iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
21,503 Blog Posts

The Safety Trade

Some of my best ideas were never captured because I was too busy being a cheap-ass, trying to get better prints. Or, I had a theory, but second guessed myself and ended up having to claw out of a fucking financial sinkhole. As much as I would love to ignore bad news and kick old/disabled fuckers into active battlefields, I must—PAUSE—here for a minute and observe what the fuck is going on.

Banks are not lending, because they do not have a reason to lend. Why lend to you, when they can buy whole books of business, on the cheap, via the FDIC? Or, they can borrow from the Fed and buy bonds— for an easy, quick, assured return.

Much of this recovery is contingent upon a sharp improvement in employment. I keep fucking waiting for it to happen. However, thus far, all I get is Obama-talkie talkie, with little results.

While it’s true, the printing of money should, in theory, devalue the dollar, hence, leading to a rise in dollar denominated commodities. But, what about the debts? Also, how do we account for European debt? All in all, the market is one big scrambled egg, with fuckfaced cooks throwing shit in the pan— mixing in onions, meat, cheese and now FISH. The fucking omelet, for Uncle Robert the Trading Robot-God’s sake, is disgusting and I want no part of it.

The latest salvo out of the Fed (raising rates) screams desperation to me. I do not see the need for the Fed to raise rates in an environment where fuckers from Ohio are living off government cheese, working at Burger King Holdings, Inc. [[BKC]] . Sometimes it’s important to think crazy; and right now, I’m off my meds.

Let’s assume the Fed knows there isn’t enough buyers for government bonds, throughout 2010. Most people think rates will be forced higher, in order to lure desperate Chinese men back into the fold. Really? Do you really think 1-3% higher is the difference it takes to attract 500 billion dollars?

I think not. This is a political relationship, completely and utterly detached and devoid from performance review.

If the government needs money, you will provide it. They can take it from you, via tax hikes; but no politician wants to do that. Or, they can trick you into lending it to them, by way of convincing the investment community that they need a “flight to safety.” As we know by now, gold is no longer a “safety” trade. It’s more of a reflation trade, very sensitive to the whims of the dollar. The only real safety trade is [[TLT]] .

How low can the market go?

I don’t know. All I know is, someone just threw a giant fish in my fucking omelet and I don’t like it. Not one bit.

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97 comments

  1. Rand

    I agree, its jobs that will lead us out of our present state. But who is listening to us? It really sucks that we shout out and no one notices. Maybe someone will… But its very hard to wait on an answer.

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  2. Rand

    Look for it to get worse, i have to tighten my belt to make ends meet, and stores will lose sales, which will make markets drop. Halt the free fall and make jobs to make our country great. this lip service obama gives no pleasure to me.

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  3. Cash Is King

    Could not agree more.

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  4. Le Fly

    Dark knight

    I did not say thay. The yield on the bond has nothing to do with demand.

    China buy because they have to not because they want to make coin.

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    • The Dark Knight

      1. China is currently buying treasuries at the short end of the curve and decreasing its holdings in the long end.
      2. Central banks may not care about the yield, but private money does. In the future the role of the central banks as buyers will diminish substantially. Yields on UST will eventually go much higher.
      3. I am not sure China will be able to afford buying too much UST in the coming decade. They’ll have their own economic problems.

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      • J

        Dark:

        They can decrease their holding all they like, but someone is going to end up with the dollars.

        People should stop fussing about external accounts. If the Chinese don’t buy the bonds and they are still maintaining the surplus someone else will after they sell them the dollars. It’s how it works, so no fuss.

        If the Chinese trade surplus falls, then the same still applies but in a smaller scale.

        Every seller needs a buyer.

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  5. Le Fly

    J

    Two things:

    With the fed out of the picture, who will buy mortgage bonds?

    And, i am buying tlt a good 15-20 points below where mr hendry tossed cash into a flaming barrel of garbage.

