Somebody Set Off Fred Barnes' Klaxon Again

AWOOOOOGA! AWOOOOOOGA! Liberalgeddon approacheth!

Thanks particularly to the month-long financial crisis, Republicans are in extremely poor shape with the election three weeks away. This means the worst case scenario is now a distinct possibility: a Democrat in the White House, a Democratic Senate with a filibuster-proof majority, and a Democratic House with a bolstered majority.

If this scenario unfolds, Washington would become a solidly liberal town again for the first time in decades. And the prospects of passing the liberal agenda--nearly all of it--would be bright. Enacting major parts of it would be even brighter. You can forget about bipartisanship.

In which case he goes into wingnut mode and rails against Democrats doing horrible things like "allowing workers to form unions" and "giving equal time for liberal talk radio" and "appointing Supreme Court justices that aren't Sam Alito" and totally crazy stuff like "universal health care" and "carbon emissions caps".

You know, truly horrible things like health care that will result in gangs of Liberals roaming the post-Bush wasteland like the Road Warrior or something, waiting to show people compassion or some shit. Fred needs new underwear. He has soiled himself in an unmanly fashion. Best ending ever:

If not, we face the liberal deluge.

That's right, Freddie. We shall fall from the socialist sky like rain, bitches.

And we will wield our Humanity and Compassion like twin scythes, cutting through wingnut souls like Fred's in a manner consistant with particularly thin butter, vulnerable to bladed farming implements.

It shall be glorious.

The Pros Get Off The Rally Bus

After this morning's 400 point upwards opening (continuing the rally from 3 PM Friday and through yesterday) covering a good 1900 points or so, the Dow is flat at noonish with profit taking the order of the day. The Krug, fresh off his Nobel Prize, says the Feds' third bailout attempt may be what the doctor ordered in the short run.

“In the last six days this thing has come together with a plan that really does address the critical problem of inadequate capital at the banks (and) addresses the need for guarantees to calm the markets down," said Krugman. "We don’t know this is going to work, I wish we were sure, but this is a much better. For the first time I’m starting to feel that policy is really getting some traction on the crisis.”

Krugman said the current financial crisis repudiates the financial-markets-are-always right principle.

“A certain amount of public intervention, oversight and—in crisis—partial takeover of the financial system is something you have to do," he said. "Leaving the financial system to work things out on its own was disastrous in the 1930s and brought us to the brink of disaster again now.”

“This is not a case for socialism, it’s a case for regulation, oversight and for government-led rescues when there’s an emergency," he added. "We’re not going to go back to Karl Marx, but we are going to rediscover some of the things Franklin Roosevelt learned 75 years ago.”

Even with the new bailout plan, Krugman thinks we're headed toward a "serious recession."

"Even before the financial markets went crazy four weeks ago…there was a lot of downward momentum in the economy, and this isn’t going to reverse that. This is just preventing that from getting much worse.”

“I think this is the right thing for the immediate financial crisis, but I would say let’s have aid to state and local governments, let’s have public spending, let’s have some expanded unemployment benefits, partly because people need it, partly to put cash in the hands of people who are likely to spend it.”

And of course...hyperinflation looming. We've escaped yet another impossible trap by walking into the path of another.

The Cost Of The Rally

Many investors are convinced the worst of the crisis is now over after yesterday's massive 900+ point gain on the Dow. It's shaping up to be another great day on the markets as the Nikkei ended up a mindblowing 1,171, up nearly 15%, to 9,447. With LIBOR and TED spread numbers continuing to fall (slowly, but falling) folks have their sights set on Dow 10,000 and beyond. Ben Bernanke says that things will be getting back to normal now.

Bernanke, writing an editorial in the Wall Street Journal, did not give details of the plan, which will be announced as part of government efforts to save the global financial system from collapse after a series of U.S. and European bank failures.

Details of the plan come this morning, and the Dow is licking its chops, hoping for another big green number today. Everyone who is kicking themselves for missing yesterday's rally will be climbing in today, for sure.

