TARP Bill Memories

Still working on Andrew Ross Sorkin's TBTF (in my defense, I'm also reading 3 other books plus I probably have ADD plus I'm very lazy). I was reminded of the juicy TARP bill failure incident on September 29, 2008. This is the Pelosi speech that so infuriated the Republicans that quite a few changed their vote and caused the TARP bill to fail when it was first put up for a vote in Congress:

They claim to be free market advocates, when it's really an anything-goes mentality. No regulation, no supervision, no discipline. And if you fail, you will have a golden parachute, and the taxpayer will bail you out... The party is over in that respect. Democrats believe in a free market. We know that it can create jobs, it can create wealth, it can create many good things in our economy. But in this case, in its unbridled form, as encouraged, supported, by the Republicans - some in the Republican party, not all - it has created not jobs, not capital; it has created chaos.

The bill was then defeated 228 to 205 and the Dow cratered by 777 points, the biggest one-day point drop ever. It passed a few days later though, in part because the congressmen got scared witless by the market reaction (and also thanks to the addition of some serious pork to the bill).

By the way, how wrong was Speaker Pelosi about the bailout party being over?

We Are All Cynics Now

New York Times columnist Frank Rich has a tendency to see things through rose-tinted glasses (not), but he's got a point:

This can be seen in the increasingly urgent political plight of Barack Obama. Though the American left and right don’t agree on much, they are both now coalescing around the suspicion that Obama’s brilliant presidential campaign was as hollow as Tiger’s public image — a marketing scam designed to camouflage either his covert anti-American radicalism (as the right sees it) or spineless timidity (as the left sees it). The truth may well be neither, but after a decade of being spun silly, Americans can’t be blamed for being cynical about any leader trying to sell anything. As we say goodbye to the year of Tiger Woods, it is the country, sad to say, that is left mired in a sand trap with no obvious way out.

Blogs and Introverts

Randomly reading through the New York Times website, I stumble upon this gem, part of an adieu from author Judith Warner to the readers of her Domestic Disturbances blog. It kind of resonates with this blogger and blog reader.

We are all these days — inveterate introverts or not — increasingly disconnected people. What I’ve learned over the past four years is that we can use sites like this to disconnect further, or to transcend our apparent differences and find our common humanity. The pain caused by the first can be acute. The pleasure of the latter is immeasurable.

Walter Scott Bruan, Day Trading Pioneer, R.I.P.

The same words keep coming back when the many people whose life he touched hear about WSB's tragic death: a visionary, bigger than life, a huge heart, a father figure, a big brother, a mentor, an inspirer of dreams, a builder, a dear friend. Walter was even bigger than the day trading phenomenon of the late 90s that he helped create and develop.

He hired me as a trader in 1996 when Worldco was basically 10 guys in a small room. That it became, a few years later, what some people called, not always in a complimentary way, a day-trading factory with more than 1,000 traders, many of whom have gone on to have successful careers on and off Wall Street, is a testament to Walter's exuberant energy, ambition (for himself and especially for people around him) and vision. He will be greatly missed.

Paul Samuelson

Great overview in the New York Times of Paul Samuelson's life and his enormous importance to the field of economics. It seems that too much has been made of Milton Friedman and not enough of Paul Samuelson over the past decades. Here's an excerpt showing a refreshing and all too rare balanced view of things economic:

If government gets too big, and too great a portion of the nation’s income passes through it, he said, government becomes inefficient and unresponsive to the human needs “we do-gooders extol,” and thus risks infringing on freedoms.

But, he said, no serious political or economic thinker would reject the fundamental Keynesian idea that a benevolent democratic government must do what it can to avert economic trouble in areas the free markets cannot. Neither government alone nor the markets alone, he said, could serve the public welfare without help from the other.

On a more mundane note, I learned in this article that Larry Summers was Paul Samuelson's nephew.

Contrarians and Politicians

Two great posts from two great blogs on two great subjects, about which I've often written: the pitfalls of contrarian thinking (being a contrarian is easy - it's sometimes called being a smart-ass - being a contrarian at the right time isn't) and the mixing of politics and market prognostication (rarely a good idea).

Contrarianism is the New Consensus (Infectious Greed)

Michael Boskin On "The Obama Crash" (The Big Picture)

Bernanke's Reappointment

Interesting post on the Economics of Contempt blog about Bernanke's performance as Fed chairman and whether he should be reappointed (it's almost a done deal but not quite - an angry senate has wrecked havoc on many a foregone nomination before). E. of C. seems to think that even though Bernanke did OK over all, the things he did well, pretty much any other Fed chief would've done in the same way and his bad decisions were, well, really bad. Let's analyze these two arguments.

His first point is that the Fed was always going to take unorthodox measures once it became clear we were headed towards a Great Depression redux, no matter who was at the helm. I sort of agree with that but I would point out that Bernanke literally wrote the book on how to deal appropriately with a replay of the Great Depression. Any other Fed chief would have, in effect, followed the Bernanke playbook and, given the choice, I'd rather have the playbook's author himself running things than anyone else.

His second point is that two of Bernanke's decisions really stunk and are unforgivable in retrospect. One is his 75 basis point interest cut after Société Générale's star rogue trader Jérôme Kerviel did his deed. It was a wasteful, uncalled for waste of what could've been precious bullets later on. The other is his non-cut the Tuesday after Lehman's collapse. I agree that those were indeed bad decisions but we mostly know that because of 20-20 hindsight. If we were to compute the number of crucial decisions Bernanke had to make, then add to that the decisions he didn't make or even think to make, we would find out that bad decisions were statistically inevitable.

So all in all I do agree with Economics of Contempt's reservations but I'm not sure they are sufficient to remove Ben Bernanke from his Fed perch. Something else entirely worries me though and that is the fact that the job of Fed chairman going forward will likely be very different from what it has been over the past few years. Ben Bernanke, having been pretty much the ideal person to avoid another Great Depression, might not be the best person to steer this economy back toward decent growth while avoiding all the potential traps.

Gold: The Pre-Announced Correction

This is the daily chart for GLD, the gold ETF, (click to enlarge) with a blue area highlighting the effect the announcement that the Indian central bank had bought 200 tons of gold from the IMF had on the stock back in early November. If you remember, that particular piece of news is what powered the latest lunge upward in the price of gold. The possibility of a gold rush among the emerging countries' central banks and a corresponding gold price explosion made everybody a gold bug for a whole month and GLD went from around 104 to around 120.

Gold's meteoric rise was finally dealt a serious blow on Friday, suffering a 6% correction on extremely high volume. In my opinion though, the blow was neither decisive nor that significant , at least not yet - the trend is still up and nothing in the technical picture is suggesting a trend change yet. Friday's better-than-expected employment report and the dreaded possibility that Bernanke's Fed might start hiking rates sooner rather than later (don't hold your breath) catalyzed a correction that was inevitable sooner or later because sentiment was way too optimistic and gold extremely overbought. It wasn't a question of "if" and "why" but a question of "when" and "by how much".

I can see this correction continuing for a while until both the exuberant sentiment and the overbought price action are relieved a bit. Should GLD get anywhere near its 50-day simple moving average sitting right now at around 106.50 - which happens to be slightly above where it was before the Indian purchase was announced - I would be a cautious buyer. Why cautious? Well, because one should always be cautious in the financial markets. More specifically, long gold is such a crowded trade that any corrective move, once started, could overshoot. And there is a lot of empty space between the 50-day and the 200-day moving averages (the 200-day MA is at 95.76 as of this writing). In other words, go small and/or use stops.

Disclosure: Long gold.