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  6. Le Fly

    Dk

    In 2008, investors were accepting zero yield in exchange for safety. Short treasuries is a woefully crowded trade.

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  7. Le Fly

    J

    I like drr here

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  8. Le Fly

    Moob

    I am the blogfather

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  9. Prophet Joe

    it will be a battle of who can print most in the coming weeks…the U.S. versus the Europeans with the Japanese competing for bronze. all the while the Chinese laughing their asses off whilst the Africans, South Americans and Antarcticans decide that we’re all fucking crazy

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    • The Fly

      The Chinese stand to lose the most. THEY ARE NOT LAUGHING. Not one bit.

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      • Indie

        eggxactly.

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      • mrsbuttons

        forget the Chinese. that game is over – the japanese hold most of our debt and they are totally screwed as a society and culture and economy – they are unsaveable…
        unemployment- please . who cares? corporate america LOVES the unloved unemployed..Kudlow cheers the new poverty class..and where is it written that one is entitled to a job and a house? Lean and mean be you a bank or biz…I don’t blame thebanks – I’d do the same thing…lot of these jobs are NOT coming back ever – anybody that wants a job better haul their french fry asses to China and go stand in the hot and sour soup line in Beijing.

        NYC sixteenth most miserable city in the US – Forbes..

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  10. Milktrader

    Occam’s razor. Usually the simplest explanation is the correct one.

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    • ToddinFL

      1. The excessive debt in the system has yet to be fully addressed. The govt chose to take the long term approach paying down the debt via inflation, rather than addressing the core issues straight on as they deemed it would be too much pain too soon.

      2. Households have started reining in spending in order to get their financial balance sheets in order, but this process still has room to go.

      3. Trading range markets for the next 4-6 years based on the above; but adept traders can still do well using proper money management techniques.

      4. Always reserve the right to alter your macro thesis as things unfold.

      BTW, the next generation coming (it’s big) will be the engine for the next economic boom as they form households. This coincides with my thought that we’re probably 4-6 years away from the next big bull phase.

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  11. Skogie1

    Anyone with 3 cents worth of brains knows that jobs lead nations out of recessions.

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  12. RaginCajun

    Love the front page pic with Dick Bove in the backround, ROFL.

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  13. dave

    although I do not agree with the doom and gloomers out there (Fly is not one of them), I am not ashamed to hedge. I am VERY long and believe the SP 500 will print 1200 in the first half of 2010. But there is something to this theory of Mssr Fly. Long bonds are oversold in my opinion and will rise for the benefit of the TLT. Therefore, I am on board.

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  14. The Fly

    CAAS eating “Toyotos” lunch, apparently.

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  15. StocksRider

    Fly, I know how you feeling! To further complicate this whole FDIC-selling-lending businesses-to-banks-as-long-as-banks-show they-have-surpluses shit, FDIC is soon going to be selling bonds of failed banks – http://www.bloomberg.com/apps/news?pid=20601087&sid=aTgY_DY33TIk&pos=3. I don’t know how that impacts the markets but surely there may be competition to the regular bonds and treasuries? Beyond that impact, what do you think a possible impact could be on markets? Isn’t it better than the selling lending business shit?

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  16. The Fly

    It will take awhile to flush out all of the weak banks.

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  17. TA

    Seems to me that you are overthinking this.

    We are in a cyclical bull until we are not. The market is great at telling you when its time to change.

    In the meantime follow your strategy that’s been working so well for you. Play various picks based on your thesis, sell at the hybrid score over 3, buy below 2.20.

    Its boring but it works.

