The Market Ticker
Commentary on The Capital Markets- Category [Musings]
2014-08-25 10:38 by Karl Denninger
in Musings , 382 references

Consider this rather-broad topic: How close to perfect does your life have to be for you to be happy?

It sounds like a rather odd question, but it isn't.  Think of your daily life and how many decisions in this general vein you take.

How close to perfectly-manicured does your lawn have to be?  There is an enormous difference in personal cost, whether you spend the time or you spend money, between a "perfect" (or nearly-so) lawn and one that is a couple of inches too long and somewhat ragged for three or four days out of every couple of weeks.  It could be three to five times as expensive in either time or money to have one over the other.

How close to "neat as a pin" does your household have to be?  Again, there is an enormous difference in personal cost between "lived in" and "picture-perfect."  The latter could easily require, for many people, the hiring of a maid -- the equivalent of putting an hour a day, every day, into cleaning.  Double that if you have one or more kids, incidentally.

How close to perfect does your experience in a restaurant need to be?  If the food is great and the drinks nicely-made and to your liking, and you're with someone you like, if the waitress forgets about you toward the end of your meal and you wait 15 minutes for the check what did you actually lose?  Let's assume you didn't have a business meeting you had to be at; you were headed home afterward.  Did you really lose by that or did you gain another 15 minutes with someone you enjoy?

How close to perfect does your car have to be?  You "need" a new one every 2 or 3 years?  It'll cost you twice as much to operate it, on balance including insurance and depreciation, as something older.  Of course it looks nicer and has bluetooth and all the other pretty-pretty things -- but does that define your happiness?

Think about it folks.  You make thousands of these decisions every single day.  There are people who have an utter ****fit over the position of the toilet seat, or whether the TP roll comes off the front or back.

How much of your own "happiness" -- or rather, the lack thereof, is about the unobtainable?  How much of that drives your "need" for "more" and thus, at the same time, leads you to acquiesce to what's going on around you, such as what I talked about in my Sunday missive?

I had quite a reputation as a five-alarm bastard in business when I ran MCSNet and it was deserved.  I don't apologize for that; business is business, and you never get anything you don't negotiate for or place on the table as an expectation.  I don't think anyone else should apologize for it either in that context.

But do you really want to run your personal life that way?  These choices make an enormous difference between going to bed with a smile and not, between being*****ed off and disappointed and being content, bemused or even pleased.

Consider this perspective -- are all those imperfections really imperfections at all?  Or are they like colors in a photograph?  We all say the grass is green and the sky blue, but anyone who shoots pictures (or worse, video!) as a serious hobby or more knows that's an oversimplification and not the case.  Indeed, you can take two different cameras and shoot the exact same thing at the same time in the same light and the colors in the image will be slightly different.

It's easy enough to call one of those pictures "right" and the other "wrong."  You can even be technically accurate in doing so; hold one up against the original subject and it is closer than the other.  But given that photography is, for the most part, an art, is that a correct view?  

That depends on your perspective and goals, doesn't it; is your goal a perfect rendition or is it to produce something that pleases you -- or your client?  

Whether removing a building from the background of an image is "wrong" after the picture is taken depends entirely on your perspective; for a portrait it almost-certainly is not, while if you're a reporter it almost-certainly is! 

There are times to go to war in one's personal life; if you're being abused and/or harmed, have at it.  That's not only justified it's what you should expect, including from those around you that you claim as "friend" or better.  But if you do it every day, internally or externally expressed, whenever something isn't either "perfect" or "excellent" you're going to spend a lot of days (and at least as important if not more-so, nights)*****ed off and unhappy.

I choose, for myself, to look at the 15 minute delay in the restaurant as having another 15 minutes with someone I enjoy, albeit at a bit of a personal cost in that I might have had those 15 minutes for a date with my pillow instead.

Yeah, it's still probably worth a docked tip line on the check, and it might be worth speaking with a manager.  After all, the next guy behind me might have a business meeting that he's late for, even though I did not.  And I will certainly intervene to prevent it if that delay will mean missing the start of the play or concert we are headed to.

