Panic Monday (Musical Tribute)

Let's go acoustic. Electric guitars would be overkill.



Six o'clock already
I was just in the middle of a dream
I was sellin' J.P. Morgan
With a crystal bluetooth headset scream
But I sold too late
And it seems that I just won't get paid
These are the days
When I knew my bed was already made

It's just another panic Monday
I wish it was Sunday
'Cause that's my pun day
My lack of bank run day
It's just another panic Monday

Have to catch an early train
Got to be laid off by nine
And I just bought an air-o-plane
Still can't make the payments on time
I've been leveraged so long
Hard to figure out what I'm gonna swear
Blame it on the game
But the loss is already there

It's just another panic Monday
I wish it was Sunday
'Cause that's my pun day
My lack of bank run day
It's just another panic Monday

Reality bites
Why did my broker have to buy last night?
It tanked down
Doesn't it matter?
That he is fooling the both of us
Employment's down
He sells me with his banking voice
"C'mon sonny, you should buy the dips"
Cash it goes so fast
It's quite worrisome

It's just another panic Monday
I wish it was Sunday
'Cause that's my pun day
My lack of bank run day
It's just another panic Monday

Wall Street panic hits New Yorkers hard

A flood of somber, dejected-looking bankers and investors poured out of the Stock Exchange Monday after a Congressional bailout plan failed, sinking the Dow Jones industrials to historic lows.

Hope Revisited

Last Thursday I said the following as it relates to the bailout plan.

If, and this is a big if, the pricing in the market has hit an illiquid wall and the government's intent is to merely unclog the system, I do think there is some hope.

Hope was clearly not warranted at that point. It seems Congress wants the clog to fester.

US Congress rejects billion dollar rescue deal

In the US, House Republicans blamed a partisan speech by Speaker Nancy Pelosi, a Democrat, for the bill’s failure.

So let me get this straight. The contents of the bill were apparently acceptable, but the Democrat's speech wasn't? I didn't realize the speech was being voted on. I was under the assumption that speeches from the opposing party could generally be safely ignored. Shame on the Democrats for verbally poking the beast. Shame on the Republicans for being the beast.

Sticks and stones may break bones but words will hurt arrogant self-serving congressional elitist egos and quite possibly send our country into another Great Depression? Fantastic. How bad could it get?

US Treasury Secretary Hank Paulson went down on one knee at one point to plead with Democrats not to say anything to the media which would harm the chances of a deal.

That should be some indication.

Invest an Hour

Invest an hour and boost trading confidence

That was in my inbox. It was from ETrade. Their stock was down 25% today and now trades at $2.60.

This is great news. Financial institutions are now willing to accept "time" deposits in leu of actual cash it seems. You invest an hour of your time and you'll be ready to take on Nobel Prize winning economists, professional day traders, umpteen hundred hedge fund managers, and a variety of high level management types with reams of insider information. With this boost in trading confidence, you simply can't lose!

That being said, I can boost your confidence right now. Why wait an hour? Behold the power of the Internet! If you are at a dinner party, someone asks you the meaning of a phrase such as in leu of, and you aren't quite sure of the exact definition, just say, "I think it has something to do with foreclosures." If you do this a few times you'll really start to feel more confident. You'll be making a great impression on those around you. You might even get a promotion.

Search the web for "in leu of"

First Hit: "Deed in leu of foreclosure??"

See how it works? Let's try again. If asked what the US Department of Housing and Urban Development was doing these days then I'd simply respond, "Foreclosures?"

Search the news for "US Department of Housing and Urban Development"

First Hit: United Way and HUD start foreclosure hotline

Don't believe me? Come on. It works every time. Ask me about Michigan election officials. Not knowing anything about that I'd simply say, "I'm fairly sure it has something to do with foreclosures."

Search News for "Michigan Election Officials

First Hit: Michigan officials: Foreclosure can't stop votes

That's how I generally run this blog, only the rules are changing. In the past I'd say it has something to do with illusions and prosperity. One must keep up with the times though if one intends to appear smart. Now I'd say it has something to do with foreclosures. Genius I tell you!

Beware the curve ball though. Once someone realizes what you are doing and that maybe, just maybe, you aren't quite as smart as you appear, then you'll want to switch from foreclosure to bankruptcy. For example, if someone was to ask you about "creative loafing" that's a clear indicator they are catching on. That's the time to switch! You'd respond, "That's not foreclosure! That's bankrupty thanks to our economy tanking!" Then do a hearty chuckle and wink to the ladies. You simply cannot lose at that point!