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  18. lindsay

    Thank you

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  19. Bobby Boucher

    Certainly feels like the line of least resistance is shifting from up to down;

    During a 9-wk stretch from the end of November ’09 into the January ’10 high the Investor’s Intelligence survey printed a lower % of bears than it did at the top in October ’07

    US equity mutual fund managers (arguably the worst market timers in the world) are all in. As of the end of December ’09 they were holding only 3.6% of their assets in cash and cash-like instruments. Have to go back to June ’07 (3 months before the last major top) to find a lower print. And even at that June ’07 was the lowest in several years at 3.5%, only 0.1% below the December ’09 print

    Number of new lows is expanding with each pullback and the number of new highs is contracting with each rally

    The 50-dma and 200-dma on each of the major indexes are converging and on their current trajectories will complete a death cross within the next 3 months

    All that being said, I think this developing downtrend will be mild (especially compared to ’07 to ’09) similar to what 2004’s downtrend was like. The big picture indicator which is the spread between 2-yr and 10-yr Treasuries is still very wide. Once we get past this mild downtrend (6 months is my thought) it will be a long only market again.

    fid

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    • mrsbuttons

      this is called the blind leading the stupid -why waste your time trying to figure this shit out? What have you gained if you do? X has to be in place in order for Y to happen the probability of which is zero. A few ill placed words off a teleprompter would blow your theory to shit anyway. You wanna know what’s gonna happen? Go ask Uncle Goldman.

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  20. dragun

    Great comment Fly,

    I was much too early to the low beta game and gave up some returns, but hey leave some on the table for the next guy I guess.

    This next sell of just sets the stage for a ramp up again after the “flight to quality” and will be repeated many times until 401k and investment accounts are loaded with treasuries and investors screaming for mercy saying “well at least I get my money back”. That will be the true point of capitulation, when there is just a complete disgust for all investments considered risky to the uninformed. The as Cramer says “back up the truck”.

    In the meantime, just trade this market and take what the tape gives you.

    Never doubt The Fly he has proven to be a exemplary Taoist.

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  21. Indie

    putting all your eggs in the service industry basket (because it offers the high paying jobs all us wants) while destroying the MAKING industry (because we want all our shit cheaper) is sure recipe for disaster.

    How are you gonna MAKE jobs when your country doesn’t MAKE shit anymore?

    Hell is where everybody’s a fucking lawyer and/or a doctor.

    i’m afraid we’ll have to have inflation BEFORE the jobs come back. it’s just a hunch… but maybe just maybe the way out is going all bizaro freaky shit and go protectionist. regardless of all the things they thought you in school.

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    • JakeGint

      Sigh.

      There’s still PLENTY of shit made in America. The problem is, it’s mostly made by machines (that which is not software, that is).

      Productivity is what counts, luddites!

      _________

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      • Indie

        Productivity!

        i’m all for it.

        I wouldn’t smash the machines. but the singularity isn’t THAT near.

        Our machines are sold out liquidation price to where they have the cheap labour to operate them. Soon we won’t even know how to repair them, heck.. design them anymore. we’ll just buy the products made from them. and when the money we made we’ll have run out we’ll simply borrow more… from the ones actually working and making things.

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        • JakeGint

          That’s simply not true.

          Just because we’re not making wool blankets and wire baskets does not mean we are not making increasingly sophisticated products.

          Including Toyotas, ironically enough.

          ________

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      • MOOBS

        Capt. Solow!

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      • Pensioner

        Fuck productivity. Automation is what killed off this country. Bring back all
        our troops from abroad, put them on our boders, and allow only EMPTY trucks,
        trains, planes and ships to enter the USA. Those with cargo can leave.

        Then cut off unemployment compensation.

        You would see unemployment vanish overnight.

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  22. The Fly

    You know it’s a fucked up world when your two choices are rapid inflation or total collapse.

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    • JakeGint

      Which do you think Mr. Printing Press will choose?

      ___________

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    • The Dark Knight

      Private sector is deleveraging = people are not taking on new credits and banks are not willing to lend to everyone. Unemployment is still high. I don’t see short-term threat of inflation disregarding QE. By the end of this year, we’re likely to see an increase in food prices, but this will be compensated by further drop in house prices.

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      • JakeGint

        To the Stagflation mobile, Robin!

