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.

Ruin All Traders, Says Paul Krugman

I know this is a time when we should all be thankful for the good things in our lives but you've got to admit this is one hell of a Thanksgiving.

First, Dubai reminds us that Black Swans can hatch anywhere in the world, in the desert for example. As a result, the very popular dollar carry trade might just get a little less popular going forward.

Then Paul Krugman, in his New York Times column, decides that ruining traders would be a good thing for the global economy. His idea of a "Tobin tax" applied to all financial transactions strikes me as a misguided "hammer in search of a nail" type of solution to the global financial crisis.

It is also inconsistent with Krugman's other recent writings (of which I am an enthusiastic and assiduous reader). He is a proponent of monetary and fiscal easing (here and here) for as long as the economy has not recovered and, by his own reckoning, we are still a very long way from recovery. How does an across-the-board tax that will (and that is its stated goal) severely shrink the entire financial sector help the economy to recover? How can one rail against the very mention of deficit restraint or anything that might be a tiny bit contractionary (here, here, here, and here) and at the same time advocate a tax that will suffocate an entire activity?

Having said all that, I might be persuaded, despite my obvious bias (Full disclosure: I trade for a living), that shrinking the financial sector might be one among several long-term solutions to the global financial imbalances and that some sort of tax might be a good way to de-incentivize excessive and "socially useless" risk-taking. But a sudden and immediate across-the-board financial transactions tax is more akin to self-mutilation than to therapy.

Welcome to a World Where...

...Bill Gross urges us to imitate Warren Buffett and buy utilities already. According to him (Gross), that's the only sane and safe way to go when cash pays 0.01% and stocks are up 60%.

...David Brooks writes an ode to Tim Geithner, our Treasury Secretary, against calls for his (Geithner's) resignation from some of his (Brooks') fellow conservatives.

...The New York Times strongly encourages Goldman Sachs to donate billions of dollars to the Federal Government (to the Bureau of the Public Debt, to be exact) to try and assuage the public's rancor against it (Goldman).

Indisputably Good

This is not the freshest of news, far from it, but here is an interesting Big Money profile of one of the few indisputably outstanding financial bloggers out there, Felix Salmon. It's interesting not in a People Magazine way but in what it says about financial blogs, what they can, at their best, uniquely bring to the table, what kind of people write them and read them (mostly the same subset but not always):

And it is [Salmon's] mastery of the form—vectoring the facts and observations of others into his own opinionated but open-ended mini-essays—that amounts to his real expertise. Print and television journalism have their defining faces and voices. Salmon can lay claim to being the blogosphere’s signal personality despite his position in the traffic rankings.

A Question of Perspective

I could have titled this post: A Tale of Two Charts.

The first chart shows a runaway market making new high after irrational new high.

The second chart shows a market that took a monster hit - a more than 50% dislocation - and that has been recovering nicely although it is still a long way from where it stood before all the nastiness took place.

You've guessed it: the two charts are actually one and the same, they both represent the Dow Jones Industrial Average. The first is the daily DJIA chart since March 2009 and the second the monthly chart since October 2007.

Maestro No More

From Sorkin in Too Big to Fail, this elegantly pointed paragraph about the man formerly known as "the maestro":

By the summer of 2007, however, America's second Gilded Age had come shockingly to an end, and Greenspan's reputation lay in tatters. His faith that the market was self-correcting suddenly seemed fatally shortsighted; his cryptic remarks were judged in hindsight as the confused ramblings of a misguided ideologue.

The Goldman Sachs Sabbatical

I, like most of my potential readership, am in the process of reading and enjoying Andrew Ross Sorkin's Too Big to Fail, the instant classic du jour. This caught my attention:

Though he [Robert Steel, former under secretary of the Treasury, domestic finance] always planned a triumphant return to the private sector, he wanted time to pursue public service, like many other Goldman alums.

Though folks are getting upset about things not changing fast enough if at all in the financial world, I will go out on a limb and venture that this practice of Goldman Sachs alums taking a sabbatical out of GS and into government will soon be history. I might be wrong and at some point in the (distant) future, GS's unpopularity may wane and having worked there won't be an insurmountable political handicap any more but the odds are quite low.

John Reed's Mea Culpa

So John Reed, Citibank's chairman in the 90s, feels bad and goes on record with a mea culpa:

We learn from our mistakes. When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.

It's interesting to note that, in his mind, serving Citibank's shareholders and serving the citizens at large are necessarily two opposing endeavors. Not for him the tired cliché that says maximizing shareholder value is the patriotic thing to do.

But what's even sadder is that he's seemingly oblivious of how damning his statement really is. He says he tried to do "what's right for the stockholders". Well, we all know how that worked out: Citibank is now a ward of the state and a quasi-penny stock.

Somewhat Important Juncture for the S&P

The S&P 500 daily chart above (click to enlarge) shows the rising trendline that started last March was decisively broken yesterday. There definitely is technical damage and today's reaction to the third quarter GDP numbers should be telling. On the other hand, the series of higher highs and higher lows (one definition of a bull market) is still intact. It would be violated if 1019, the 10/2 low, is decisively broken. Also, the RSI is around the level that prompted strong rebounds in the past.

So, to sum up, some serious cracks in the bull market's armor but not enough to pronounce it dead and buried. We could be at the end of a correction in the bull move or in the early stages of a new bear move. The next few days (starting with today's behavior) will be key.