Search News for "creative loafing"

First Hit: Creative Loafing files for bankruptcy protection

“This is not a management issue. It’s strictly the economy tanking.”

Stock Market Down 12 Years

Oops. I really should try harder on my headlines. It was not my intent to imply that the stock market has been a lousy investment over the last 12 years. I'm just talking about today.

The S&P 500 is currently down about 6%.
The 3-month treasury bill currently yields a mere 1/2%.

Therefore, at today's 3-month treasury bill rate, it will take roughly 12 years of interest to "safely" recoup the losses for those who are selling stocks right now.

Of course, I'm not factoring in inflation over the next 12 years for those concerned about future purchasing power. Hence my quotes around the "safely" word.

Let's be an optimist though and assume that there won't be any inflation going forward. It makes the math so much easier (to stomach).

Record Failure (Musical Tribute)

WaMu Seized by U.S., Assets Sold to JPMorgan in Record Failure

Sept. 26 (Bloomberg) -- Washington Mutual Inc. was seized by government regulators and its branches and assets sold to JPMorgan Chase & Co. in the biggest U.S. bank failure in history.

Record failure? I guess this means Washington Mutual won't be putting out a Greatest Hits album.

Hold-to-Maturity = Mark-to-Myth?

The big bailout is unlikely to work

LONDON: The U.S. "hold-to-maturity" bailout plan is really just the new "mark-to-myth," and even its heroic proportions are not likely to paper over solvency problems in the banking system.

I've been thinking about this idea for a few days and how it applies to my own personal finances. I believe I have a new appreciation for what the banking system is going through.

As you may recall, I participated in the 20-Year TIPS (treasury inflation protected securities) auction in January. For the record, I put roughly 10% of my overall net worth in it. The yield ended up being 1.81% (above reported CPI inflation).

The yield today on the 20-Year TIPS is 2.42%.

If I was forced to sell my 20-Year TIPS today I'd experience a loss of roughly 12% (0.61% times 19 1/2 years). Needless to say, I'm glad nobody is forcing me to sell. It gives me some small feeling of what the investment banks must be going through though as they are forced to sell. I'm in reasonably safe government backed TIPS. Just imagine what it would be like if it was subprime mortgage debt instead.

What does it really mean to me though? How much worse off will I be over the next 19 1/2 years? I know this might seem hard to believe, but I'll actually be somewhat better off. Here is my reasoning.

First, I'll still be earning 1.81% over reported inflation (technically 1.75% since I bought at a discount as part of the auction process). That doesn't change. In 19 1/2 years I'll be getting my inflation adjusted principal back. That doesn't change either. Therefore it is very hard to say that I could be any worse off in the long-term.

Second, the market is saying that inflation isn't going to be as big of a problem as I feared. That means that it is less likely I'll be earning 10% or more per year (say 8% inflation with 2% real yield) and being fully taxed on that 10%. That actually helps me. I may have overpaid for the inflation protection, but under no circumstances was I ever rooting for extra inflation. All it could do is hurt me (it would just hurt me less than people without inflation protection). I was also never rooting for a complete stock market and financial institution collapse. How could that possibly help me long-term? No, I'd be better off in the long run if the prosperity machine continued to fire on all cylinders (or at least appears to be firing on all cylinders). I might not do as well as my risk-taking neighbors by taking the safer path, but I'd still be doing okay.

Third, in 19 1/2 years I'll need to reinvest. Should these real yields hold up I'll be one happy camper at that point. That's a very good thing. My worst fear is that real yields turn negative, inflation skyrockets higher, and I'm left with no safe way to protect my nest egg without resorting to hoarding even more hard assets. Currently, the markets are saying my worst fear will not come to pass.

Fourth, I have more TIPS maturing soon (the next several years). It is in my best "interests" to root for higher real yields as I reinvest that money back into more TIPS.

Yet, here I am with a 12% loss on paper. It is a real loss and I'm certainly not trying to argue that it isn't, but it is simply an opportunity cost loss. The odds of depleting my nest egg have not gone up. Sure, had I waited I would have done better. That being said, in 19 1/2 years, based on what the markets are currently telling me (lower inflation going forward), I will still be doing better than I originally expected though. Ideally, at least as it applies to me, I'd be rooting for zero percent inflation and be getting paid a mere 1.81%. My taxes would be next to nothing. So how could I complain? The market is telling me that I'm somewhat getting my wish (just wish I could believe the market, it can tend to get very confused from time to time).