        ___________

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      • mrsbuttons

        food inflation at end of the year?…you obviously do not haul ass in Walmart in your household..ask the little woman.Walmart’s Great Value is like the number one selling brand in US right now for good reason it’s cheap..I can remember when jello pudding was four for a dollar – now it’s 1.19 each..folks – thats 15 cents worth of corn starch and sugar..sugar is going up cause of the damned ethanol

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    • J

      Those aren’t mutually exclusive, you know.

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  23. Fish Nuts

    We can dance, we can dance
    Everybody takin’ the cha-a-a-ance
    Safety dance
    Is it safe to dance
    Is it safe to dance

    http://www.youtube.com/watch?v=HcOZ6xFxJqg&feature=player_embedded

    Also not a big fan of the fish in the omelette.

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  24. dave

    Everybody prints money to maintain the status quo. It is a global clusterfuck. Most sink with the ship, but the survivors freeze to death in the lifeboats.

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    • J

      I’m not sure that’s necessarily the case. We don’t know yet if the QE is too low, too high or just about right. Fuckers can speculate all they like but you do need QE, or rather it can at times help divert deflationary pull. We really only know post.

      US QE hasn’t been that high actually from the CS figure i saw. The UK’s QE has been much bigger as a % of GDP.

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    • mrsbuttons

      nice metaphor …kinda like somedays you’re the iceburg other days the minton in the state room.

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  25. The Dark Knight

    So you expect the government to scare people out of equities and commodities in order to attract buyers for treasuries. In the same time you admit that higher yield is needed for harvest 2010 to be sold. The worst case scenario for equities would be private money going in to treasuries for their higher yield, reducing the overall risk appetite and sinking stocks. Historical correlations exist to be broken. Treasuries and stocks could decline together. The big winner will be Gold in this case.
    There will be short term declines in the stock market, but in the end of the day the FED can print money faster and longer than anyone can remain solvent. At some point this year, QE will be back in full force.

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  26. J

    Fly:

    You make reasonable points.

    Frankly things do look a little sick to me, however I may not know how it comes out but I don’t buy the Hugh Hendry trade, as what’s going now is not what happened in japan.

    The Fed raised the discount rate, but it doesn’t mean they have raised consumer rates.

    I’ve been thinking about that bank lending situation and frankly it’s hard to really get a grip on it but I think a few things are going on.

    There are masses of bank reserves sitting with the Fed but the banks are not using it simply because there isn’t much demand for private credit. I don’t think it’s because they don’t or can’t lend. There is little demand.

    The other thing to consider is that there was a mass of new equity that hit the market last year that was readily taken up, which i think has the effect of displacing lending. Firms raised the new equity, paid down some of their debt or at the margin don’t need to go to the banks cap in hand asking for loan rollovers.

    There is also a flow of funds argument too. Loans are getting written off, partially repaid and whatever from the previous boom while new lending takes place at a smaller scale having the effect of lowering credit needs.

    I think the Fed’s action served a few things like telling the market (without really hurting it that) it is very cognizant of its concerns regards to inflation and that it will act when it has to but it didn’t want to hurt the fragile economy.

    Europe is a fucking problem, however I’ve maintained for the past year that the biggest hindrance to the level of recovery is the forex market. Europe and Japan must do loads more QE.

    Not sure where all this comes out, however those are my views.

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  27. J

    As for new hires… the 96 election was fought on a jobless recovery and it was 4 years away from the recession.

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  28. Ozark Hillbilly

    I think The Fed was pretty much just following the recent trend of rates with it’s hike. That’s all those assholes really do. They wait for the market to move, then they react accordingly. Then people get all excited, as if The Fed really has much to do with anything except to fuck shit up even worse than it would have been. And they take themselves so seriously as well. Real unclefuckers.

    I don’t think we need any conspiracy theories to explain what’s about to happen. The Fed is fucked too, and they’ll choose deflation over too much inflation if it comes down to maintaining faith in the dollar. Or at least that way they can pretend as if they really meant to do that. I simply don’t think they could do much except literally drop C-notes from B-52’s in order to compensate for the lost money (credit) supply. That’s not gonna happen.

