When Men Had Balls That Clanked
The Market Ticker - Commentary on The Capital Markets
2008-04-18 08:19 by Karl Denninger , 13 references Ignore this thread
When Men Had Balls That Clanked*
 
230 years ago men with the names of Jefferson, Hamilton, Madison and more pledged their "lives, wealth and sacred honor" to give us a nation.

Over the last few months I have heard every possible excuse in the world as to why "we're doomed" from this or that from an economic (or physical) threat, and why nobody thinks that getting off their butts will make a difference.

I've even had a couple of dozen people I've sent tickers or other calls to direct action (letter writing, petition signing, etc) turn around and tell me they're afraid of ending up on some "list" if they make noise.

People are afraid of going to Washington DC or even sending a petition or picking up the phone to call their Congressman because they'll end up on some sort of "list"?

Are you kidding me?

The markets over the last month have rallied because...... corporations are lying and our government sits by while quasi-government organizations, including and especially The Fed, act outside of their legal mandates.

Yes, really.

Goldman and other banks increase "Level 3" assets by 50% and take profits from the degradation in their credit book (!) and this is met with huge market rallies.

Let's dissect Google for a second - note that I have Google's "Adsense" on this blog, and its also on my forum.

Last fall I noted that the "eCPM" that I was earning dropped precipitously (by 30%!) just before earnings were released. They then "blew out estimates" and the stock soared.

A few months later Comscore started bleating about bad numbers and they stuttered, then tanked.

Well, guess what? The last week of March it happened again. The eCPM dropped here once more, this time by about 40%. And once again Google reports a "blow out" quarter.

But is there any transparency in how they're hitting those numbers? Oh hell no. What do I see here? A nine-month pattern that has repeated twice, where the company has "hit the numbers" by, as far as I can tell, by simply changing how much it pays the people who display their ads, pocketing far more than they used to.

Now this is very profitable for them up to now, but here's the problem - my eCPM is down some 70% in the last six months. I am now getting a small enough return from being a Google "Adwords" placement target that I may drop it entirely, as there's not much point given what they're giving me, and I have little reason to let these folks effectively have placement on my sites for free!

And if I and lots of other display ad places do exactly that, how much is their "placement" worth to an advertiser? As people like me leave their ability to sell that space plummets.

A bit of careful analysis would disclose that when you go from 50 cents eCPM to fourteen over the space of nine months (and no, the click rate hasn't materially changed) that there's not much more room for that game to be run, is there?

What happens when the game ends?

Can I validate that this is how they've hit their numbers? No, because they don't give us enough color in their reports to be able to do that. But does it make sense? Yes it does, and that's a bit of a problem going forward for those who are Google (and tech in general) Bulls.

(By the way, if you're a potential advertiser in this space, your opportunity to get exclusive placement on both the forum and the blog just got a lot cheaper. Talk to me if you're interested in displacing Google for this site. Yes, I'm serious.)

Is this sort of thing common? Absolutely. Look at the financial "earnings" this quarter. Regional banks nearly all hit their numbers from profits on the Visa IPO - which was not part of the estimates, because it wasn't known when those estimates were published. That's the mother and father of all "one time" gains but boy, you wouldn't see that featured prominently in the press release, would you? Nope!

Or how about the "Level 3" asset moves? The last two quarters have seen absolutely enormous gains in "Level 3" assets - which came from "Level 2" assets, not new production.

Crooked? You decide - is it crooked accounting when a bank or other institution simply doesn't like the price its being quoted, so it stops asking and makes up a number?

Or how about all these "REO" houses that banks are sending to auction with a reserve, the reserve is not hit and they get 'em back. How are those homes "valued"? Are they counting the "value" as the high bid that they refused to accept? Hell no.

Is that crooked? You decide, but keep in mind while you're thinking about it that 97% of all homes sent out to auction in California are coming back unsold!

Our government says it is (we are) $9 trillion in debt but ignores the forward liability of Social Security and Medicare, which totals, at present, $53 trillion dollars in the mother and father of all "SIV"s.

Oh, and David Walker, Comptroller General of the GAO, the nation's "chief accountant" resigned in February of this year, after screaming for years about the accounting that our nation practices and what it will lead to. He was ignored.

Crooked? You decide.

We have $4/gas in some parts of our nation, diesel is over $4 virtually everywhere, and this is likely to continue to escalate. Why?

Because our accounting is crooked - not only corporately but nationally.

We have sat back while Morton Grove effectively banned firearms and the City of Chicago banned handguns. Never mind that the 2nd Amendment was given to us by those very same "balls that clank" men 230 years ago not so you can shoot some thug who is trying to invade your home, but precisely so that if the government goes so far out of the boundaries of reasonable conduct that no human should have to tolerate it, you can shoot them. If you disagree with this interpretation of The Second Amendment, by the way, I suggest that you spend a few hours reading The Federalist.

The intent of the Second Amendment really is rather clear if you bother to read the material.

And don't start with "the army has more guns than I do, therefore it doesn't matter." Of course the military and police have more guns than you do! They're also better trained. So what? The purpose of the Second Amendment isn't to allow you to "go postal" against the government, it is so that you and all 299,999,999 if your neighbors in this great nation can do so all at once if it ever becomes necessary.