Some People Never Learn

John Meriwether, of Liar's Poker fame, is starting a new hedge fund, his third after Long-Term Capital Management (yes, that LTCM) and JWM Partners. As you may remember, his first was bailed out in shame in 1998. His second was closed a few months ago after being down more than 44% over the course of the financial crisis.

Meriwether will be using the same trading strategies that were used at both LTCM and JWM Partners. Indeed, why mess with a winning formula? I have no doubt scores of potential investors are already lined up.

Crying Wolf

Jim Cramer on the general unease with Wall Street bonuses (hat tip Felix Salmon):

When I took a Master’s reading communism we learned these things. I took seven courses in communism. Lenin when he came in in 1917 thought that the bankers were making too much money, and confiscated all the wealth. The peasantry felt terrific about it. The bankers, many of them, were killed. And there was a terrific surge of opinion that Lenin was a great man. It didn’t work out.

It’s very easy for me. I know that, I can do that rap, I studied it. I know most of Lenin’s speeches during the period. And it’s really about stringing up guys like John Mack and feeling great about it. I’m not being facetious. I studied Lenin, and I was very caught up in this notion that the peasantry should win.

This should leave me speechless but it doesn't. First of, as Barney Frank would say, what planet does Cramer live on? Leaving aside the fact that he not-so-subtly equates Lenin 1917 with Obama 2008 (people with a sunny disposition might point out that, as far as demented comparisons go, this is a slight improvement over Hitler 1933), who exactly, in this insane fable, is the peasantry supposed to be? The 99.999% of the U.S. population who will not be getting a six figure Wall Street bonus maybe?

Cycles

Must-read New Yorker article on cycles theory (hat tip Zero Hedge) and its most (in)famous proponent, Martin Armstrong. If you've watched the 1998 movie Pi by Darren Aronofsky, you'll find the story vaguely familiar.

The article does a good job at presenting cycles theory (and other non-traditional technical analysis such as Elliott wave) succinctly and with an open mind, though not uncritically.

Brigh Lights, Big City

One would think snorting cocaine and trading are not a good mix in the long (and not so long) run and one would be right, judging by this fascinating (in a sad way) Bloomberg article on the rampant cocaine use taking place in the City of London.

Bears Should Be Hugged, Not Hated

Interesting article in the latest Economist about bears and their usefulness to the market. It first describes the asymmetrical outcomes the poor unloved bears usually face:

Nobody loves a party-pooper. When asset prices are going up, most people are inclined to celebrate. The bears who argue that asset prices are about to fall tend to get dismissed as out of touch (dotcom skeptics supposedly “just didn’t get it”) or are likened to stopped clocks: occasionally right, but mostly wrong. If they dare to make money out of their beliefs by selling short (betting on falling prices) when a crisis hits, bears are decried as economic vandals and politicians call for their activities to be banned.

It then tells us about how useful bears are and how they should be nurtured instead of ridiculed during good times and despised during bad times:

Legend has it that Roman generals, when making their triumphal marches, were followed by a slave whispering “Remember, you are mortal.” The bears play that role for investors. Their arguments should be countered with reason, not ridicule. And the right to sell short should not be restricted arbitrarily. If regulators want to prevent future bubbles, they need to let the bears roam as freely as possible.

Besides being slightly condescending (bears exist for the sole purpose of reminding the bulls that they're not gods!?), there's a problem with this line of reasoning. Indeed, some people might argue that undercapitalized bears (and most bears are undercapitalized after an extended bull market) prolong bubbles by selling too early and buying too late, providing the short-covering fuel for yet another lunge higher. As everybody knows, it's only when the last bear turns bullish that the bubble finally bursts.

Trading Vs. Professional Gambling

Marcel Link in his excellent High Probability Trading is not the first to equate the skills of the professional gambler with the skills needed to succeed as a trader but he does it very convincingly:

[The professional gamblers] don't take unnecessary risks or gambles. They know when the odds are in their favor and will bet more when the odds get better. If the odds aren't there, they won't risk nearly as much, if anything. They know how to protect their winnings, and they know how to call it a day when Lady Luck is blowing on some other guy's dice. Having this discipline lets them come back to the table the next day. [...]

They know that losing is part of being successful, and as long as they do the right things, they are okay with losing; they won't try to make it all back on the next hand. They know that if they stick to their rules, they will make it back in the future by being consistent. [...]

Successful gamblers also know they don't have to be in every hand. A good poker player is disciplined enough to fold hand after hand until the right one comes along. [...] For the most part it's the amateurs who try to bluff. Pros do not do it nearly as much; they would rather go for the sure hands and sit out the rest. [...]

[The professional gambler] doesn't necessarily increase the size of his bets because he is on a good streak or has doubled his money. Very rarely does a pro make bigger bets because he has a hunch or feels invincible.

Delusional Day Traders

Blogger Felix Salmon has some harsh words for day traders in his post about Zero Hedge's rabid fans (emphasis mine):

You need to be a little bit delusional to be an individual day-trader, paying substantial sums for information, technology, and trading spreads every day and yet somehow reckoning that by zooming in and out of highly-levered ETFs you can not so much beat as utterly obliterate broader market returns. All day-traders think they’re above-average; they have to, otherwise they wouldn’t have the hubris necessary to do it in the first place.

Ouch that hurts.

Stock Returns Are Not Normally Distributed

For anyone still holding tight to the delusion that stock returns follow a bell curve, here's an interesting little research note.

Over the 1991-2008 period, if we assumed stock returns did follow a normal distribution, out of 3000 liquid stocks, including the ones that got delisted (to reduce survivorship bias), 278 stocks should have declined by 75% or more. In reality, 2179 stocks have fallen by at least 75%.

