A quote from the evil MSN

But people keep giving him the same silly line, that it’s all been discounted, which is a variation of “it’s contained.” He says that there are more dark-matter downgrades to come and that some of the insurers of credit may find themselves in serious trouble as credits go bad. He points out that if the insurers get into trouble, then all of the credits they insure obviously will worsen.

For those who don’t know, there is an absolute mountain of paper that trades where it does only because it has insurance. Sort of like the paper that traded where it did because it was supposedly AAA, and that rating turned out to be worthless. Any AAA, AA, A or whatever rating that’s based on insurance may not be worth the paper it’s written on.

It’s a lesson that hit Merrill Lynch (MER, news, msgs) hard. Witness the subprime fallout behind the company’s sobering third-quarter earnings report. Merrill wrote down about $5.8 billion of $14.2 billion in what’s known as super-senior subprime assets — the stuff that’s supposedly above AAA and bulletproof.

When asked on the conference call if everything was marked where it could be sold, there was no answer, leaving folks with the idea that there was plenty of stuff still marked to model. And you can be sure that if Merrill Lynch has this problem of potentially mismarked paper, so do all of the brokers and probably some of the big banks. This is a huge deal. (Memo to nonbelievers: The problem is spreading, it has not been discounted and it has not been contained.)

To end on a more positive theme: If you think of the return to sanity as a positive development, there’s reason to be encouraged by Investors Intelligence’s report, which recorded the most lopsided sentiment reading in many years. Last week, bulls stood at 62% and bears at about 19%. For anyone who’s been around the stock market for any length of time, that is a clear warning sign.

Originally posted over at Ape Man

If you have been keeping awake as the talking heads drone on, you have probably heard of America’s problem with aging infrastructure. After all, we have had the levees break in New Orleans. We have had a bridge collapse in Minnesota. We have a major dam threatening to blow in Click Here to continue reading.

This post from Jeff Matthews is anecdotal in nature. Still, it is a useful reminder that a fall in the value of the dollar is not without its downsides for American manufactures. A quote….

Rohm & Haas, in case you never heard of it, is as plain-vanilla a company as they come. By “plain vanilla,” I don’t mean “low-tech” or “mediocre.” It’s just a low-profile specialty chemicals company that makes stuff you use every day—the computer you’re using to read this, for example, is using semiconductors packaged in Rohm & Haas materials—yet never think about.

Furthermore, the company’s chemicals are at the heart of not only the U.S. manufacturing economy, but the world’s economy as well, with half its business coming from overseas.

And what Rohm & Haas was saying while the aforesaid Bloomberg article scrolled across my machine, was this:

Now, as we speak, we are seeing dramatic increases with no seasonal easing in key raw materials… We now expect to see an increase in the total raw material cost for Q4 on the order of $50 million…. This is a development of the last two or three weeks.

In other words, since the surprise Fed rate cut in late September, prices of the company’s key raw material have spiked.

At least some people are trying to hold the line

This from the Financial Times via The Naked Capitalist…..

At a time when America, or at least Wall Street, needs a spineless hack as the head of a key agency, it is saddled with a credible man of principle: James Lockhart, OFHEO’s director. Yale graduate, Harvard MBA, lieutenant in the nuclear navy, risk management software entrepreneur, senior insurance executive, and former head of the Pension Benefit Guarantee Corporation. “A real hard-ass” in the words of a mortgage finance executive. It doesn’t seem as though he can be intimidated by the threat of being sent back to Plano, Texas, to work in his uncle’s car dealership.

Lockhart was appointed in the middle of last year to the directorship when there was no immediate, obvious cost to anyone of having a competent, effective regulator who actually knows what those buttons on his computer are connected to.

What is worse, his resistance to Fannie and Freddie ballooning their balance sheets and loosening their controls is reinforced by his experience in a previous job. The Pension Benefit Guarantee Corporation, a thinly capitalised government insurance operation, which charged inadequate premiums for covering beneficiaries of failed pension funds, was in turnround, as they say in Hollywood, during his tenure from 1989 to 1993. Lockhart had to clean up other peoples’ messes and one can guess he doesn’t want to do that again.

While I have been taking a break from posting, the world has been ending. There is nothing really new in that so I don’t know if I should make a point of recapping what these pages have missed. But just in case you are interested….

Macro Man says “Bloody Hell…..”

That is generally how a lot of people reacted to this week. It was the TIC data for august that had Macro Man all excited but most of the excitement has been centering on the structured investment vehicles of this world (other wise known as SIV’s). All anyone really knows for sure is that something is really wrong with the SIV’s of the world.

We know this because the Treasury department and Citigroup (the largest bank in US) have been banging heads together to try to create one big bail out fund. Seeing as how Citigrou’s own personal pet SIV demons have it on the hook for about 100 billion, the suspicion is that this is a plot to bail out Citigroup. But seeing as how even SIV’s that are not associated with Citigroup are starting to go bankrupt, I think that it is safe to say that this problem is broader then just Citigroup.

In other news, oil has almost managed to break $90 a barrel.

Some of our products are made exclusively for certain high-profile customers. In these kinds of arrangements, the customers are expected to forecast ahead of time what quantity of product they will need. The forecast does not have to be precise down the the last unit, but it does have to be in the right range Click Here to continue reading.

Great innovators are the ones who do what everyone said can’t be done. Columbus. Orville and Wilbur. Einstein. Edison.
Great idiots are the ones who attempt to do what everyone said can’t be done. Since they are so much more common, their names are less famous, though a good historian could name a few (shame on Click Here to continue reading.

I was working on some new Acer PC’s at work, when I noticed something that struck me as rather suspicious. The default profile is named “Acer User” as you might suspect, but in the Windows Directory structure, it is named “Lenovo User”. As you might already know, Acer and Lenovo are fierce competitors in the Click Here to continue reading.

I have been told that I am a fool for not investing in stocks while I am still young. They say “stocks always deliver positive real returns over any 20 year period.” They say” This hold true even if you buy right before the stock market crashes.”

I wish I could force those people to read this rant.