It is this very fact that the people can exercise the ultimate check and balance on government that will keep it from ever needing to occur. Government should be afraid of the people, not the other way around, because this is how government is forced to act within the boundaries of reason, proper conduct, and the law.

But you, each and every one of you, have allowed this rampant lawlessness to go on.

You're the frog put in a pot with the water slowly being heated, boiling in the pot, and you refuse to act because you're afraid.

Or, you say, it doesn't matter what I say or do.

This is where we've gotten to as a nation?

Every time we pull into the gas station and insert the nozzle into our tanks we siphon the money out of our wallets and into the pockets of people like Lord Blankfein, Vickram Pandit and the CEOs of Wall Street banks, who have demolished transparency of accounting and caused our dollar to crater.

You will sit still for this and have another beer?

People blame "Cheney" for the high price of oil and invading Iraq to "boost his buddies" but in point of fact the remaining reason we have high oil prices that are squeezing you like a turnip is that our nation's accounting is fraudulent, corporately and nationally, and other nations have had enough of it, driving down the value of our currency. The consequence is served up upon you as a consumer in the form of higher costs for food and energy as the price of everything we import translates directly into your wallet.

You will sit still for this and have another beer?

When the Japanese attacked us on a Sunday morning in 1941 the nation was outraged. Our boys suddenly grew balls that clanked and soldiered off to kill the evil people who had done that to us. We did so without fear or favor. Doolittle's Raiders took off on a suicide mission just to prove that we could bomb Tokyo with aggregate bomb loads that they knew full well would not make a strategic difference - knowing full well they didn't have the fuel to get home, and counting on the possibility of being able to land in China. Most of those brave men either died outright or were captured and tortured mercilessly. They did it, willingly, because they had balls that clanked and wanted to tell the Japanese - you screwed up and now you're going to pay.

A few years later we dropped an atomic weapon - twice - on Japanese cities. Many today claim it was an "unpardonable act of cruelty." Oh really?

Perhaps the Japanese should have thought about the consequences of their actions before they bombed Pearl Harbor!

Fast-forward to 2001.

Evil men commandeered a few aircraft and killed more people than died on December 7th, 1941. Worse, nearly all of the people they killed were not soldiers nor were the places they attacked "military targets" - they were civilians just like you and I. Two friends of mine worked at Cantor-Fitzgerald and one of them was on one of the impact floors - I assume he was instantly vaporized in a 4500F fireball, as there never was a body recovered. A third friend of mine caught a plane out of NY the night before it happened; she missed being vaporized by less than eight hours.

Our nation once again grew balls that clank but instead of five years, these balls lasted about a month, then they turned into nerfballs that smush.

We went into Afghanistan and kicked some ass but then the panzies got their panties in a wad (as has happened since WWII - see Vietnam, Korea, etc) and we started caring more about the bad guys than our own boys. We handcuffed - again - our military. As a consequence we once again proved that America has turned into a nation of panzies - we will neither defend ourselves nor conduct our business in an honorable fashion.

Over the last 15 years insider trading has become a game that is played relentlessly to the point that people don't only trade on inside baseball they actually create fake news after trading it so to to make absolutely certain that they are right.

We have hedge funds and others who have, for example, placed huge CALL buys and then started rumors that "Buffett is going to buy X" and cashed in. Number of prosecutions or even investigations for this? Zero, up until they did the same thing in reverse with Bear Stearns and suddenly the SEC shows up.

Once.

So we have 100 scams run on Wall Street in the last year fleecing you and I and out of those 100 there's one time that the cops take a look. Gee, that's effective police work. The other 99 times they not only don't prosecute they don't even investigate!

You, at the same time, sit on your ass and swill beer. You watch CNBC and cheer. You watch CNBC anchors of both genders have an orgasm on national television when the market goes up, keeping the camera clean only because they have pants on, and cry when it goes down.

Are you*****ed off enough to to grow some steel between your legs and clank when you walk? Or will you wait until you are out of a job, your home has been foreclosed on and your job shipped off to India?

Will those balls of steel last more than 15 minutes if you do grow them?