The bell curve prediction is therefore off by about 700%, showing the assumption of normally distributed stock returns to be somewhat faulty.

It Had To Be Said

New York Times columnist Tom Friedman took a break from writing about green jobs, global warming and education to write a column about the diseased current political climate. Good for him, some things have to be spelled out:

The American political system was, as the saying goes, “designed by geniuses so it could be run by idiots.” But a cocktail of political and technological trends have converged in the last decade that are making it possible for the idiots of all political stripes to overwhelm and paralyze the genius of our system. [...]

I would argue that together these changes add up to a difference of degree that is a difference in kind — a different kind of American political scene that makes me wonder whether we can seriously discuss serious issues any longer and make decisions on the basis of the national interest.

We can’t change this overnight, but what we can change, and must change, is people crossing the line between criticizing the president and tacitly encouraging the unthinkable and the unforgivable.

Financial Bloggers As the New Rock Stars

I wouldn't be much of a financial blogger if I didn't mention this epic New York Magazine article on financial bloggers. Despite some of the predictable bilious reactions it elicited, I found it pretty fair and balanced (not in the Fox News sense). I kind of liked the concluding paragraph:

Wall Street is about speculation, and Wall Street blogs are no different. At this point, Zero Hedge has staked everything on a doomsday scenario, a takedown of the old order, “a deleveraging at every level of modern society.” Even as the market has improved, the economy has shown glimmers of stability, and many of his fellow bears have capitulated, Ivandjiiski has clung ever more tightly to his convictions. The manipulation of the market will eventually fail, he believes, and the pyramid scheme will be exposed for all to see. But it better happen soon or Zero Hedge may lose its mojo. The higher the Dow Jones climbs, the more righteous he necessarily becomes: Every hopeful data point a fraud, every bull a conspirator. There’s an old Wall Street term for this, for when you hold firm to your belief in defiance of the market—fighting the tape. It’s considered inadvisable, but that’s what Ivandjiiski is doing, convinced that he is destined to win.

Kahneman on Cutting Losses

In this great interview, Daniel Kahneman - one of the fathers, with Amos Tversky, of behavioral economics - on why it's so hard to cut your losses (he's talking about war but could have just as easily been talking about trading, or life in general for that matter):

People in general don't like cutting their losses. They're willing to gamble on in the hope of recovering their losses, and that is a very well known characteristic of individual decision making, and in national decision making it's exacerbated because the national leaders who have led the country close to defeat, for them there is really nothing further to be lost by putting more at risk. There is a real divergence of interest between national leaders and their communities when the time to cut losses arises, because cutting losses is rarely beneficial to the decision maker.

More Macro Feuds

Great Financial Times piece by economist Paul De Grauwe about what's wrong with macroeconomics. It's 2 months old but still of the essence:

To paraphrase Isaac Newton, macroeconomists can calculate the motions of a lonely rational agent but not the madness of the crowds. Yet if macroeconomics wants to become relevant again, its practitioners will have to start calculating this madness. It is going to be difficult, but that is no excuse not to try.

Great intellectual history of the 2007-2009 crisis by Berkeley economist and blogger extraordinaire Brad DeLong, invaluable if you want to follow the current nasty spat between macroeconomists. If I were to sum up and overly simplify this epic feud, it would go something like this:

The current economic crisis has followed Keynesian theory to a T and those economists who have either never learned Keynes (because their professors told them it was a discredited theory) or spent their careers ridiculing Keynes are having a difficult time, to say the least, accepting, let alone graciously accepting, that they were wrong.

Rogue Waves

Finance isn't the only field where faulty, overly simplistic mathematical models wreak havoc. In this week's Economist, an article tells us that "huge, freak waves may not be as rare as once thought". Substitute "market crashes" for "freak waves" and the article could be in the Finance section instead of the Science section of the magazine.

Dr Heller, who likes to sail, says there may be other mechanisms at work too, including an interference effect that causes different ocean swells, travelling at different speeds, to add up to produce a rogue, and a non-linear effect in which a small change in something like wind direction or speed causes a disproportionately large wave.

Sounds like a pretty good description of the global financial markets to me. Thanks to new experiments, it would appear that killer giant waves are between 10 and 100 times more likely to occur than "conventional wave theory" would predict. I am not making this up. I would guess the Bell Curve is featured prominently in this particular wave theory. Nassim Taleb and his black swan non-theory would have a field day with this.

Thank God For Lehman?

It has almost become the official line (especially in Europe) that the financial crisis of 2008 was caused by the failure of Lehman Brothers and that, had the U.S. authorities (the Fed and/or the Treasury) only saved Lehman, the worst of the crisis would have been averted. It is a convenient way to put all the blame on the U.S. on the one hand and for European governments to justify their own financial bailouts with the motto: "no more Lehmans" on the other.

In an article in The Economist (and in an upcoming book, This Time Is Different: Eight Centuries of Financial Folly), the Harvard economist Kenneth Rogoff makes two crucial points. The first is that, by 2008, the banking system was so sick ("trillions of dollars of debt secured by an inexorably deflating asset bubble") that the failure of a major bank was inevitable. The second, more provocative, point is that Lehman's failure actually paved the way for the subsequent rescue of the whole banking system. It made it a little more politically palatable (but still not really palatable) to save the banks (if not the bankers) and the non-banks (think AIG).

