Meanwhile, back at the office, my assistant Tonya just walked in and told me that she knows me better than I know myself, and that if I’d spend more time with her, she’d enlighten me on me. I told her she is not unlike many of the other women in my life—convinced of their numinous insight into my complexity. She then told me what to wear to several of my meetings this week, informed me that I need more sleep, and threatened to throw away my little paper phone book.

“You are the best, Tonya,” I laughed.

Then I asked why she hadn’t told me about the Greenspan comments.

“Because I don’t think they are a big deal.”

I told her I’d decide the significance of the remarks, and reminded her that I asked her to always tell me when Greenspan said anything.

“OK, fine,” she said. “Greenspan made comments on ABC’s “This Week.” He said Friday’s jobs report was awful. He is not in favor of additional stimulus. He finds it debatable how effective the current stimulus has been and is concerned about extended periods of unemployment as it erodes skills. Additionally, he sees Q3 GDP growth over 2.5%.”

“I know,” I told her.

“Well then why did you ask?”

Because I wanted to be sure we construed the information the same way.

“What is my schedule this week?” I asked.

“I haven’t decided yet,” she faded.

I turned to look and she was gone.

Meanwhile, back at the factory, I am multitasking by writing this as I speak to my press agent. We are discussing the financial news media. It had been so long since I viewed it that I was unaware of its new penchant for the dramatic—very gripping. Gone are the subtleties of fastidious reporting, replaced now with all of the grit and guts of a high-profile sporting event. The modern market buzz words—“game plan,” “discipline,” “focus,” “cheerlead,” “put the hurt on”—are just the pep talk financial players need to pump them up for game time.

Some of the commentators even fight with each other—revealing their true competitor spirits. Though currently they only engage in verbal and written combat, I can’t help but wonder (hope) if its all a slow build up to the actual physical showdown. Just imagine, in the years to come, there may be a division of the UFC that allows these people to not just argue, but beat each other up in a public format! Someone get Dana White on the phone!!

Unlike the National Football League, however, our business sport is not yet reaching a wide enough audience. Instead of beer commercials, business news media sources run local targeted advertising. Last month, one of my informants forwarded me a stunning piece of propaganda by a real estate association claiming that “on average the price of a home nearly doubles every ten years.” They actually related this over the airwaves!

As the sport of financial journalism grows, so too will the advertising base. Perhaps someday local advertising will be replaced by national campaigns by the major brewing companies.

Where exactly I fit into this commentating is yet to be determined. At this point, no one really knows what to think of me. As I continue on my mission, we will all gain clarity.

But I digress. Now on to today’s market…

Stock futures were off overnight and opened lower Monday. They continued to march higher all day long in a generally light session. The S&P pit traded contract is starting to see a return to higher volumes. Whether this is just traders returning back after August is unclear. I’ll stay on the case. The S&P ended higher 6.61 points at 1049.34 or up +.63%.

Goldman Sachs Chief Economist O’Neil was on the wire today. He assured that the economy remains in a period of recovery, and that the recession ended back in the second quarter. He also spoke to the strengths of policymakers, saying they deserve credit for their actions.

According to sources I read, the Goldman fraternity is a very highly compensated bunch. It is no wonder their chief economist is saying good things about policymakers—that is what they pay him extremely well to do.

In other sound bytes, the Fed’s Lacker says “a new regime is needed to manage Fannie Mae (FNM) and Freddie Mac (FRE).” A profound statement indeed; though it would have been far more profound 15 years ago.

And now for the pinnacle of daily intelligence. Advisory: This is so stunning you almost have to read it twice. This is definitely not being discussed on television. The New York Times reports the following:

Wall Street Pursues Profit in Bundles of Life Insurance

That’s right, as if the securitization problems in mortgages were not enough, we may have found something else to securitize. Banks will package life insurance policies into bonds that will be sold to investors. I quote:

“The idea is still in the planning stages. But already ‘our phones have been ringing off the hook with inquiries,’ says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.”

Well, as long as the phones are ringing off the hook, It must be a grand idea!