    And we do indeed have China by the balls. But they might just be willing to risk losing them, so we should simply maintain our velvety grip with the occasional cushioned squeeze, as appropriate.

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  29. J

    no no no. I’m not associating you with the redoubtable Hugh ( now Hughless) Hendry. I noticed a few threads ago there was a Hughless hendry discussion and thought it was a following on from there.

    I have all that shit in my head that I posted but I can’t put the puzzle together on this one.

    Those weren’t points to counter anything you’ve said by the way as I’m just thinking out aloud.

    ———-

    On the currency side I’m short of the Euro, STG, and have a long term long in Doll yen that i will only get out of at 84.50 stop as I’m thinking yen goes to 150 over the next few years. Looking to add if it breaks 97.

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  30. The Fly

    Dark Knight

    Essentially, there are two theories, only one will be correct.

    One: yields will climb in order to attract “investors”

    Two: yields go lower, as a result of people flooding into treasuries.

    The commonality with both theories is that we need funding and no one knows where it will come from, years out—except me and my fucking time machine.

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  31. The Fly

    DRR= Short Euro

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  32. MOOBS

    Fly – one of your best posts ever. I enjoy reading you most when you reveal your inner dialogue, asking questions. You are usually so declarative. Love it when you are wrestling and share the process. Thanks, man.

    Good shit ovah heah.

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  33. bucy

    BUCY Bucyrus added to the Americas Buy List at Goldman Sachs tonite
    Target is $80

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  34. Alive, but...

    “Banks are not lending, because they do not have a reason to lend. ”

    “Much of this recovery is contingent upon a sharp improvement in employment. ”

    Companies are not hiring, because they do not have a reason to.

    The gave the economy a lobotomy & act surprised when it’s not dancing. Morons

    Anyone who is capable of getting themselves made President should on no account be allowed to do the job. — Douglas Adams Both candidates were/are economically clueless. Without knowledge, there can be no good plan & they’d be crazy to have conviction.

    This economy is falling from a very tall “ugly” tree; and we will hit every branch on the way down –
    eventually

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  35. JakeGint

    Ask Charles Dow… is it the Trannies that lead the SPX, or vice versa? (Yeah, I know it’s a trick question, but let’s forget that….)

    Eating Sammitches w. the Goldman Robots.

    ___________

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  36. FIG

    And The Fly has finally come full circle. I knew you would do it buddy. This market is ridiculously fuct. The real change starts on Monday. Interestingly, right after the Olympics. I told you assholes that the Olympics are a major factor in international politics. The Olympics in 2008, 2010, and 2012, will all have huge impacts on world markets.

    By the way, USU has their earnings announcement on Monday. The nuclear energy age is about to take the fuck off, and USU is going to be a huge fucking winner.

    Another thing that is starting to happen here… I believe Gold is going to decouple from the dollar. Dollar goes up, gold goes up, dollar goes down, gold goes up. Basically, the dollar and all fiat currencies are about done.

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  37. Le Fly

    Sailor

    Asidr from this being a bond week, the fed just raised rates and the imf sold some gold. When you are qualified to offer me financial advice, please get back to me

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  38. Abe Lincoln

    Fly, yet very rich indeed, you are still in touch with reality.That is awesome. I working in the public sector, have seen the error of the goverement ways. By way of letting us get screwed with oil, loaning money to anyone, letting anyone with cloths on come into our country, jacking with the interest rate back in fourth, like he was the grand wizard of ozz, and out sourcing or jobs to places with small huts, and two way radios. The way to make a damm country work again is to roll your sleeves, and take up some honest work.

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  39. Abe Lincoln

    Fly, yet very rich indeed, you are still in touch with reality.That is awesome. I working in the public sector, have seen the error of the goverement ways. By way of letting us get screwed with oil, loaning money to anyone, letting anyone with cloths on come into our country, jacking with the interest rate back in fourth, like he was the grand wizard of ozz, and out sourcing or jobs to places with small huts, and two way radios. The way to make a damm country work again is to roll your sleeves, and take up some honest work.