If Mr Rogoff is right and more failures were inevitable, then Lehman’s collapse, though painful, may have been necessary. History suggests that systemic banking crises are usually resolved with large injections of public capital. Lehman’s failure galvanised policymakers. Only when faced with the post-Lehman, post-AIG chaos did Congress pass the $700 billion Troubled Asset Relief Programme (and even then, after an initial rejection). Other rich-country governments also moved to guarantee bank debts, raise deposit insurance and inject capital into their banks.

Macro Feuds

This morning I was reading the Wikipedia entry for 50 Cent (don't ask why...it's Saturday) and more specifically the part about the many feuds Mr. Curtis Jackson has had over the years with other rappers (in no particular order: Ja Rule, The Game, Fat Joe, Nas, Jadakiss, Rick Ross). Then, for a change, I moved on to Paul Krugman's latest blog entry and it hit me: what's going on in the world of macroeconomics - Saltwater vs. Freshwater and all that - bears a strong resemblance to a classic hip-hop feud. The dissing of reputations, the doubts about street creds (in this case academic creds), the very public nature of the feud...

Let's just hope the violence stays at the verbal level. After all, a big part of 50 Cent's street cred is built on his surviving nine direct close-range gunshot wounds.

The Volcker Purgative

One would expect Paul Volcker, hawk among hawks, to say something like this (in a recent interview):

I think this period we’re going through is kind of a curative process; it’s a purgative. There is something to the old view that you have to have a recession once in a while to deal with the excesses of a boom. And I think we had excesses in this boom, for sure, and we’ve got a really difficult recession. You want to relieve the sharp edges, without any question, but I don’t think it’s been possible to pump it up so there’s no recession at all.

I suspect many in the corridors of power (at the Fed for example) feel the same way but can't say it in such a straightforward manner. It wouldn't be too politically astute to say something like: "You know what? All those job losses, all the financial suffering are actually good for the economy...in the long run."

Inflation: A Tale of Two Views

In an interesting speech, San Francisco Fed chief Jane Ellen acknowledges the current cognitive dissonance in inflation expectations (emphasis mine):

In my career, I have never witnessed a situation like the one that exists now, when views about inflation risks have coalesced into two diametrically opposed camps. On the one hand, one group worries about the long-term inflationary implications of a seemingly endless procession of massive federal budget deficits. At the same time, others fear that economic slack and downward wage pressure are pushing inflation below rates that are considered consistent with price stability and even raising the specter of outright deflation.

The fear of higher long-term inflation reflects, to a large degree, worries about Fed monetary policy. Our array of new programs to spur the economy have pumped up our balance sheet and created a huge quantity of bank reserves in the process. Some worry that we won’t be able to shrink our balance sheet because of political pressures, and in the process we will end up monetizing the government debt. This fear is real, growing, and disruptive. That’s why it’s so important for me to say the following loud and clear: We at the Fed are and will remain fiercely independent from politics. We have the means—and we certainly have the will—to tighten policy when the time is right. In fact, by raising the interest rate that we pay on excess reserves we can tighten monetary policy even before our balance sheet shrinks. And we are, as always, steadfast in our determination to achieve both of our statutory goals of full employment and price stability.

Whether she and the Fed in general will be believed is another story.

The Speech

I thought this part - towards the very end - of Obama's health care speech was a great answer to the recent nuttiness:

You see, our predecessors understood that government could not, and should not, solve every problem. They understood that there are instances when the gains in security from government action are not worth the added constraints on our freedom. But they also understood that the danger of too much government is matched by the perils of too little; that without the leavening hand of wise policy, markets can crash, monopolies can stifle competition, and the vulnerable can be exploited.

And they knew that when any government measure, no matter how carefully crafted or beneficial, is subject to scorn; when any efforts to help people in need are attacked as un-American; when facts and reason are thrown overboard and only timidity passes for wisdom, and we can no longer even engage in a civil conversation with each other over the things that truly matter – that at that point we don’t merely lose our capacity to solve big challenges. We lose something essential about ourselves.

The Crowd Speaks Technical Analysis

Nice write-up on the benefits of adding some technical analysis to a rational, fundamental worldview by Anthony Bolton, the recently retired manager of the top-performing Fidelity Special Situations fund. A few excerpts (emphasis mine):

My contention is that if you are trying to predict the mass action of thousands of investors, most of whom are investing on a rational or logical basis, you won’t be able to do this by taking the same logical approach as everyone else.

As the stock market can’t be predicted by logic alone, I believe investors have to use two conflicting approaches. First, they need their own views of the correct value to be placed on a company, worked out through fundamental analysis and by making predictions about future prospects etc.

But investors also need to listen to what the market is telling them and see what they can learn from the behaviour of other investors. It is one of the reasons why I use technical analysis to complement my fundamental analysis; technical analysis is good at showing the mass action of investors.

The Heretics of Finance

I've been reading the entertaining and sometimes illuminating The Heretics of Finance by Andrew Lo and Jasmina Hasanhodzic. It's basically a series of interviews of Technical Analysis luminaries such as Ralph Acampora, Bob Prechter, John Murphy, Alan Shaw, Laszlo Birinyi (the self-hating technical analyst) and Linda Bradford Raschke (the only active trader among them).

Professor Lo of MIT is the first (and only so far) major academic who's been curious about, then supportive of technical analysis and this book is, in a way, his token of appreciation to the TA community. Most of the discussions address basic TA subjects and controversies. The target audience seems mainly to be people who might be curious about technical analysis but have heard negative things about it ("it's no different than astrology" would be one such negative preconception), so our TA heroes try to debunk the negatives and promote the positives ("if you believe psychology and history play a role in the markets, then you must believe in TA's contribution to the analysis of markets" is how I would paraphrase their response). They don't always succeed though and their contradictory answers to a number of questions may give pause to many an open-minded reader but overall they come across as a passionate, knowledgeable bunch.