But it's the "beyond" part that worries me. While a bear market rally after a 20% weekly loss was inevitable, the core economic stats have only gotten worse. The sheer amount of cash pured into the market will lead to dramatic inflation, and soon. Don't get used to that $2.79 gas, folks. Oil prices will skyrocket again, along with other commodities.

Commodities will benefit the most from the coordinated bailouts because the plans are sowing the seeds of future poverty, fuelling an already raging inflationary fire, analyst Puru Saxena, CEO at Puru Saxena told CNBC on Tuesday.

"All this money-printing which is going on all over the world" will bring "tradable rallies" until the first, second quarter of next year, but afterwards economic woes will intensify, Saxena said.

In a research note, he compared the bailouts with shots of heroin to fix the problem of an addict and said they were poison for the long term.

"It's very good to prop up the asset markets … but many, many other countries have tried to print themselves out of trouble and the end result has been a total collapse of the economy as well as the currency," Saxena warned.

"What this is going to cause is sky-high commodity prices in the next few years and a general deterioration of the standard of living and sharply rising consumer prices and a huge contraction in the purchasing power of money," he added.

Say it with me now, folks: hyperinflation!

It's coming. In doing what we had to do to save the markets, we've only shortened the next boom/bust cycle to a period of months instead of years with a massive overcorrectional force worth several trillion and increasing almost weekly as the world markets join in to bail us out. When hyperinflation catches up with us next year, we'll be finally trapped for good and there will be next to nothing we can do about it.

We have traded in the credit crisis for the hyperinflation crisis six months from now:

1. The Greenspan rate cuts after 9/11 led to a huge credit and real estate bubble.
2. Deflation from the housing depression when the first bubble popped led to massive rate cuts and an overcorrection by the Fed that failed to solve the basic problem
3. ...and led to the second bubble popping in the credit markets, wrecking banks and leading to more inflation.
   
4. As the dollar continued to weaken, it led to a series of worthless Fed actions that led to a deflationary spiral, and then the Lehman Brothers failure that collapsed the confidence in the credit markets.
   
5. Pumping trillions and trillions into the system stopped the deflation for now but assured the next President will have to worry about an even worse hyperinflationary event in a matter of just a few months.

So enjoy that rally. Buy into it if you like. Everything the Fed has touched since 9/11 has led to a worse economy down the road. We're about to take the final step down that path to Hell.

StupidiNews!

• Republicans are virulently against another $150 billion stimulus check package.
• Another round of California wildfires means evacuations for the LA basin.
• The Democrat who replaced Mark Foley? He has his own sex scandal to deal with.
• Eager to sweep Vista under the rug, Microsoft says the OS's planned successor will keep the Windows 7 name for a 2009-2010 release.
• Phillies go up 3-1 in the NL, Rays stomp the Red Sox to go up 2-1 in the AL.

Japan's Turn

And the Nikkei goes berserk, rocketing up a thousand points on Liquidity Mania World Tour '08. It seems the US has let slip details on the bank stock bailout scheme: another quarter trillion sunk directly into banks that includes a three-year guarantee on interbank lending, at last.

The planned equity investments are part of a U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp. program. As part of the deal, the FDIC will insure all non-interest paying bank deposits and new preferred debt issued by banks. The Treasury will provide a three-year guarantee of bank-to-bank lending.

Further, the Bush administration is expected to formally notify Congress that it intends to use the next $100 billion available to it under the $700 billion market rescue plan passed by Congress earlier this month, according to the source.

Treasury Secretary Henry Paulson met with top Wall Street bankers on Monday to nail down the plan for the government to buy shares in financial firms to restore confidence in rattled markets.

The evolving plan marks a quick about-face for Washington policy-makers, who until recent days had been focusing on building an apparatus to soak up bad assets from banks.

Meanwhile, the Wall Street Journal, citing people familiar with the situation, reported late Monday that the federal government plans to buy preferred equity stakes in nine top banks as part of its effort to battle the financial crisis.

The newspaper did not report how much would be invested in each institution, but said the move is designed to destigmatize government investment.