Here's what you can do, right here, right now. No, its not "signing a petition"; its more direct, more personal, and more "real". It will also put a fork into the fuel for the fraud - money - and send a very strong signal to both Wall Street and Congress.
  • Call your Congressperson. Tell them that you have had enough, and you're going to organize your neighborhood and city to throw them out of office come November, irrespective of their political party and yours, unless they act to stop the fraud right now, both at the corporate and national level. You tell them clearly - you don't care what other issues are being run in the election - you're voting this issue, and this issue alone. Period.
  • Next, take direct action. Go to Sam's Club and buy a safe. Go to Lowes and buy a hammerdrill and 4 lead anchors plus bolts. These two items will cost you less than $200. Go home and mount your new safe to the floor. You now have your own "bank" and while it pays no interest, neither does your bank right now anyway, does it?
  • Now, on each and every payday, go directly to your bank and withdraw the entire direct deposited amount of your paycheck less $100, just to keep your account open. Put the money in your safe. By doing this you are depriving the system of the money to keep playing their game. You are staging a strike against the fraud and corruption in our financial system in a way that hurts them, but not you. Every dollar you pull out of the system like this deprives the very same system of $10 to play its fraudulent games with due to the way fractional reserve banking works. Its your money, and you're fueling the fraud. Grow a pair and take away the gas can from the arsonists who are burning up your 401k and wallet!
  • Spend within your means. Not one penny more. Pay your debts off as you can, but take no new debt. Yes, this means you have to be responsible. Fewer meals at O'Charlies or Outback, and when you do go, you pay in CASH. Tell those businesses when you do go in there WHY you're doing it - and that you will not be back with your credit card until the fraud across both Wall and Main street stops. Enlist THEM in the fight the best way possible - by threatening THEIR pocketbooks.
  • Stop playing the credit game. Stop giving financial institutions the ability to******you. Your credit card company can and will raise your interest rate on existing balances any time they want. This is documented fact. Why are you consenting to this? Stop consenting by paying cash and living within your means. Wanting a new IPOD is not an emergency. Put the card in the Bank you installed in your closet and leave it there.
  • Need a car? Buy a used one - with cash. Do you need a new car? No. Instead of a payment, pay yourself. Buy a cheap used car and when it breaks, throw it away. Drop your collision coverage - you don't need it on a cheap car - and pocket that money too. This will literally save you thousands of dollars a year.

Now let me make a prediction.

None of this will happen. Not one person in 1,000 that reads this Ticker will do it, and not one of the 50 that do take this step will enlist their neighbors to do it too.

Why not?

Because you have to actually get off your ass and go to Sam's Club to buy the safe. You have to spend 15 minutes to drill the holes and anchor it. You have to spend the 10 minutes every Friday to get the money. You have to live within your means. You have to spend the time to educate your neighbors.

You will not grow balls that clank.

You will instead sit back and whine about $4, then $5, then $6 gasoline. You will continue to whine when your job is lost just as you did when your last job was eliminated and sent overseas. You will whine when your credit card interest rate goes up and when, as the bond market sells off, mortgage rates skyrocket. 10 years from now you will whine when Medicare is dramatically cut back. 20 years from now you will whine some more when your 401k is shredded and Social Security is magically "redone" to either tax the hell out of your benefit checks or worse, simply repudiated.

You can stop it, but you have to stop it now. 1, 2, 5, 10, 20 years from now the damage will be done and we will be living with the consequences - as will our children and grandchildren.

America is a bunch of softies and we are going to get creamed as a consequence.

Don't read the Asian papers.

They "get it" and they're going to tattoo us. In fact, they've been running articles for the last two days that strongly suggest that they intend to******us standing up without a reach-around for our pleasure.

They don't need us - we need them. We need $2 billion of foreign money each and every day to keep our government running. Those nations are tired of the games and the chatter level is going up dramatically about their intent to give us a very painful economic lesson.

Its YOUR fault when - not if - it happens.

Enjoy this "rally"; when markets trade against fundamentals it does not last, so you have to ask yourself, since we're a credit-driven economy - where do consumers get the ability to take on more debt, say much less buy a house, when we're back to needing 20% down in most markets - which is where we should have been all along?

Think this is over do you? Better not read this:

"Just got off the phone with three of my top contacts at three of the nations leading mortgage lenders/banks. These programs are not selling at all. The volumes are very low. Banks are highly disappointed. The difference between a standard Fannie/Freddie (Agency) is roughly 75 to 100bps depending on the lender. Agency 30-yr fixed are roughly 6.25% with no points and Agency Jumbos are roughly 7 to 7.25%. Mortgage rates have gone up about .375% in the past few days.

For refi's, nobody wants out of their 5/1 ARM, ALT-A interest only or Pay Option ARM into a 30-yr fixed at 7.25% where their payments increase substantially. Also, in over 50% of cases appraisal are not coming in at value. For example, the loan application is taken with an estimate of $600k and the loan is an 80% loan-to-value (LTV). When appraisal comes in, the value is actually $500k making the loan a 100% LTV and there are no programs available. This is happening on a vast amount the $417k conforming loans as well.

For the purchase money folk, rates are also too high for current property values. Plus, a down payment required is 10%+. Debt to income ratios have tightened, further reducing buying power. A household wanting to take advantage of a $700k Agency loan at 7.25% must earn about $175k per year at current rates. And that only buys a $770k home, which is low to moderate in most areas in CA. Surely not the first-pick neighborhood of some earning $175k per year. That same person could have purchase a $1.5 million home with little to no down payment nine short months ago."

Any questions? Ignore this at your considerable peril - California is an absolutely enormous part of our national economy and if people can't afford to get their housing act together there, the economy will NOT recover.

Oh, and get your butt over to Sam's.

If you care about this country.

Prove to me that America still has what made this a great nation.

I dare you.

 
Main Navigation
Full-Text Search & Archives
Archive Access
Get Adobe Flash player
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.

NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.

The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.