I enjoyed Elliott Wave guru Bob Prechter's insightful remarks on the role of emotions in trading:

"No one assessing or trading markets is unemotional about it. This job is not like building cars. It's like trying to outwit a pack of murderous inmates in an insane asylum. You can't do it calmly because you don't know what they're capable of, and they don't have to use reason."

A trader friend of Bob's describes the trading life as: "hours and hours of boredom punctuated by moments of sheer terror".

On a somewhat related subject (under "when analysts fail"), this epic NYT magazine piece by Paul Krugman on how the economists got it so wrong, complete with a brief history of economic thought is a must-read. Even Greg Mankiw likes it.

On yet another somewhat related subject (under "economics"), I have noticed, reading the always-entertaining comments on Seeking Alpha, that "Keynesian" has become an insult now, one that misinformed readers hurl at anyone making a cogent point about the Fed or the economy. It's only a matter of time before cogent, rational, informed, intelligent and other adjectives to that effect joined the list. What an Orwellian world we live in!

We're All Nutjobs Now

It seems that The Big Picture blog's own Barry Ritholtz agrees with some of the very points the "Seeking Alpha nutjobs" have been making. Now, Barry is definitely not a nutjob, he's a knowledgeable, rational, very smart and highly entertaining fellow. And I happen to agree with most of what he says or writes generally. I believe he may have gotten a little carried away in his demonization of the Fed (although I agree that Greenspan's Fed was definitely more evil than Bernanke's Fed) but the points he's been making about the Fed over the past year are not to be dismissed; he may turn out to be right more often than wrong.

Barry mentions this great article where Newsweek's Dan Gross (one of the best financial journalists outside of the blogosphere) touches on something I alluded to previously, namely that "some people, blinded by their political views and ideologies, are hating this rally".

Another must-read article is this FT Alphaville post on gold (here's another good one). Whether this breakout is of the launching pad or the head fake variety, one should expect some serious volatility in gold.

Seeking Alpha Nutjobs

As a Seeking Alpha contributor and reader, it saddens me that many of the commenters there seem to be members of what Paul Krugman would call the angry far-right irrational fringe.

A fairly cogent article (not by me, I hasten to point out) on the current attack by Congress against the independence of the Federal Reserve and its potential consequences got destroyed by about 100 remarkably self-similar comments the contents of which can be summed up as follows:

1. Whoever wrote this article is ignorant and stupid, and should stop writing articles.

2. The Fed is a criminal enterprise which has:

- debased the dollar

- betrayed the Constitution and all this country holds dear (liberty above all).

3. Ron Paul is our hero. He's the only man in America who truly gets it. He wants the Fed dead, therefore we want the Fed dead.

4. To the writer of this article: you are so ignorant and stupid, you can only be a paid shill for the Fed.

I couldn't help (I'm weak that way) adding a nutty comment of my own, which will probably be pilloried:

"Let me see.... Let's say a guy who publicly states day in and day out he wants you dead suggests you and he should go hunting together someday, would you go? Well it's the same thing: Ron Paul has stated a million times that the Fed is an evil institution that should be taken out back and put out of its misery. And now he wants to audit it, just audit it? Give me a break!

One problem with giving Congress more authority over the Fed (and I'm not saying there are no advantages) is that when time comes for the Fed to start raising interest rates while unemployment is still high (in about a year or so), Congress will try to stop it at all cost. I agree with most posters that the Fed has already lost a lot of its independence, particularly after all the "innovative" (irresponsible?) steps it took during the financial crisis. Less independence means less ability to fight inflation. So why make the Fed even less independent by giving Congress more say into what it does?

As far as Ron Paul is concerned, he wants to kill the Fed, auditing it being only the first step. He's been crystal clear about it. I see a lot of commenters agree with that goal. Fine. But don't give me any BS about the merits of transparency when all you want to do is look into the Fed's entrails to better rip them out!"

Financials Vs. S&P 500

(Click to enlarge)

This is the daily chart for XLF, the financials ETF, relative to SPY, the S&P 500 ETF. It's interesting to note that the 50-day moving average (of XLF/SPY) very recently crossed over the 200-day moving average, which confirms the financial sector's outperformance over the overall market.

As a reminder, the 50-day MA crossed under the 200-day MA back in March 2007, signaling a financial sector underperformance. Obviously, as an overall market sell signal, that was a little early as the market as a whole kept going up until October 2007, so I'm not saying this is an all-clear buy signal. That would be premature, especially as we enter a historically turbulent time of the year. It is however an interesting piece of evidence that the market internals are changing in a major way.

1933 All Over Again?

To those who keep bringing up 1933 as a reason to short the current rally, the Chart and Coffee blog proposes a cogent and extensive look at the facts and nothing but the facts. And the facts tell us that even if the "1933ers" are right, the market still has ample room to run up and the bears, multiple opportunities to get trapped.

Evil Big Government?

I noticed something strange, a conundrum as a former Fed chief would say:

the same people who are convinced the U.S. Government's greater involvement in the economy spells doom for the U.S. stock market are also wholeheartedly embracing the Chinese economy and stock market.

