Russ’s Blog

Getting in Front of the Fast Moving Reality Train

February 16, 2007
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Hyperrealism (or the Blue pill)- symptom of an evolved, postmodern culture. Hyperreality is a way of characterising the way the consciousness interacts with “reality”. Specifically, when a consciousness loses its ability to distinguish reality from fantasy, and begins to engage with the latter without understanding what it is doing, it has shifted into the world of the hyperreal. The nature of the hyperreal world is characterised by “enhancement” of reality.

Interacting in a hyperreal place like a casino gives the subject the impression that one is walking through a fantasy world where everyone is playing along. The decor isn’t authentic, everything is a copy, and the whole thing feels like a dream. What isn’t a dream, of course, is that the casino takes your money, which you are more apt to give them when your consciousness doesn’t really understand what’s going on. In other words, although you may intellectually understand what happens at a casino, your consciousness thinks that gambling money in the casino is part of the “not real” world. It is in the interest of the decorators to emphasise that everything is fake, to make the entire experience seem fake. The casino succeeds in turning money itself to an object with no inherent value or inherent reality.

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Into the Kill Zone: How Fast Are Credit and Labor Conditions Deteriorating?

February 15, 2007
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I decided to take a look at the February’s Daily Treasury Statement employment taxes a little early. You have to be careful with short spans because of how days fall during the month. Monday is a big payment date for real versus Bubble people employment taxes, and with that out of the way a snippet for the first nine days of February can be gleaned. Again, think we need the whole month and really February-March to be statistically significant, but so far it’s 66,096 versus 65,386 YoY, which is barely population growth. And with the residential construction and related industry (see Masco) layoffs picking up steam I strongly suspect we are going into the kill zone for labor conditions.

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Eye on the Ball and Dispensing Red Pills

February 14, 2007
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Yesterday bears were given another big dose of out of the blue stock ramping, as the market surged on the back of another buyout rumor, this time with Alcoa. This follows the turnaround pattern seen the previous week when a rumor sparked a Hail Mary rally in Countrywide Financial. CFC’s pump has now entered the dump phase, and this morning the Alcoa story is also being downplayed by the companies supposedly on the prowl. Who and what are next remain to be seen, except to say that those who are buying the spikes in these stocks are getting their heads handed to them. Incidentally and not unexpectedly, at least to this observer, CFC insiders unloaded millions of dollars in stock during the pop.

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Lucy, “I Think You Have Some Splaining Ta Do”.

February 13, 2007
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I have mentioned the alarming state of affairs and low liquidity of the Brazil American class, but what about aggregate liquidity that includes the Bully and plutocratic classes?

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Are the Bust Stars Aligning?

February 12, 2007
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We now know for a fact that the subprime mortgage market is in increasing disarray. Although not publicized in the mainstream media (MSM) the cracks are spreading to the midprime arena as well. I am convinced that the next wave of stories will emerge from the Alt A market. I also strongly suspect that any market break will come like a thief in the night, and mostly likely from some entity in the thick of the credit quality unwinding. A second possibility that I mentioned in the podcast would be the simple emergence of much more normal volatility, and risk premiums. This theory was discussed by Dresder Kleinwort in a recent report. Their thesis hits at the accidents-waiting-to-happen setups involving hedge funds:

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Downwind of a Ponzi Based Economy: Rancid Up-Chuck

February 8, 2007
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New podcast is out.

A good article appeared in Marketwatch regarding the near full employment in residential construction. So far at least according to government reports only 47,000 jobs were lost in 2006. Several analysts including MER’s David Rosenberg went on to point out the obvious, namely that there is a lag between new starts, completions, and ultimately employment.

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A Broken Record

February 8, 2007
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The New Century December data is out. One aspect I’m looking at is the ability of these pools to churn or refi borrowers into a new loan that avoids most of the reset impact. If they can’t then the thin “overcollaterialization” (primer is here) backing these pools will be wrecked. We already know that 2006 was another huge year for subprime activity. In fact 23% of all mortgages in 06 were subprime. That is until the 4th quarter, when the wheels started coming off. As the subprime party shut down in late 2006, it is now obvious that NEW and NFI pools for 2005-3 on are having a tough time refing. Mid-2005 would correspond with the peak in housing, so it would take some real serious appraisal fraud and/or large cajones to refi people with 85%-100 LTVs who bought in late 2005 and 2006. Here are some factors (pool remaining) comparisons, with even the 2005 pools Wall Street doesn’t seem worried about running way behind. The 2006s won’t stand a chance of getting factors down at this stage.

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The Godfather Protection Racket

February 7, 2007
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One of theories that explains how the US can get away with historic imbalances that would murder most other countries, and still attract foreign capital flows to run trillion buck plus twin deficits is offered by one of the Pig Men’s lobbyists, the American Enterprise Institute. Essentially they really say only three things in this puff piece: 1. The US has a large Pig Men “wealth storage service”. and 2. The US is a finely honed global financial intermediary, to which I say, “Duh, of course. Kind of required of someone who needs to borrow a trillion a year.” What would these skills be like if it were only one hundred billion? AEI is basically saying that borrowing is what the US does best, and who could disagree? 3. Others like China, Japan, and Europe, because of their inflationary low interest rate policies have defaulted this to the US. Although these statements have an element of truth to them, it’s a bit like saying that an experienced, wily burglar has developed superb robbery skills in taking down poorly protected businesses and houses. The larger question really is what happens if the mark (foreign money) puts in burglar alarms?

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Even More Carry Trades in Play

February 6, 2007
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One of the aspects of fixed monetary and currency regimes that subsidize risk taking speculation is that Riskloves will always find a way to concoct a new trade. The latest version of this silly season genre sells the Chinese Yuan (has an artificially low interest rate) and buys the Indian Rupee.

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Last Throw of the Dice

February 5, 2007
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The big worldwide deployment of US military assets is in full swing, as√Ǭ†much of the US Navy√Ǭ†√Ǭ†not on maintenance√Ǭ†is√Ǭ†in the Middle East. Of course the fact that two carrier groups are in the Gulf is downplayed in spin circles. The idea is to set the stage in terms of how unresponsive Iran is to pressure, and even play for an “incident”. Israel as well is playing the “diplomatic” card inferring that an attack is not the first option. These are going through the motion gestures. Iran responds in kind by bringing√Ǭ†the press and diplomats in for a “transparency” tour of one of it’s new nuclear plants, which are all moving along. Meanwhile the National Intelligence Report is released and seems to call the sectarian violence in Iraq a quasi-Civil War “of sorts”. Adding to the fog, the report says that Iran’s involvement is a factor in the deteriorating situation, but unclassified portions released to the public do not provide details of the extent of that involvement. At the same time charges against Iran are escalating, examples of good cop, bad cop.

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