In summary, I have a 12% real loss, but it is the kind of real loss that lets me sleep better. I continue to "hold-to-maturity" and somewhat sigh in relief. It honestly doesn't concern me much what the market is willing to pay for what I own. I never intend to sell it, nor is it likely that I'll be forced to sell it. I guess that's what separates my risk from that of an investment bank.

This is the exact same mindset I have towards my toilet paper hoard. I have no doubts that the market would not pay me full price for it either (on eBay for instance). That also doesn't bother me though. I never intend to sell it either. Go figure. Further, if the market determines that I overpaid for my toilet paper hoard at some point in the future that's just fine too. It will simply be another opporunity cost loss. In fact, I'd root for it too. First, someday in the distant future I'll no doubt NEED to buy more. I will certainly not complain if it ends up being even cheaper. Second, even cheaper toilet paper means that hyperinflation did not wipe out my entire nest egg.

So is "hold-to-maturity" a "mark-to-myth"? As it relates to my personal finances, I don't see the myth in my reasoning. Perhaps there's some glimmer of hope that the same could be said of the government's plan. Oh my, I said something optimistic again. I better not make a habit of this. I think that's the second time I've done it since starting this blog, lol.

If, and this is a big if, the pricing in the market has hit an illiquid wall and the government's intent is to merely unclog the system, I do think there is some hope. Unfortunately, that's a reasonably big if. There are SO many problems and this is but one of them. For example, should the entire global economy begin to bounce back and billions of workers world wide think driving cars is in their future while simultaneously helping us to exponentially grow our trade deficit, well, I'll no doubt be back to my old pessimistic (realistic and stagflationistic?) self in no time. Of that I assure you.

The Importance of Proper Economic Darkness Wording

With markets on edge, journalists watch their words

So in most of the news, stocks have "slid" and markets "gyrated" but not "crashed." Companies have "tottered" and "struggled" rather than moved toward failure and bankruptcy.

One must not speak of crashes, failures, and bankruptcy.

"We're very careful not to throw words around like 'meltdown' and 'free fall,' " said Ali Velshi, senior business correspondent at CNN. "If someone wants to say the markets are in free fall, we'll discuss it first," he said, and the outcome is most likely to be a change in wording.

One must not speak of meltdowns and free falls.

" 'Crash,' 'panic,' 'pandemonium,' 'apocalypse,' those are the words we're staying away from," said Robert Christie, a spokesman for The Wall Street Journal, now part of the News Corporation.

One must not speak of crash, panic, pandemonium, and apocalypse.

At the same time, no one wants to be seen as minimizing the danger. The Journal's front page has called this the worst financial crisis since the Depression, and each day last week it carried banner headlines the entire width of the page — the first such headlines since September 2001.

Oh oh. I've been saying those words. Why do I suddenly feel like I've summoned an Army of Darkness?

Wiseman: When you removed the book from the cradle, did you speak the words?
Ash: Yeah, basically.
Wiseman: Did you speak the exact words?
Ash: Look, maybe I didn't say every single little tiny syllable, no. But basically I said them, yeah.

Oh yeah, that's why.

Questioning Risk?

Unrest has investors questioning risk fundamentals

Market turmoil leaves investors wondering whether lessons about risk still apply

For the record, lessons about risk still apply. I'm fairly confident that hasn't changed. In fact, I'd bet large amounts of other people's money on it using 30-1 leverage just like a typical financial institution would. It's such a sure thing!

No matter how close they are to retirement, many are considering getting out of the stock market entirely by shifting to cash or even gold, believing the market is so shaky they're willing to take the potential tax and inflation erosion they'll suffer from a quick pullout.

Yeah, I had those exact thoughts back in the summer of 2004. I even acted on those very thoughts. Go figure..

Welcome to the party, pal! - Bruce Willis, Die Hard

Some habits "die hard" though.

"Right now, it is just a loss on paper. If I pull out now, it becomes an actual loss," says Deborah Allen, a 51-year-old administrative assistant at a Royal Oak, Mich., school district who's trying to protect a nest egg she's relying on to take early retirement next year.

Picture my head banging down repeatedly on my desk. Seriously. Picture it. My forehead hurts.

She has a persistent attitude about her nest egg though (i.e., that it's only a loss on paper so far). I'll give her that. In fact, it reminds me a bit of how banks are treating their own mark-to-market waste. It's only a loss on paper.