Now I haven't really looked into this so don't quote me on the numbers I'm going to throw out there but if I had to give a ballpark estimate I'd say the U.S. economy is 25% reliant on the government and the Chinese economy is 95% reliant on the government. So, even if that percentage were going up in the U.S. and down in China (which is actually not the case - I believe the state has increased its control over the Chinese economy as a consequence of the financial crisis), we still have a situation in the U.S. where the government is relatively small compared to the private sector.

So my question is this: why is the government bad for the economy in the U.S. but good for the economy in China? And don't tell me about the U.S. budget deficit: that's another subject altogether.

Latte, Anyone? What the Starbucks Chart Is Telling Us About the Economy

(Click to enlarge)

Most of those who doubt the resilience (or the very reality) of the bull market we've been in since March mention the death of the consumer as their main rationale. I thought I'd take a technical look at a consumer stock if there ever was one: Starbucks. Starbucks isn't just any old consumer stock, it's been THE consumer stock of the 1990's and 2000's, serving premium (some say overpriced) coffee to the hip urban professional class.

The first chart, a daily chart of Starbucks, shows us that SBUX has actually been in a bull market since its 11/20/2008 closing low of 7.17. After its November 2008 low, SBUX made a higher low on 3/9/2009 at 8.27 and then it was off to the races, reaching 19.71 last Friday, up 175% from its low. The stock is comfortably above its 200, 50 and 20-day moving averages which are all trending upwards. In other words, it is in a major, confirmed bull move and not showing any sign of slowing down.

The second chart, a chart of SBUX relative to SPY (the S&P500 ETF), is even more telling. It's showing us that Starbucks started underperforming the overall market as early as June 2006, way before the Great Recession of 2008 and basically when it became clear (to some people at least) the housing market - and by inference the consumer - was going to be in serious trouble. One can picture the marginal consumer of Starbucks Lattes and Frappuccinos, having extracted as much equity as possible from his or her home and finding out that house prices had stopped going up (and even started going down in many places), cutting down on expensive coffee breaks.

Conversely, the relative price chart shows that SBUX started to outperform the market as a whole in November 2008 and has been outperforming since. Having been so right in anticipating the recession, we are entitled to believe the Starbucks stock will also be right in anticipating the end of the recession. It would seem the consumer, after being dead for two and a half years, has resuscitated if we are to believe the sweet nothings the SBUX chart has been whispering in our ears lately.

Warren Buffett On The Deficit

Interesting Op-Ed piece by Warren Buffett sounding the alarm against the US deficit and its potential catastrophic effects. He makes a parallel with the effects of global warming:

"Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt."

He's apparently not the only smart investor to predict a less-than-favorable future for the US dollar as this Bloomberg piece summing up the general view at Pimco shows.

Why So Much Anger?

It's not often that I quote Barron's congenitally and permanently bearish Alan Abelson but this time he seems to have nailed a partial explanation of the current angry mood.

Abelson "can't help thinking that, perversely, the roaring stock market and the increasing volume of assurances by Wall Street, Washington and other suspect sources that you can kiss the recession goodbye and happy days will soon be here again only rub it in for Jane and John Q., who are in a real sweat over the prospect - or, worse yet, the reality - of loosing their livelihoods, their homes or both".

One can't mention Alan Abelson without thinking of his rigidly ideological (and ideologically rigid) colleague, Gene Epstein.

The Big Picture blog's own Barry Ritholtz, in a pretty heroic post, tells us just what he thinks of Mr. Epstein. Everything I've ever wanted to say about him is in there, only Barry says it more eloquently. The money quote:

"Of all the observers of the economic crisis of the past year, few have gotten it wronger than Barron’s Gene Epstein. This is directly due, in my opinion, to Epstein’s political ideology. He may or may not be a good economist, but we have no idea as to whether that is so, as his economic views are so dominated by his ideological rigidity and political perspective.

I would expect as much from Al Franken or Rush Limbaugh, but one hopes for more from the economics reporter from one of the nation’s pre-emiment weekly journals. One would be disappointed."

Not Everything About The EMH Should Be Thrown Away

This is a very succinct and to-the-point piece on the Efficient Market Hypothesis (EMH) by behavioral finance guru Richard Thaler. It turns out not everything about the EMH is to be thrown away.

The EMH has two components: the "price is always right" component and the "no free lunch" component. What Thaler says is that the latter has been strengthened by the financial crisis (what looked like a free lunch was in fact an over-leveraged mirage) while the former, the "price is always right" component, has been dealt a mortal blow (just because bubbles can only identified in retrospect doesn't mean they don't exist).

Bull Market Blues

As I'm writing this, the Dow is down more than 140 points but never mind, I'll go ahead and make my point. If this proves to be a major top, this post will be very funny in retrospect and I'll have a good laugh at myself.

My point is this: some people, blinded by their political views and ideologies, are hating this major rally (I'll be bold and call this a bull market). The irony is that, from a sentiment point of view, the angrier the so-called smart money gets at this rally and the longer it sits it out, the greater the odds that the market will keep marching upward. As a fellow technician said about this bull market, if it looks like a duck and quacks like a duck, then it's probably a duck.

Can The Deficit Be A Good Thing?

The Dash of Insight blog makes the contrarian point that there is an alternative take on the looming US budget deficit crisis: namely that there won't be one.

Monday Morning Sarcasm

In a stunning reversal, Paul Krugman admitted today that Big Government, far from having helped us "avert the worst", as most people assume, actually made the economic situation worse. Ronald Reagan, it seems, was right when he quipped that "government was always and everywhere a problem".

The Nobel Prize laureate is now convinced that, had the federal government not enacted the stimulus package, saved the banking system and opened the monetary spigots, in other words, if the government had done what the great Hoover administration did in 1929-1930 (which is...nothing), things would be infinitely better by now.