The overall push by the feds could provide faster relief to a paralyzed banking system and would put the United States more in line with Europe, where governments on Monday pledged billions of dollars to recapitalize banks or guarantee lending.

The nationalization of America's biggest banks will be under way this week. The "nine banks" will certainly include Morgan Stanley and Goldman Sachs, as well as Wells Fargo, Citigroup, and Bank of America 9can't live the biggest banks out of the largesse.) However the interbank lending guarantees that will be announced tomorrow almost certainly portend another huge rally.

Just remember who is paying for all this down the road. We've traded in one set of problems for another, and that "another" is hyper-inflation with the over $2.5 trillion we've dropped in the money system just since September 15.

Those are some big-ass IOUs we get to cover.

Your Liberal CNN

...gives us former Bush administration press flack and Moonie Times hack Tara Wall (Of Denial) to tell us 20 reasons why Obama is just like Bush, and therefore McSame should now attack Obama on that point, "point" in this case being stuff completely made up and so tortured not even the McSame camp is buying it, including such gems as these:

Abstinence: Bush expanded community-based abstinence education during his term, including a $28 million budget increase for 2009 in an effort to "Teach both abstinence and contraception to teens." Obama concurred in April when he said: "We want to make sure that, even as we are teaching responsible sexuality and we are teaching abstinence to children, that we are also making sure that they've got enough understanding about contraception."

Yes, Bush's efforts for only federally funding abstinence-only sex ed for states is exactly the same as Obama's position as stated above! Errm, wait...what about this:

Economics: Obama told reporters that he agreed with Treasury Secretary Henry Paulson and Bush's bailout package, then voted for the $700 billion plan. And despite routinely criticizing "the Bush tax cuts," Obama is now offering tax cuts of his own (although only for the 95 percent of taxpayers earning less than $250,000 a year). What a concept!

Obama wants to roll back the Bush tax cuts on the wealthiest Americans and give that money instead to the rest of Americans in the form of tax relief. Yes, many American voters will be convinced that Obama's economic plan announced today is just really more of the same Bush bromides...umm...but...

Faith-based initiatives/fatherhood: Bush is well known for his commitment to the faith-based community -- with initiatives for the poor and on fatherhood -- and he expanded the ability to allow faith-based providers a seat at the funding table. Obama, who has railed against Bush's efforts, has still found a way to embrace them, saying he would "expand" faith-based initiatives. He used his Father's Day speech to echo the president's Fatherhood Initiative.

Only the difference is Obama wants to increase oversight of these organizations, whereas Bush was using them as get out the vote operations and kickbacks to the religious right. Also, being a Christian and a father makes Obama just like Bush, so clearly McSame who is not a Christian and a father...oh wait, he is...hmm...

Global AIDS: Obama has said the U.S. must "lead the global fight against the AIDS virus." And earlier this year, he encouraged lawmakers to "Use whatever works with AIDS, including teaching abstinence." Obama has given Bush kudos for his efforts to combat global AIDS and the record amount of funding ($15 billion over 5 years) the president has earmarked for the fight. Obama said in September, "I think President Bush -- and many of you here today -- have shown real leadership in the fight against HIV/AIDS."

OH MY GOD, OBAMA ADMIRED BUSH FIGHTING HIV/AIDS IN AFRICA! That would explain the calls at McSame rallies of "Traitor!" and "Kill him!" Such horrible socialism, unlike we would ever see in America.

Health care: While they don't share similar views on universal health care coverage, Bush and Obama agree that the problem with health care is "about affordability" and there is a need to address minority health concerns with more coverage and targeting. That is why Bush expanded community health care centers, covering the uninsured and targeting urban areas, to the tune of $1.5 billion for 1,200 centers "coast to coast."

SOCIALIST! BUSH IS A SOCIALIST! I KNEW IT! I can't believe she's talking about Bush and his HIDEOUS GUILT-RIDDEN COMPASSION FOR HUMANS. God, McSame should attack on that point RIGHT NOW.

