Michael Gracie

Peter Bernstein pits Mellon against Keynes (and Greenspan and Bernanke against the tide).  The tome is shutting off the open bar to prevent the hangover.

(h/t to The Big Picture)

Editor’s Note:

Bernstein is author of two books I’ve read, The Power of Gold: The History of an Obsession and Against the Gods: The Remarkable Story of Risk. They are both quite worthy, and both certainly relevant to our “inflation ex-inflation” (quote pilfered from Barry Ritholtz) times. However, I found The Power of Gold more enlightening than the latter - Bernstein waxes poetic on the history of the metal, and concludes its worth is only in the eyes of the beholder. Against the Gods, on the other hand, won’t hit you like a Louisville Slugger unless you have some minimal exposure to elementary statistics. I’ve long since passed “Gold” on to a commodities trading friend, but Against the Gods still sits on the shelf. And if someone can develop a salient, but not necessarily completely risk-averse, argument as to why the Fed (and Congress, and the Treasury, and the rest of the Administration) should play hands off here, invariably allowing the meek to inherit (or at least take full economic advantage of) the scraps, I’ll send them my un-abused copy of Against the Gods for their reading pleasure.

Post your thesis in the comments, or put it on your blog and post a link down yonder. In addition, rationale to the contrary (why governmental bodies should step in and start paying your neighbor’s mortgage) will also be accepted, although taking that path may be fraught with risk .

Derivative headline for a derivative world.

Was discussing the same idea with a colleague just this morning…

And if another investment bank were to fall like Bear Stearns, there are no more J.P. Morgans to pick up the pieces. In addition, counting on foreign countries’ investment funds may be problematic, as many politicians balk at the fact that all but one sovereign wealth funds are from countries without a democratic system.

For the better part of a year there’s been play with banking shorts. Now there seems to be a lot of money sitting on the sidelines, persistent chatter that the bottom has been reached, and yet continued resistance towards the upside. Uncertainty is the prevailing wind.

The take over here is there are still a lot of writedowns left to go, and even more balance sheet games which will eventually exacerbate the situation. The Fed and the Treasury seem to have “blown their wads” too early. More obvious taxpayer funded/direct bailouts could create downright insurrection (or at least there are going to be a lot of pissed off renters rioting in the streets). The WSJ is correct in their assumption - there just aren’t many J.P. Morgans left to do the bailing. Then there is the offshore money. Politics aside, you have to wonder how much of it will be willing to chase financial assets of a dollar denominated nature - said assets may look cheap to them now, but may get a hell of a lot cheaper in the year to come too.

At the very least I suspect it is going to be an interesting summer.

Headlines are sometimes veiled in sarcasm.

In the world according to this Bloomberg columnist, the Fed might start raising rates again really soon.

Sure they will.

In other news sure to make you feel warm and fuzzy, pharma company Bristol-Myers Squibb discloses they’re taking a hit from investments in sub-prime mortgages. And bond insurance big boy MBIA says it’s keeping its triple-A rating. S&P has other ideas.

UPDATE: I noticed the same Bloomberg columnist was recently tooting the horn of banking stocks. Of course, anything can look profitable when the SEC endorses your smoke and mirrors approach to loss disclosure.

Preliminary conclusion…the fed won’t be raising rates by summer’s end, and I wouldn’t own a banking stock if someone paid me to hold it Japan-style.

UPDATE 2: At least the analysts are getting a clue about those bank stocks.

The Economist calls the latest move desperation. With only a week to go until the next meeting, a 75 bip cut might make an investor think the Fed knows plenty they don’t.

UPDATE: It’s funny that oil for March delivery had punched 7-week lows when the Fed made the announcement - I’m not sure how long that will last now. You’d almost think the Fed wants $5 a gallon gas.

Dow futures were off 500. The Federal Reserve Bank decided this was unacceptable, and cut rates 75 basis points.

Barry Ritholtz’s crew calls the Fed the “Plunge Protection Team.” There is little doubt now that the “PPT” surely exists.

My call for the next asset bubble? Bread. Buy now.

As an aside, Donald Luskin of Smart Money proves some financial journalists don’t have anything intelligent to say. To propose that “bears” caused a panic that made individual investors run for cover is simply idiotic (h/t to Paul Kedrosky). “Bears” didn’t make anyone borrow money they couldn’t pay back (which is the primary cause of the present situation). Second, most individual investors likely have not gotten out yet - in fact they are probably still listening to folks like UBS.

UPDATE: The Fed move had not, as of 9:00 am, had it’s intended effect. S&P futures were trading down 60 and change versus fair value, essentially unchanged from from the 4.25% Fed Funds rate world. NASDAQ futures much the same - off roughly 84. Now we get $5 a loaf bread AND decimated equity markets. Maybe the Fed was taking cues from Larry Kudlow .

UPDATE 2: B of A is another recommending buying stocks during the panic. That of course comes after they just announced a 4th quarter hammering - net profit down 95%. This is reminiscent of the earlier part of the decade, when banks were making recommendations in the face of egregious fundamentals - and we all know how that one turned out…everyone lost their shirts, and then sued.