cash to meet margin calls.

I’m still digesting his web site, but he is a savagely impressive writer.

Economics Update

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OK, the markets went wild on the expectation that the Fed will cut rates tomorrow….I’m not impressed, truth be told….As I’ve said before, I think that the Fed is pushing on a string with interest rates.

What is or more interest is the fact that the Federal Reserve’s intervention in the commercial paper market has appeared to raise rates, rather than lower them. From Bloomberg:

Yields on commercial paper rose as the Federal Reserve began buying the debt directly from companies, showing the central bank’s efforts to unfreeze short- term credit markets have yet to take hold.

I think that the Fed is looking at a monetary solutiuon, when the solution is government legislation and government spending.

Still, this has not stopped GMAC from going in with the Fed’s commercial paper facility.

BTW, the Fed is doing something else, currency swaps with other central banks, most recently the Central Bank of New Zealand, though it has set up similar arrangements with Australia, Canada, and Japan too.

It’s supposed to help maintain liquidity, but I have no clue how this works. Anyone want to explain this to me?

What I do understand is the Federal Reserve going into the commercial paper market in the US. Ge just borrowed $5 billion from the fed.

Of course, even there, there is stuff that I don’t get, like why is the Federal Reserve starting to buy foreign commercial paper?

In any related news, the Treasury is looking at extending the bailout to privately held banks, though one wonders how they get a meaningful equity stake, as Bush Paulson and His Evil Minions™ had promised for any direct aid.

I’m not sure if this is working, as is noted at Calculated Risk:

  • 3 month treasuries are essentially unchanged.
  • TED spread is marginally better.
  • The two year swap spread is a bit worse.

Of course, that is just the world of banking. In the real world, the perceptions are actually worse, with the Conference Board’s measure of Consumer Confidence hitting the lowest reading ever recorded, dropping to 38 from September’s 61.4

This graph (click for full size), courtesy of Calculated Risk, of the Case Shiller numbers and makes a good counterpoint to the most recent housing data, also from Calculated Risk, and it is rather grim.

Short form, house prices are retrenching in a major way, and I would expect significant overshoot on the way down:

  • The Composite 20 index is off 20.3% from the peak.
  • The Composite 10 is off 17.7% over the last year.
  • The Composite 20 is off 16.6% over the last year.

In energy, oil has continued to fall rapidly, and I think that I have finally come across a good reason for this, which I will cover in a separate post.

And In An Emergency, Your Lobbyist Can Be Used as a Flotation Device*

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I’ve written about efforts to allow free wireless connectivity access to what is called “White Spaces”, bits of spectrum allocated to over the air TV, but not used.

It has been proposed that these spaces be used for unlicensed devices, much in the same way that WiFi works now.

The difference is that the ranges and penetration of the signals are much greater.

Well, there are two groups lobbying very hard against this, the broadcasters, who have their channels allocated from this spectrum, and the wireless microphone industry, who use the white spaces illegally, and have done so for years.

Since the FCC tests showed that there was no problem with interference with TV stations, the prototypes did the necessary, “sense and avoid,” of occupied space, there isn’t a problem there, so my take is that their opposition is because they think that they “own” this space, and they think that there may be a way to monetize the space, so they have enlisted wireless microphone users: (quoting Harold Feld on
For a good background on all this, check out Harold Feld at Wetmachine.com):

I gotta admire the broadcasters (as represented by their trade orgs, the National Association of Broadcasters (NAB) and the Association for Maximum Service Television (MSTV)). Even with the facts completely against them, they never give up trying. Sadly, they all too often succeed through a combination of heavy duty lobbying power (what politician doesn’t suck up to his or her local broadcaster?) and the fact that most decision makers don’t know squat about engineering and regard the whole thing as black magic. Heck, it worked to hamstring low-power FM (LPFM) radio, despite a subsequent independent government report showing the broadcaster interference claims were unsubstantiated bologna.

But embracing radio pirates by proposing to expand the availability of wireless microphones in the broadcast white spaces for their political allies and tacitly agreeing to amnesty for illegal wireless microphone users? Even I never thought they would go that far.

He also notes that the US military uses the technology in question for protection of their troops in life threatening situations.

In any case, it looks like the broadcasters have brought in the big guns,† a Megachurch Preacher Rick Warren and Dolly Parton to claim that, white space devices will “will create an unnecessary interference in the worship services of hundreds of thousands of churches across the country,” according to the preacher man, and may have a, “direct negative impact” on Dollywood, the Grand Ole Opry, and “9 to 5: The Musical.”

You are illegally squatting on a public resource already, Ms. Parton.

*Pun most certainly intended.
†Yeah, this pun is intended too.