Minority homeownership: Obama adopted the Congressional Black Caucus principles "to increase minority homeownership" as it is "one of the best wealth-creation vehicles for minority families." These principles were developed as part of Bush's vision to expand minority homeownership to 5.5 million new homeowners by 2010. "Across our nation, every citizen, regardless of race, creed, color or place of birth, should have the opportunity to become a homeowner," Bush said.

SOCIALIST! GOVERNMENT HAS NO PLACE IN THE FREE MARKET (unless the free market is crashing out and bleeding all over the place and needs trillions of dollars in fiat money to fix like a junkie downing a gallon of methadone but that's perfectly acceptable, because we can't AFFORD SOCIALIST HEALTH CARE! HARRY AND LOUISE! HARRY AND LOUISE! CONTRACT WITH AMERICA!

National security: Obama voted yes on preauthorizing the much ballyhooed Patriot Act, sought by the Bush administration.

Aha! Obama is weak on national sec...wait, what? I thought he was a Muslim plant and...HE HATES CIVIL LIBERTIES AND...wait, what, McSame voted for it too? Umm...MIDDLE NAME HUSSEIN!

So, although he has been ranked as the most liberal senator by the National Journal and obviously hasn't voted with Bush as often as Sen. McCain has -- based on his voting "record" -- Obama's "rhetoric" still sounds a lot like, well, Bush. McCain might want to take that into account the next time Obama talks about another Bush term.

Oh yeah, I'm sure McSame will be able to pivot and attack Obama from the left, like the maverick he is.

After all, Obama has a Y chromosome...

Just. Like. Bush.

When You've Lost Bill Kristol, You've Lost Period

Bill Kristol revolted this weekend, but that didn't stop the McSame camp from attacking Kristol back.

Yesterday on Fox News Sunday, Bill Kristol said John McCain’s campaign has really become “a pathetic campaign.” In his New York Times op-ed this morning, Kristol went further, suggesting that McCain should “fire his campaign” and “start over.” Asked to respond to Kristol’s criticisms, McCain campaign spokeswoman Nancy Pfotenhauer said on Fox News:

Well, you know Bill is entitled to his perspective. And I used to work for Bill. And I can tell you personally sometimes he’s brilliant and sometimes he’s not. And this is one where it’s the latter category. You know, I think unfortunately he has bought into the Obama campaign’s party line.

Bill Kristol: Liberal Moonbat!

Losing By Double Digits Is Winning

Because as Your Liberal New York Times Columnist Adam Nagourney sees it as he mails in GOP talking points in today's column, Obama's friggin doomed for six reasons:

1. You know all those new registered Democratic voters are mostly lazy college kids and minorities, so they won't vote (or will be easily disenfranchised by having 20% of the voting machines working in precincts.) Five point swing for McSame guaranteed.
2. Obama's GOTV operation hasn't been tested, the newbie scrubs that they are. Five point swing on election day, easy!
3. We're due for a spontaneous, unexplained McSame rally worth a good five points for McSame in the polls. It's just math.
4. Osama bin Laden hasn't shown up to give his "Terrorists Vote Democratic!" speech yet. That'll be a five point swing in McSame's favor right there when that happens.
5. Two words: Bradley Effect. Another five points in McSame's favor because of nervous, secretly racist whites.
6. Oh, and Barry Hussein Obama is a terrorist sympathizer. Another five points. Easy.

So really, Obama's not up by double digits, he's actually down by like 20 and McSame is going to ka-ruse to a Reagan landslide, yo.

Of course, there's the reasons the Obama camp has to be confident:

1. THE ECONOMY.

But that's just me. What do I know?

Obama Rolls Up His Sleeves

Earlier today I wondered if Obama would level with the American people on the tough economy ahead, and what his specific plan for dealing with it was. I have to honestly say that I'm very impressed with his speech today which did a marvelous job of covering both. First, the specifics of the Obama plan:

Obama's specific proposals include:

-- A temporary $3,000 tax credit to companies for each new job created in the United States over the next two years.

-- Penalty free withdrawals from 401(k) and IRA retirement accounts up to a maximum of $10,000 this year and next.

