Tuesday, December 9, 2008

FREE MONEY FOR THE TREASURY/Plan for Doling the Dough to the American People/JZJ & JZE

The one month Treasury bill was auctioned today to yield .00%MarketWatch  The 3 month bill is trading at .015%.   The 5 year note is at 1.6%.  This does not sound to me like an end to the credit crisis. I do not pretend to understand why anyone is lending the U.S. money at these rates.  But, as long as there are people willing to lend the U.S. money for a negative real rate of return and no interest, we need to take better advantage of it. So after giving it about as much thought as your average politician, and in a half serious way,  I would propose that the government should borrow a mere trillion or two extra dollars more for five years, and some for 30 years at 3%, and loan the money at  5% to anyone who claims to be having difficulty paying their mortgage or any other bill, an actual default or delinquincy would not be a prerequisite for a loan under this proposal.  No, instead, all that would be required is a living and breathing American citizen showing up at the local Uncle Sam office and just say "I need $100,000".  Internet applications could be processed for up to $50,000.      Even with a high default rate the government would make money on the spread.  That sounds about as good a plan as anything that Paulson has come up with lately.  The almost 350 billion doled out so far does not appear to have eased credit conditions.   

Fannie and Freddie executives were innocent bystanders to the credit crisis, and share no blame for anything that has gone wrong the past several years, or so they told Congress today.  Mr. Syron, formerly of Freddie Mac, was asked why he fired his Chief Risk Officer who warned about taking on the no document loans or ALT-A loans, and he replied that the risk officer was not fired because of his views on credit.  Yahoo! Finance  NYTimes.com washingtonpost.comWarning about the risk was virtually a sure path to dismissal or career suicide at best. But according to the current retrospectives being peddled by the titans of finance, no one was dismissed by any of the major financial institutions for warning about the risky loans, for there were always "other" reasons for the many dismissals besides standing in the way of those hell bent- like W- to do something no matter what.   I also think some Democrats like Barney Frank are suffering amnesia about their role in enabling the GSCs to take on more risky loans (briefly discussed in this earlier post TRUST CERTIFICATE AON BOND KTN  and in this article by the NYT NYTimes.com)  When one really makes an effort to become informed about issues, using all the tools available to citizens these days, it is difficult to accept pious and self serving declarations by politicians of either party.   I am an equal opportunity critic.  

I can not offer a reason why JZE closed at 20.61 today, up over 11% whereas the slightly higher yielding TC JZJ containing the same AT & T senior bond closed at 18.5, up 5.7%.  I do not make an effort to understand irrational behavior, but I am simply a messenger pointing it out.  As I have mentioned, I am use to irrational pricing in the market for Trust Certificates.  It was not long ago that I bought JZE at 12.5 and have since received a semi-annual interest payment.  I have decided to be a long term holder of these two TCs, until maturity or an early call of the underlying bonds by AT & T which would result in the call of the TC and payment of its 25 par value. 

My buy of the ETF for natural gas this morning will be a trade.  I am just hoping to make a couple of hundred sometime in the first quarter of 2009.  This buy was the first commodity purchased this year.  I looked at the oil ETF, symbol OIL, and it looked exactly like  someone jumping off a tall building. It hit 87 in July 2008 and shows no signs of finding a bottom having fallen to 24.55 today.  It does make one wonder about the $150 price per barrel a few months ago being a legitimate number based on supply and demand or just another number manipulated by those seeking to profit from the spike.  Demand for oil in the world has changed during the past several weeks but nowhere near enough to account for the dramatic fall in the price of oil over the past 4 months.  I am always reminded of the claims by Enron denying market manipulation of the skyrocketing price of electricity in the unregulated wholesale power market, and then tapes turn up showing how the sellers were conspiring to artificially manipulate the price, higher of course. California electricity crisis - Wikipedia, the free encyclopedia(washingtonpost.com) Los Angeles Times

1 comment:

  1. Pumping up the money supply should melt a credit freeze. The Fed chairman faces huge obstacles
    in trying to restart the credit engine and get maxed out consumers spending again. Given the
    scale of the Fed's interventions, it should be weakening the value of the dollar and setting
    us on a course toward inflation. Inflation happens when prices rise. Deflation happens when
    they fall. In this December's dark economy, falling prices for gasoline, cars, and clothes and
    just about anything would seem like a silver lining.