Hedge Fund Schadenfreude

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Well, something interesting happened today; for a few hours today, Volkswagen had the largest market capitalization in the world, exceeding that of Exxon-Mobil.

It appears that what happened is that Porsche, which had previously held 42.6% of VW shares, cut a deal to increase this to 74%, and just announced it.

Combined with the German state of Lower Saxony’s slightly more than 20% share in the auto maker, this meant that only 5% of the shares were available, and there were a bunch of short sellers who bid up the stock, because there was not enough out there to cover their short sales.

My take is that the hedge funds can go Cheney themselves. Their stock in trade is to make money from just such of a lack of transparency, they call it “market asymmetry,” and they just lost money on a lack of transparency.

Hoist by their own petard….Heh.

There is going to be an German regulators looking into this though.

My guess is that Porsche did this in this way because they wanted to punish the short sellers.

They succeeded, but I’m not sure if all is in accord with German securities law.

We’re Lending Them Money for This????

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Well, it looks like the US Department of the Treasury is looking at laoning General Motors, so that they can afford to They will use the money to buy Chrysler.

I don’t know why they need the loan, according to Daimler Benz, who still owns an equity stake, Chrysler is worth nothing. They have depreciated their stake in the troubled automaker to $0.00.

They had the stock on their books at $268 million at the end of june.

I gotta think that the only motive behind this is that Bush Henry Paulson and His Evil Minions™ they are trying to make companies out there so big that they can block any regulations Congress might want to achieve in the future, because they will be throwing around so much lobbying cash.

Japanese Move to Restrict Short Selling

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I’m not surprised by their temporary ban on short naked sales and additional rules on reporting and transparency on shorting.

What surprises me is why someone selling something that they don’t have to someone else is legal in the first place, unless you are a completely incompetent acolyte of Ayn Rand who believes that anything done by an investor is capitalism in its highest form, like Alan “Bubbles” Greenspan….Wait, now I get it.

US Stages Cross Border Raid into Syria

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We have reports the US launched a commando raid into Syria, and U.S. officials have confirmed the matter.

It appears that somewhere around 8 people were killed. It appears that the target was, Abu Ghadiya who was described as, “Al Qaeda in Mesopotamia’s “most prominent” smuggler of foreign operatives,” by US sources.

Needless to say, Syria and Iran have condemned the attack.

The analysis here seems to be that the Bush administration is doing this for two reasons, to coerce more action by the local governments against such people, and to establish a precedent for the next president to follow.

What I would worry about is someone like Cuba deciding that this precedent applying to the, and bullets flying in Miami as a result.

Economics Update

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While it’s generally known that the Fed will cut rates, it is news when European Central Bank President Jean-Claude Trichet says that it’s likely that they will do the same, it is a bit of a surprise.

In terms of interest rate spreads, it’s not looking good, with the spreads for Fannie Mae and Freddie Mac hitting the highest level since March.

In real estate we have Journalistic bullsh%$ good news, with reports that new home sales increased in September, but as Barry Ritholtz of the The Big Picture notes, these are bad numbers:

One other thing to note: Note the monthly 2.7% increase was based in part on last month’s being revised downwards, making the differential look bigger (this month is also likely to be revised downwards). Annualized sales for the month was 464k; Actual unadjusted monthly new home sales are about 35-45k, down from 100-120k (before they get annualized).

Year over year, house sales fell by 33%, and prices fell by 9%.

Meanwhile, it looks like the tax payers have already sent a significant chunk of change to the banks $63 billion to 15 banks:

  • PNC Financial Services ($7.7 billion)
  • Capital One Financial ($3.55 billion)
  • Regions Financial ($3.5 billion)
  • SunTrust Banks ($3.5 billion)
  • KeyCorp ($2.5 billion)
  • Comerica ($2.25 billion)
  • State Street ($2 billion)
  • Northern Trust ($1.5 billion)
  • Huntington Bancshares ($1.4 billion)
  • First Horizon National ($866 million)
  • City National ($395 million)
  • Valley National Bancorp ($330 million)
  • UCBH Holdings ($298 million)
  • Washington Federal ($200 million)

Oh…me bad…I forgot that BB&T is in for $3.1 billion too.

Well, at least gas prices and oil prices are continuing to fall.

In currency, we have
the dollar and yen pounding the Euro and Pound to the degree that the bank of Japan is considering an intervention to keep the Yen form spiking too high.

It also looks like the Australian dollar is at serious risk of falling off a cliff, see here and here.

Guilty, Guilty, Guilty!!!!!

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Sen. Ted Stevens guilty on all seven counts.

So Governor Palin, will you do right by the people of Alaska and appoint Begich to the Senate in November?