The Trend Is Your Very-Hard-To-Read Friend

As Marcel Link says in his excellent High Probability Trading:

"A funny thing about trading is that what one person sees as a strongly trending market another person sees as an overbought market that is ready to reverse."

That is true on so many levels. First, most basic and most confusing, different indicators on different time frames can give you a totally contradictory read on the market. What appears to be a clear uptrend on a 30-minute chart, say, with rising Stochastics and rising moving averages can, at the very same time, look like an equally convincing downtrend on the corresponding 5-minute chart with falling Stochastics and falling moving averages.

The easiest explanation for this phenomenon is that it could be a quick correction within a larger upward move. If your trading time frame can be counted in hours or even days, the fact that the market or instrument you're long is crashing on the 5-minute chart should be of little relevance. What's happening on the 30-minute chart, on the other hand, matters a great deal. By the way, I'm dispensing with charts, mostly out of laziness but also because I'm trying to think this through in a general, almost abstract way.

I guess another way to understand Link's statement is to realize that the trend - or any visual conclusion one can deduce looking at a chart - is in the eye of the beholder. This goes back to the fact that classic Technical Analysis - by which I mean charting, visual pattern-recognition and more generally non-quantitative, non-systematic TA - is subjective, an art rather than a hard science. [As an aside, that is the kind of TA that is largely loved, utilized and respected in the TA community but reviled and ridiculed in the academic and fundamental analysis communities.]

Indeed, you and I could be looking at the very same chart, same time frame, same indicators, same trend lines and yet come to wildly different conclusions. It could be because you and I have more or less conscious and acknowledged preconceptions about where the particular market or instrument we're looking at is headed, preconceptions that may be based on factors unrelated to the chart at hand. It could also be because we are very different people personality-wise, we have different psychologies and worldviews. Let's say I'm a congenital pessimist, a glass half-empty kind of guy, the kind of person who stops at green lights because, hey, they eventually and inevitably turn red so I might as well stop now (not that I actually do that). And, for the sake of symmetry, let's assume you're a sunny optimist. A strong, lasting, robust trend with nicely up trending moving averages and trend lines, and rising, just-a-tad-oversold oscillators, will spell doom to me and an all-clear to you.

Op-Ed Dudes

Frank Rich and Tom Friedman sometimes veer off course in their NYT op-eds, the first leftward, the second rightward - if these terms still mean anything to anyone - but today they both wrote unsentimental, pitch-perfect, fact-based pieces on Gates-gate and the Settlers problem respectively.

High-Frequency Trading: Bad

Doesn't it seem like every day, there's a new negative article on High-Frequency Trading? Blogs, newspapers, magazines, everybody has joined in the fun.

Maybe it's because this is a slow summer, news-wise. Besides Iran (already old news), Michael Jackson's death (he's still dead), Gates-gate (getting stale by the minute) and Nicolas Sarkozy's stealth heart-attack, not much is happening. Thus the appeal of a trading style nobody understands or has even ever heard of (never mind that it's basically automatized day-trading), therefore making it the perfect villain, to be blamed in advance for the next crash.

What's more surprising is to read a quantitative finance guru, Paul Wilmott, contribute to the discussion with a simplistic, sensationalistic and pretty mindless article in the New York Times where he concludes with the following platitude:

"Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects. Maybe it had a product that you liked the look of, or perhaps a solid management team. Increasingly such real value is becoming irrelevant. The contest is now between the machines — and they’re playing games with real businesses and real people."

That's pretty rich coming from a guy who had a hand in designing many of the very algorithms he's criticizing and in educating many of the people running them.

Charles Darwin Vs. Adam Smith: A Clash of Narratives

In a recent New York Times thought-provoking article, economist Robert H. Frank submits that 100 years from now, most economists will cite Charles Darwin instead of Adam Smith as their discipline's founder.

He reasons that Smith's famous (or infamous for some, these days) "invisible hand" theory is but a special case of Darwin's "survival of the fittest" theory, which provides us with a much better model for how the real economy works.

According to Adam Smith, "when greedy people trade for their own advantage in unfettered private markets, they will often be led, as if by an invisible had, to produce the greatest good for all." In this narrative, competition spurs innovation which in turn benefits society at large.

In Darwin's theory of evolution on the other hand, "competition favors traits and behavior according to how they affect the success of individuals, not species or other groups". This competition to improve individual fitness sometimes benefits the group, as for hawks whose eyesight has improved over millions of year benefiting both individual hawks and the hawk species at large. In this case, Darwin's narrative closely mirrors Smith's. But in other cases, "traits that help individuals are harmful to larger groups", as for elks whose antlers have evolved into grotesquely massive and complex appendages, helpful in attracting females and fight other males but quite a handicap when running away from a predator in a dense forest.

As Frank points out, "in Darwin's framework, then, Adam Smith's invisible hand survives as an interesting special case. Competition, to be sure, sometimes guides individual behavior in ways that benefit society as a whole. But not always."

In Darwin's world, we can never be sure that individual and group interests are aligned. Fitness for an individual in a given situation can spell extinction for the group. Similarly, survival for a group can spell extinction for the population as a whole.

Finance, it appears, lives in a Darwinian world, not in a benign invisible-hand-controlled Smithian one. What better illustration of that point than the recent financial crisis? Each participant in the whole subprime mess was really acting to maximize his or her profits given the regulatory, political and economic environment he or she was in. Unfortunately, acting that way wrecked the financial system as a whole so badly it might be extinct as we speak if not for massive government intervention (the jury's still out on the level of damage that has been done and the longer-term consequences).