-- A 90-day moratorium on foreclosures for homeowners who are living in their homes and making good-faith efforts to make their mortgage payments to banks that receive assistance under the $700 billion federal bailout plan.

-- Calling on the Federal Reserve and Treasury to set up a facility to lend to state and municipal governments, similar to the steps the Fed recently took to provide liquidity to the commercial paper market.

The plan also calls for temporarily eliminating taxes on unemployment insurance benefits and having the Fed and Treasury prepare for guaranteeing a broader range of liabilities of the banking system.

Early reaction has been very positive. Josh Marshall at TPM has the recap:

As many observers have noted, Obama faces a choice: Whether to strike optimistic tones about our future that might play well politically, or to address our future more realistically and hence make it easier to govern. Today Obama tacked towards the realistic, and used that to pivot on to another attack on Bush.

"George Bush has dug a deep hole for us. he said, in an ad-libbed line not in the prepared remarks. "It's gonna take a while for us to dig our way out."

In a particularly ambitious moment, Obama also promised to try for nothing less than a paradigm shift in the way we view our relationship to the economy, calling for "promoting a new ethic of responsibility" and for a serious bid to break our "cycle of debt."

"It's a serious challenge," he also said. "But we can do it if we act now, and if we act as one nation."

All in all, it was a very significant speech, and a very credible bid to close the deal with voters.

Change we really can believe in, folks.

The Bounciest Dead Cat Ever

Dow rockets up 936 points, or 11%.

``You're seeing finally the magnitude of the response that's necessary to restore confidence,'' said Richard Campagna, chief investment officer at Provident Investment Counsel in Pasadena, California, which manages $1 billion. ``Off the kind of decline we had last week I would look for a 20 percent move off the low.''

One hell of a rally for sure.

But what will tomorrow bring?

Did We Hit The Bottom?

Dow's up 500 plus above the 9,000 mark here at noon. One-month and three-month LIBOR rates have fallen for the first time in two weeks. So have we hit bottom? Is it Dow 10,000 and beyond to business as usual?

Don't count on it.

While most of the economic and financial damage is already done and the global economy will not be able to avoid a painful recession, financial and banking crisis (i.e. the V-shaped short and shallow 6-month recession is now out of the window and we will experience a severe and more protracted 18 to 24 months U-shaped recession) the rapid and consistent implementation of these and other actions will prevent the US, European and global economies from experiencing a systemic financial meltdown and entering in a more severe L-shaped decade long stagnation like the one experienced by Japan after the bursting of its real estate and equity bubble.

Are we close to the bottom of this financial crisis? Today stock markets – and other financial markets - will rally on the news that terrified policy makers peering into the abyss got religion and started to do in a consistent way what is necessary but financial markets will remain volatile with significant downside risks over the next few weeks as:

- details of these plans are still very fuzzy and ambiguous and with uncertain effects on various assets classes (common shares, preferred shares, unsecured debt of financial institutions, etc.);

- macro news will surprise on the downside as the economies sharply weaken and contract while fiscal policy stimulus is lagging;

- earnings news for financial and non financial firms will surprise on the downside;

- the damage done to confidence and to levered investment is already severe and the process of deleveraging of the shadow financial system will continue;

- major sources of future stress in the financial system remain; these include the risk of a CDS market blowout, the collapse of hundreds of hedge funds, the rising troubles of many insurance companies, the risk that other systemically important financial institutions are insolvent and in need of expensive rescue programs, the risk that some significant emerging market economies and some advanced ones too (Iceland) will experience a severe financial crisis, the ongoing process of deleveraging in illiquid financial markets that will continue the vicious circle of falling asset prices, margin calls, further deleveraging and further sales in illiquid markets that continues the cascading fall in asset prices, further downside risks to housing and to home prices.

It's quite possible that we've dodged the bullet to the brain, but there's still gunshot wounds to be treated, and any of the above problems could still trigger another round of panic, and if the specifics of the plans announced this weekend aren't solid and if they aren't implemented quickly, we still could very likely face another meltdown scenario.

Look what the world had to do -- another Bretton Woods style global financial agreement -- just to give us a shot at getting out of this mess.