But it's not worth wrecking my day, just as it's also not worth wrecking my day if the grass is a bit long, there's a speck of dirt on the car or my house is lived in rather than picture-perfect and there are a few coffee grounds on the kitchen counter.

Choose wisely; you only get one life and there are no "do overs."

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I've posted a handful of locked-comment Tickers lately (yes, I still do add features once in a while to the software, and this is one of the recent additions -- the ability to pre-lock a submission so it's read-only.  Fancy that.) and have had a couple of people ask via an invite-only BBM channel I set up "what's dat."

Well, here's part of it.

Derivatives that helped inflate the 2007 credit bubble are being remade for a new generation.

JPMorgan Chase & Co. is offering a swap contract tied to a speculative-grade loan index that makes it easier for investors to wager on the debt. Goldman Sachs Group Inc. is planning as much as 10 billion euros ($13.4 billion) of structured investments that bundle debt into top-rated securities, while ProShares last week started offering exchange-traded funds backed by credit-default swaps on company debt.

Here we go again.

At their core these instruments are frauds because they are essentially counterfeiting of the currency.  So are "ordinary" loans the way banks actually make them, along with government deficit spending.

We don't call it counterfeiting nor do we prosecute it as counterfeiting, but we damn well should because that's what it is.

These "instruments" spring up when you can't find enough suckers, er, borrowers for conventional counterfeiting.  You thus are compelled to obfuscate things to a greater and greater degree, along with piling leverage upon leverage.  It's a scam because the person on the short side of the trade doesn't have to post up enough actual money to cover the position.

If you remember back in 2007 I put forward a simple solution to all this chicanery: No off-exchange, "private" derivatives or other instruments -- everyone has to post margin in actual funds every night.

See, you and I have to do that.  If I trade on margin my account is balanced every evening against the value of whatever I have open, and I had better have the available securities or cash on deposit to cover anything that's underwater.  If not then my phone rings and I get the dreaded margin call, demanding cash right now, by wire, "or else" (with the "or else" being the liquidation of my positions.)

But we don't enforce that across the board.  We still have properties in the "marketplace" that banks are holding and not selling ("Zombies") because they can't get a bid for the amount of the outstanding note on the property.  By refusing to sell they are claiming the property is worth more than any offer they can receive for it, which is a factual fraud; anything is worth only what you can sell it for to an arms-length buyer at that instant in time!

This is an out-and-out scam because the liability on the other side of the balance sheet is a known figure and yet to mark the asset to the market means that the institution would have to have the difference in real funds either as retained earnings, proceeds from sold equity or actual funds borrowed from someone else.

Business cycles are not something new and neither are the risks associated with them.  The frauds are not new either, but the reason we keep seeing them is that they go unpunished; alleged "enforcement", "regulation" and "supervision" are nothing more than a bad joke.

Back in 1998 I saw the same things building at an outrageous rate.  It took another year and change before it all blew up, but the outcome wasn't in question.  The only question was whether you could withstand the blast if you were in the middle of it, or whether you could get to minimum safe distance first.

Likewise, in 2007 the same crap was blatantly apparent if you decided to actually look.  Washington Mutual's "decision" to pay dividends with money they did not have, claiming "earnings" that were in fact capitalized interest and paying some of that out to shareholders, was just one of the more-visible aspects of this.  The firm failed and "nobody saw it coming" simply because nobody cared to look.

Now we're seeing the same thing, and what Bloomberg argues in this puff piece is that it's happening because of "central bank repression."  Nonsense; it's happening because there is no demand for ordinary counterfeiting-by-lending at a level sufficient to keep the fat guys in slop at the trough so they invent ever-more-clever means of robbing one another by claiming value that does not actually exist.

The problem with these sorts of schemes is that like all oscillations fed with energy during each swing the amplitude gets worse in each following iteration.  2000 was kinda crappy, 2007/08 was awful and how far out from that last event are we now, with an even higher amplitude bubble having been inflated from the last time?

That's what I thought.

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2014-08-09 21:17 by Karl Denninger
in Musings , 374 references


Just askin'.....


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