Laying it on a Little Thick

Paul Krugman, whom I otherwise admire, is laying it on a little thick these days about how he was right all along in predicting the inadequacy of the fiscal stimulus package. He's also very proud of the fact that he was also right about the political ramifications of that inadequacy, namely that, should the stimulus plan prove too timid, the Obama administration won't be able to go back to an already reluctant Congress and ask for a second round of fiscal stimulative medicine.

I don't know about you but, to me, this whole line of reasoning sounds unhelpful at best, conceited and a bit disingenuous at worst.

First of all, announcing the stimulus plan before the Inauguration and having it passed a few weeks into the new presidency was itself a political, psychological and economic coup. It gave the country a much-needed psychological boost that translated into an unexpected and welcome rally in all assets (T-bonds excepted of course). Even if you ignore its effects on the financial markets (which Professor Krugman often dismisses as irrelevant), the plan also had an undeniable effect on the economy: the "green shoots", while a little overrated and maybe temporary in nature, were real enough.

Second of all and more importantly, the stimulus package is back-loaded, meaning most of its effects haven't been felt yet. In other words, it's way too early to pass judgment on it, especially when, according to the Government Accountability Office's report released two days ago, less than 10% of the $787 billion has been spent.

There is no need at the present time to start lobbying for a second stimulus package when the first has just started working its way through the economy and when many people are doubting its very efficacy.

Bye Bye Green Shoots?

After yesterday's dismal employment report, pundits have started pronouncing the green shoots mantra dead and buried. Technically though, things are not that clear. Even after yesterday's brutal sell-off, we are still above significant support areas. As can be seen in the chart above (click to enlarge), the S&P500 might be in the process of forming a Head and Shoulder formation (the neckline is the blue line in the chart) but for the (bearish) H&S to be completed, the index would have to break 888 decisively. And even if it does, there is still that line-in-the-sand support above 875 to contend with (orange line in the chart).

So, granted the momentum has turned quite drastically and there are a lot of scared bulls out there as well as highly motivated (and well-capitalized) bears, but the war between those two groups is still going on and the outcome is not yet clear.

Time Correction

I often post about Michael Santoli's weekly Barron's column, usually when I disagree with him (otherwise what's the fun?). This week, however, I actually agree 100% with the point he's making that, rather than a regular correction (a percent or a point correction), we might get a "time correction" in which "sideways action rather than sharply lower prices digest the gains."

Systematic Trading

I'm reading a pretty fascinating book, Profitability and Systematic Trading by Michael Harris. It strikes a good balance between basic and advanced stuff.

As befits a systems guy, Harris strongly rejects the notion that the market is some kind of independent entity above and beyond its participants. According to him, "any attempt to assign a special or absolute quality to the word market, other than the fact that it is the collection of its participants, is a distortion of reality and may eventually lead to false trading or investing decisions."

It is true that many traders (and most discretionary traders) have an almost mystical relationship with "the market" and when they watch intensely those wiggles on the daily (or the 5-minute) chart, they see (or think they see) more than the end result of different trades coming from different market participants. They almost see a living organism going this way and that, and try to anticipate where the wild beast is going next.

1930

There's a blog (News from 1930) that posts a selection of articles from the Wall Street Journal from each week 79 years ago.

One bullish article from June 1930 made the following point:

"Historically there has been no case in this country since 1900 when business failed to turn upward the year following a depression."

The implication was that, since the depression was over, as almost everybody thought at the time, business was bound to do better sooner or later. A 3-year depression was not even considered a possibility.

Line in the Sand

The market is in correction mode, that is now a fact. How low can it go before this ceases to be a correction and turns into something more ominous?

I think the 875 level on the S&P500 (shown in the chart above-click to enlarge-in orange) is extremely important for the very simple reason that it has proved to be quite a formidable resistance on the way up. Indeed, four attempts were needed to break out of it: on January 28, February 9, April 17 and, finally, success in early May. It then acted as support when the market wavered in mid-May.

So any decisive move below 875 should have us legitimately make arrangements for a proper burial of the bull move off the 666 low.

Yes It Is a Big Deal

Not to pick on Michael Santoli - because he's one of the more perceptive guys on the Barron's editorial staff - but he's been a pretty reliable contrarian indicator for the past year or so.

His latest column, wondering "Is Big Runup That Big a Deal?", should therefore be added to the bearish side of the sentiment ledger.

If, as we stay range-bound, more and more people come out of the woodwork and declare the 40% bull move we've had since March "not a big deal", "absolutely normal", "a prelude to things to come" or words to that effect, the odds of the market breaking down rather than out will increase markedly.

Bush v. Gore and the Great Recession

Two days after Bill Fleckenstein's misguided rant about Paul Krugman and as if to indirectly respond to and successfully demolish it (the rant), the latter produced a great column in today's New York Times.

Krugman basically tells us that, would Bush v. Gore have gone the other way in 2000, a lot of things would assuredly have been different but probably not the financial crisis. The seeds for the Great Recession of 2008 were already planted. The Democrats would've been blamed for it instead of the Republicans, that's all. Case in point: the UK, where the labor party in power the past 10 years embraced deregulation just as lovingly as the Democrats under Clinton and the Republicans under Bush and is now getting blamed big time by the British electorate. The Tories are almost assured to return to power in the back of an unprecedented wave of discontent, a prospect Paul Krugman finds appalling, but that's another story.