While Mr. Cramer identified the issue, this Analyst argues here’s one of several ripe opportunities to prudently “divert” the $161 billion (House only approved) stimulus resources to instead something substantively beneficial to the U.S. economic security. Redirect the $161 billion (i.e. the $600 one day “Wal-Mart shopping spree”; given the “Made in China” product concentration, most money then goes to main supplier – China, ironically the real source/cause of the original problem) as the sourcing funds to buy-out/bail-out the bond insurance business, which restores confidence/certainty and ends the crisis.
Unfortunately, a bail-out also bails out the rating agencies. So who then gets penalized, if the crisis is bail-out/buy-out averted? A learning lesson price certainly needs to be paid (by someone), to ensure a similar situation never arises again.
Analyst Note: There remains a serious issue as respects the rating agencies oversight due diligence and their linkage to the overall problem. Where were they over the last few years to identify and stem this problem before and/or as it emerged? Their prior and current reluctance to now downgrade the likes of AMBAC and MBIA, if required, while stemming a bond insurance industry and resulting economic/equity market collapse, also beg the question then “what purpose do they really serve?”. Clearly in their role as the watchful eye, they missed the problem.
Question(s) – Given the bond industry’s (economy) backstop aspect so to speak, does this industry require greater scrutiny than what rating agencies currently provide? Do the rating agencies (S&P/Moody's) require greater formal separation (e.g. “Chinese Wall” relationship) from those companies they analyze/evaluate (e.g. AMBAC, MBIA)? Does the industry require regulation? Should the SEC receive greater powers and new regulatory control over this industry? Given the scope and potential broad economy ramifications of the current crisis situation, and to avoid a similar future fiasco, this Analyst would indeed argue yes to all.
As to why Mr. Bernanke supported the stimulus in his Congressional testimony, or rather did not denounce it, the (stimulus) plan simply provides more air cover for his covert counter-Commulism game plan. “Cramer at al” wanted a pre-Jan. 31 Fed meeting “growth (recession prevention) oriented rate cut”, which would interfere with Mr. Bernanke’s grand de facto China plan. Paulson’s stimulus plan thus gave a temporary bone to the media mob crying for an emergency rate cut, thereby providing Mr. Bernanke needed breathing room to stay on plan and avoid knee jerk rate cuts. Or so he thought, until Societe Generale unexpectedly entered the picture.
Analyst Note: Even though the stimulus resources are not Fed money, Mr. Bernanke should still have however prudently argued this stimulus money be re-directed to address the bond insurance crisis or other countering aspects of Commulism. Perhaps he was being a bit to stealthy with his own China plan. While his de-facto anti-Commulism plan is correct, he still must factor in other economic hiccups, like the bond insurance crisis, which could derail his own bigger picture objectives.
Unless of course, Mr. Bernanke saw the stimulus package for what it was – a pass through to China, further stimulating its economy and exacerbating its growth and inflation, thereby further pressuring China to raise its own interest rates and indirectly leveraging up the valuation of the Yuan. Again improving the U.S. export picture, and without reducing U.S. rates.
Late Publishing Note: At time of publishing, there is some encouraging valued discussion emerging as respects a Consortium of 8 international banks (Gang of 8?) coming together to work with the New York State Insurance Dept. to explore possible solutions (likely in buy-out versus bail-out fashion) to end the bond insurance crisis. With Moody’s and S&P reviewing the bond insurers MBIA and AMBAC, and a formal decision to downgrade (from AAA) or not due mid February, this Consortium will need to move very fast to avoid that devastating potentiality (i.e. bond insurer downgrades). Other investor names like Wilbur Ross and Warren Buffet are being bandied around too with potential involvement interest. We shall wait and see what happens.
The bad news, the (politically motivated/oriented) Bush/Pelosi economic stimulus plan remains in a “damn the torpedoes, full speed ahead mode”. An incredibly imprudent, if not sinful waste of precious U.S. financial resources (taxpayer money) that could instead be strategically beneficial in the big picture fight against Commulism or other good investments. Accordingly, this stimulus decision will unfortunately come back to haunt, tarnishing both the Bush and Pelosi legacies. No comment on their individual legacies pre-stimulus.
And if not redirecting these stimulus targeted funds to instead bail out the bond insurance industry, then use them to fund the “Commulism Response Framework”. For example, redeploy them to completely overhaul, reengineer and integrate the strategically critical U.S. intelligence system, to finally match up to the threat. It doesn’t mesh or measure up at all now, as evidenced earlier. Mix in the related overhaul and drastically needed upgraded infrastructure for CFIUS (see note below re: FINSA - flawed), and connect it right into the revamped intelligence system.
If the country’s political establishment refuses to terminate the stimulus plan and not prudently and strategically redeploy the $161 billion to help thwart Commulism, then if nothing else, be it known the funds would better serve the United States and the American people as a whole, by sensibly investing them instead into the long overdue rebuilding of United States infra-structure (roads, bridges, tunnels, utilities/distribution, etc), which is crumbling. The Analyst asks “Is the front page (for a week) 2007 Minneapolis bridge collapse a proxy for the state of disrepair of the entire nation’s infra-structure and a flurry of related incidents to come?”. The Analyst would argue yes. Do you think ten years from now anyone will remember their 2008 one day shopping spree at Wal-Mart? The Analyst would argue absolutely not, particularly if they lost loved ones in the likely many more bridge et al collapses to come, caused by the negligent use of funds ten years earlier, which could have prevented these tragedies.
Bottom line, the $161 billion should be invested in the U.S., not China, whether it be in the Commulism Response Framework, bailing out the bond insurance industry or re-building U.S. infrastructure or other TBD substantively beneficial ways. Another way to look at it on a “relative basis”, the U.S. stimulus plan puts the U.S. $300 billion worse off versus China. It should be up $161 billion if the funds are invested “in” and working “for” the U.S. Based on the analysis above it’s not. Therefore, it’s lost. And the $161 billion in large part leaves the country for China. Arguably China gains $161 billion (not all but a large part). Thus an arguable $300 billion plus “relative” swing in China/Commulism’s favor.
That said, it therefore still took real courage for a Fed Chairman to sit before a Congressional Committee and agree to a Treasury Plan to stimulate the economy, when most would argue that’s the Fed’s job. On the surface, seemingly admitting he got it wrong and someone else had to do his job. Not a pleasant experience for him, but he stuck to his game plan of calculated rate cut timings. Calculated from the standpoint of a carefully planned, “throttle-up” response to China; rate cuts spread out and just large enough to avoid detection for what they are – China cuts, not sub-prime cuts.
Oil and Gold:
Since it’s front and center in all the financial media and direct linkages being made to the Fed rate cuts, let’s quickly address and be done with the oil and gold pieces, both being “Commulism Impact Factors”.
In this Analyst’s opinion, what’s driving oil prices is not pure fundamentals (i.e. supply/demand imbalances) which suggest $65-75 oil, but rather “premature speculation”, opportunistically fueled by the fed rate cuts and resulting weak dollar. On gold, it’s not fundamentally being driven by temporary power outages in South Africa mines, as many argue.