There are still plenty of systemic-level landmines we could stumble into over the next few months. The immediate threat of a credit crisis driving us into a Depression is over. But the situation that created the crisis is still a long way away from being solved.

If anything else goes wrong, we're right back in the soup.

Obamanomics

Obama plans to unveil specifics of his economic plan this afternoon in Toledo.

Democratic presidential candidate Barack Obama plans to give a speech on the financial crisis and issue a ``rescue plan'' for the middle class, his campaign said.

``Our economy is facing its greatest uncertainty in over 70 years,'' the Illinois senator's campaign said in an e-mail to reporters this morning. ``Families who saw their incomes decline by $2,000 in the economic `expansion' from 2000 to 2007 now risk seeing deeper income losses.''

His campaign didn't release details about the new proposals. Obama, 47, is due to speak at 1:30 p.m. local time today in Toledo, Ohio. It's the only public event he has scheduled in the next few days as he prepares for his final debate with Republican nominee John McCain on Oct. 15.

Will the plan include any austerity measures? Times are tough here in the tri-state and across Ohio. Perhaps on October 29 during the 30-minute prime-time block he's bought we'll find out more about that.

Obama needs to be ready to hit the ground running with his econ team on November 5, and part of that I think needs to include leveling with the American people on the fact the party's over.

Rally Hats On

Green screens across the globe, as they say. Details are still sketchy, but a global bailout of banks with promises of "unlimited liquidity" in the US and global interbank lending guarantees in the Eurozone seem to have stopped the hemorrhaging...for now.

Major central banks pledged on Monday to pour unlimited amounts of dollars to unblock frozen credit markets, as governments around the world announced measures to prop up ailing banks.

"The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment," the Federal Reserve said in a statement.

"Funds will be provided at a fixed interest rate, set in advance of each operation," it added.

The sizes of the reciprocal currency arrangements (swap lines) between the Fed and the Bank of England, the European Central Bank and the Swiss National Bank will be increased to accommodate whatever quantity of U.S. dollar funding is demanded, the statement also said.

UK Prime Minister Gordon Brown wants to go even further, saying publicly that he wants a second Bretton Woods agreement to establish the new financial order of things, as was done after WW II.

An agreement like that will be needed and soon, which is the first really good idea I've heard a world leader propose this week. The problems: the LIBOR rates and TED spread barely budged downward this morning. Banks STILL are taking a wait and see attitude. While stocks may be taking a breather, it's going to take far more specific details to convince banks to lend, especially since there's no bound guarantee that any of the EU nations will agree on the Paris Plan.

Once again the real action is going to be in the bond markets this week (they are closed in the US and Japan today). If the LIBOR rates drop and the TED spread finally shrinks significantly, that will be an excellent sign. But banks are seeing the devil the in details, and so far the details are short in supply.

Most likely this is just the eye of the storm.

StupidiNews, Columbus Day Edition

• Paul Krugman wins the Nobel Prize in Economics (yes, that Paul Krugman.)
• The Fed also approved the sale of Wachovia to Wells Fargo this weekend.
• Mcyou-know-who vows to "whip Obama's you-know-what" in Wednesday's final debate.
• It's not hackers stealing corporate data...it's employees, a new study shows.
• Dodgers take Game 3 to make the count 2 games to 1.

Once More Into The Fray

Turns out the Nikkei is closed, but US markets are open tomorrow. Early news from Australia is that we're indeed seeing a bear market rally and bargain hunting to an extent. Dow futures are up around 3%.

But the remaining problems are still very much present. I seriously doubt we've hit bottom yet. Third quarter earnings are going to come in and really knock the steam out of things. There's a lot that will continue to go wrong before it goes right, and any other kind of shock right now, another round of near failures in banks for instance, might be enough to do us in.

All the problems we had three months ago are still there. Some measures are in place, and there may yet be some short-term recovery.

But I'm still betting on bad numbers in the future. This problem will keep unwinding and we're now all but out of options to deal with the next problem: massive inflation. Cleaning that up will take a long, long time. We're in for years of pain, not months.