To sum everything up, nothing much changed on Wall Street today.

The beat goes on.

Federal Reserve Bank of Kansas City president Thomas M. Hoenig is out over the wires making some comments. Hoenig is one of the more hawkish (anti-inflation) members of the Fed. Next year, he will rotate in as a voting member of the FOMC.

In recent comments from Jackson Hole, Wyoming, he spoke of the need for the Fed to focus on the right timing for it’s exit strategy.

Today, he speaks to the record amount of debt we are holding, and the huge pressure on the Fed to keep rates low. Speaking to this pressure, he warns:

“As we become more confident that we are at the bottom of the recession and are moving into recovery, we must become more resolute in systematically reducing our balance sheet and raising interest rates.”

Most importantly, Hoenig said large banks are still too highly leveraged and that he expects proposals to force them to raise more capital are:

“Wishful thinking and will not be achieved.”

Leverage is useful when applied at the right time — when the probability of growth is high. When applied at the wrong time or when not reigned in at the right time,  you run the risk of no longer being able to service or restructure the debt–gambler’s ruin.

If large banks are too highly leveraged and proposals to force them to raise more capital cannot be achieved, the risk of gambler’s ruin shifts.

To an inevitability.

This New York Times article is a must read. I quote:

“In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.

While the option appears to be a quick and easy way to avoid a confrontation with Congressional leaders wary of putting more money into the banks, some critics would consider it a back door to nationalization, since the government could become the largest shareholder in several banks…
Taxpayers would also be taking on more risk, because there is no way to know what the common shares might be worth when it comes time for the government to sell them.”

To avoid having to beg for more money while being broadcast on national television, the government is carefully crafting a shift in the bailout plan. They will “stretch dollars” so that even more bank risk can be shifted to the masses. This sub plot is so obvious it cannot even be classified as “slight of hand.” There is one great trick inherent in this plan however—now you see a capitalist free market, now you don’t! With each and every new governmental “ownership stake” in private business, we creep ever closer to a socialist economy. The best ruse: they pulled the coin right out from behind our own ears!

With bailout dollars now convertible into equity, more dollars will magically appear—they have “stretched.” The pile of money is now bigger! But ask yourself, how much is a stretchy dollar worth?

The Catch
The catch is obvious: dilution. Now, the government will own a bigger share of the equity in the bank, but the equity will be diluted. This has significant ramifications for the masses. Recall when the article said, “taxpayers would also be taking on more risk.”
You are the government. Nationalized losses are your losses.

Gains for a few, losses for the masses.

Nothing changes in the markets—just the participants.

Peace

This is, in essence, the entire story of the stock market, as I have found it. Like the South Sea Bubble, the great tulip trading mania in Holland, the Ponzi swindles, and the chain letters of the depression, it is kept in motion by one thing–faith. Sometimes the chain is broken, confidence lost, the whole house of cards comes tumbling down, and we have another Wall Street crash. Then it starts all over again.
-Nicolas Darvas
Wall Street: The Other Las Vegas

A relatively quiet day on Wall Street today as the dollar rose so equities sank.

Someone mentioned that there was a meeting amongst bankers today. Of course, more important than the meeting was the press circuit. Special emphasis was likely placed on make up and less expensive clothing. After all - this bonus scandal is a bit hot right now. Best not to wear the $10,000 suits around for a while.

Supposedly, one of these guys that runs one of these banks (hint : $BAC) declared over the television that at the meeting everyone decided that “we are all in this together”.

Now that, my friends, is the epitome of irony. YOU’VE been in this together for a long long time. Unfortunately, what YOU were in on (excessive use of leverage and negligent risk management) is what brought US here. Now YOU are declaring WE are all in this together. Unfortunately most of US aren’t running around with multimillion dollar bonuses in our bank accounts. Now WE are all in it together. Why ? Because of the losses that YOU racked up through deplorable risk management and excessive leverage. Now, all of this has to be paid for by US.

And that just isn’t right. Is it?

Peace