A few days extra seniority make a big difference in that body.

One note, the Jurors had to start from square one on deliberations today, because a juror was released because of a death in the family, so they pretty much settled this in the hallway.

I believe that GB Trudeau says it all in the attached Doonesbury cartoon from 1973.

This guy has been a gleeful cancer on the US senate for decades, and a little time for him in club Fed will do the American people a world of good.

Some Insight on the Russian Psyche from a Russian

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From Stanislav Mishin‘s blog Mat Rodina, we find The Sixteen Reasons Why Russia Should NEVER Trust the West.

You can go to the site to get a bit more in exposition.

About half of the reasons are true, or at least true as one can when one is talking about international relations:

  • Western banks and institutions raped Russia in the 1990s, which is true. The bankers made money, the pensioners were out on the street, and teen aged girls were selling themselves as prostitutes in order to keep from starving.
  • Western Governments did cheer when Yeltsin shelled his own parliament
  • The West, particularly western oil companies do want control of Russian oil
  • NATO was expanded to the Russian border, despite promises to the contrary
  • NATO bombed Serbia, though I would argue that there were legitimate reasons, a genocidal regime, for doing so.
  • The West has a policy of explicit and extensive support to political enemies of Russia in the nations of the former USSR.
  • That the West’s moves into Central Asia following 911 were accompanied by attempts at regime change, or regime foreign policy change to create states generally hostile to Russian interests.
  • That the west abrogated treaties as soon as they were no longer convenient, most notably the ABM treaty.
  • That the west has provided fairly explicit aid to opposition groups in Russia. Clearly true, though I think he lists this one item as two on his list of 16.

Then there are those that I have doubts as to their significance or veracity. Either I have no knowledge of the truth of the statements, or I think that he is conflating basic international Realpolitik with explicit hostility:

  • That the west has been backing secessionist and Islamist movements within Russia, most notably in Chechnya. Certainly, given the consequences and how they might effect access to Caspian oil make them plausible, particularly when it appears clear that the US gave tacit approval for Saakisvili to launch assaults in South Ossetia.
  • That the Polish missile defense silos for could be used for the deployment of short range nuclear missile….Technically true, I put this in the paranoid section, it’s easier/safer to use SSBNs firing missiles on depressed trajectories.
  • That the West is giving asylum to people wanted by Russia, while demanding extradition of Russians to face western courts…Technically true, but meaningless, as a pretty standard standard state of diplomacy.
  • That the west went soft on the Taliban, and pressured the Russians not to respond militarily to them prior to 911 because they wanted an oil pipeline that avoided both Russia and Iran. True, but I don’t see it as overtly hostile, it’s just the Texas oil men running the US government. To quote The Godfather, it’s not personal, it’s, “Just Business”.

Then there is the tinfoil hat stuff:

  • That the West despises “Russian Patriotism and Christianity”
  • That the, “The West back every Jihad aimed at Orthodox Christians”

These are tinfoil hat, but it does reflect the deeply Xenophobic character of the worldview expressed here.

What I see as stupidity, he sees as malice.

I would say that this is particularly the case with NATO expansion, where the Euros were just too busy partying about the fall of the wall, and the US was looking at new markets for their military hardware and saw the need to replace Soviet legacy systems in new NATO members as a profit center.

I do think that Mr. Mishin represents a mainstream view in Russia, which begs the question, how is this addressed.

Unfortunately, many of the things that have been done, the feeding frenzy of the 1990s and the expansion of NATO cannot be easily undone.

As start, a forceful statement that the US is opposed to NATO membership for the Ukraine, Georgia, Armenia, and Azerbaijan would be constructive.

I have little knowledge of the presidents of Armenia and Azerbaijan, but it is clear that the presidents of Ukraine and Georgia have a few screws loose.

Additionally, it’s clear that the state security apparatus of Georgia has been thoroughly penetrated by the Russians, as the speed and effectiveness of the Russian military response shows that they knew of the specifics of the assault on South Ossetia for weeks in advance.

I am not a military man, but the idea of having an ally whose defense establishment is completely penetrated by another country does not fill me with glee.

What Hilzoy Says

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In the entire matter of the false accusation of politically motivated assault, I agree with what Hilzoy said:

I’d also like to give a shout-out to all the people who held off on this, and to Michelle Malkin, who did a lot to keep this story from getting completely out of hand.

Michelle Malkin did the right thing, which is is something that I never expected to say.

One final note, I do not know whether the woman who did concocted the report is mentally ill or not, but in either case, she should spend an extended time in confinement.

If she is mentally ill, she is clearly a threat to herself and others. If she is not mentally ill, then she did something ¼ step removed from an attempted lynching.