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  40. sailorboy

    blah blah blah. nothing here has changed from last week other than a realization that last year’s concerns can still be stirred up. are we in a better place? yes. are there stock prices at or below this time last year when the world was about to end? yes. your line of thought above can easily prove out that there is no reason to own any investment vehicle of any kind at all. we have an entire industry built around long-only stock picking and those guys all booked massive bonuses last year. they are not going to let it fall by the wayside this year as we crawl out of a hole.

    yes, we are crawling out of a hole. we are no longer in the hole.

    quit bitching about the world economy, sell your etfs, and go buy a stock. ideally a stock not run by machines, but that is another story.

    this is simply bond week, guys. get over it. it happens once a month just like options expiration.

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    • Inglorious Basterd
      Inglorious Basterd

      You can’t just go “blah blah blah” and then puke senseless shit all over the blog. Same goes to FIG.

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    • FIG

      “are we in a better place? yes. are there stock prices at or below this time last year when the world was about to end? yes. ”

      Stock prices are lower because the dollar hasn’t completely collapsed yet. It shall do so eventually. In the meantime, buy yourself some gold and some nuclear energy via USU. The fuckeration being done by Bernunke and his pals at Goldman is quite epic, but will be a massive failure in the end.

      We are NOT in a better place, my friend. We are now entering an era of stagflation that is going to make the 1970’s look like the garden of fucking Eden.

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  41. Yogi & Boo Boo

    Once again, this thread mathematically proves why this is the finest trading spot on the Interwebs. J, great description of the puzzle pieces and how they don’t all fit.

    You can’t get Fly on CNBC. QED.

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  42. Mugs

    Must reviveBuilding industry for job creation to begin. Excess housing stock in wrong locations. Buy CAT dozers and elmininate entire excess neighborhoods. Start over in areas of the country where jobs will be created.

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  43. Heaterman

    One thing that could feasibly bring manufacturing jobs back here is high energy costs. Countries that import raw materials and then export finished products would take it up the pipe on both ends forcing their cost of goods up compared to what other countries and manufacture at home for. ………maybe?

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    • Yogi & Boo Boo

      I’m beginning to see some squawking about the need for manufacturing as part of the complete cycle of a high tech economy. In other words what you learn by not outsourcing your manufacturing is much greater than what you save in reduced labor. It will have little effect on the labor situation of course, as Jake points out, greater and greater productivity gains require less and less labor for each unit of output.

      I do think the Luddites will have their day in the sun, as more and more people are left behind and without jobs. They most likely will be employed by make work jobs or some other social program just to keep them occupied.

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      • Briefly Stated

        SEAL THE FUCKIN’ BORDERS TO ALL IMPORTS! Don’t take no Einstein to figure that out.

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  44. Purdy

    Hendry postulates that we’re Japan 20 years ago …that we, like them, are so in debt that our FED is de-balled and can’t re-flate even if they wanted to.

    How are we different than Japan? …in who carries our debt …in our currency reserve currency status, size, etc? Do those differences give our FED the juice to create inflation?

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  45. T MOE

    TMoe adds to LUFK short position

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  46. T MOE

    Whats the news with GMCR?
    I am still long a chunk of shares waiting for $88

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  47. jimmie

    Bernucke comes clean with reality. Refreshing. Fly you’re a fcking investment genius. Thanks for sharing your brain circuitry.

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  48. Yogi & Boo Boo

    Anyone think the blizzards might have something to do with the drop in home sales? Just sayin’…

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  49. YaBollox

    In China they build shit with their stimulus money. Not just jam wads of cash into banks and favored corporations. They Chinese have jobs building all that stuff. Hey Barack– our shovels are ready!

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  50. monaybot

    quality post fly,
    good stuff.

    fish omelletes are disgusting.

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