4.6.08

The bunny is having one of those existential moments we've all had, when you wonder if you are insane, or if the rest of the world is.

He cannot fathom the relentless optimism surfing the tsunami of bad news. Talk about "irrational exuberance"--and the former Fed chief who coined that phrase himself went on the record stating there's better than a 50/50 chance the country could be in a recession, though of course that hasn't happened yet despite rising unemployment (from 4.8% to 5.1%), the dollar falling to a 12.5-year low, declining factory orders (1.3% in February, after 2.3% in January), a record national housing slump (too much source coverage to list), continuing acute credit-market constipation (ditto), a 30% jump in bankruptcy filings in March alone,and a financial industry so full of holes its notorious opacity has been thinned to a gossamer translucence.

Take, for example, the Dow's spike this past week on the news that UBS would take an additional $19 billion in writedowns (for a titillating total of $37 billion in losses), or that Lehman Brothers--which Wall Street sharpies have been betting is the next investment banking horse to lose, be shot and processed into dog food--will have to raise an additional $4 billion in capital because, y'know, just in case. This was interpreted as Good News because (so the rationale goes) these writedowns take us past the halfway point of the estimated $1.2 trillion global credit loss, roughly $460 billion of which will be sustained by "leveraged" US financial institutions (so sayeth the anonymous economists of Goldman Sachs, according to equally anonymous journalists at Reuters), and therefore, there's nowhere to go but Up.

This is about the time the bunny puts his head in his paws and emits a world-weary sigh through his fuzzy black nostrils. (As with all members of the Checkered Giant breed, the bunny's face bears the singular mask of black over the snout, eyes and ears. Closer inspection reveals natural brindle highlights--no Sun-In for this bunny.)

Such financial psychosis, the bunny concedes, may be in part a reflex reaction to the torrent of terror following the Bear Stearns debacle, arguably the industry's worst trauma since 9/11 (or, even more arguably, the industry's very own 9/11). But it seems to carry the seeds of its own perpetuation by policy. The bunny cites Andrew Bary's excellent article in yesterday's Barron's ("Wall Street's Latest Illusion", p.40), which illustrates the alchemy by which tottering financial firms turn their losses into profits on their books. Abracadabra:

"Here's how the accounting works: When a company's credit weakens and the yield on its debt rises relative to risk-free Treasuries, the debt becomes worth less to the holder. The financial company, which is the debt issuer, then takes a gain, because theoretically it could buy back its debt below face value."

Got that? If not, here's the bunny's breakdown. Let's say you're an investment bank. You issue a ten-year bond with a maturity value of one thousand smackeroos. Two years on, the bond's market value drops to $800 due to reduced demand. You know you're still getting the full grand eight years out, so you book the loss as anticipated profit. This is not only legal, it's common practice, or, as one of Bary's sources sums up, "a natural consequence of fair-value accounting." As Bary himself notes:

"Lehman, for instance, reported earnings in its most recent quarter of 81 cents a share, above the consensus estimate of 70 cents. However, the $600 million gain from the reduced value of its liabilities essentially added about $400 million, or about 70 cents a share after taxes. Excluding that gain, Lehman's profits would have been below the consensus."

If that sort of financial wizardry sends a distinct shiver of discomfort up your spine, you're not alone. The bunny thinks this practice is but one of a whole spread of torpedoes fast closing on the carrier which has slowed to recover planes. Get clear, greedy bipeds, he warns. Get airborne and get clear before it's too late.


Bunny ballast:

"Wall Street's Latest Illusion" by Andrew Bary, Barron's, 4/7/08

"The Dollar and the Credit Crunch" by Ronald McKinnon, Wall Street Journal, 3/31/08

"Soros Sees Additional Market Declines After Reprieve" (update 1) by Katherine Burton, Bloomberg.com, 4/3/08

"After Meltdown, Dollar May See Some Relief" by Gertrude Chavez-Dreyfus, Reuters, 3/14/08

"Muni Losses May Put Taxpayers on Hook for $7 Billion" (update 2) by Martin Z. Braun and Jeremy R. Cooke, Bloomberg.com, 4/3/08

"US Sees Biggest Jobs Drop in 5 Years as Downturn Spreads" by Kelly Evans, Kris Maher and Timothy Aeppel, Wall Street Journal, 4/5/08

"Bankruptcies Jump 30% in March, Led by Housing-Bust States" by Bill Rochelle and Bob Willis, Bloomberg.com, 4/5/08

"Pushovers at the Fed", editorial, Wall Street Journal, 3/25/08

"To See a Stock Market Bubble Bursting, Look at Shanghai" by David Barboza, nytimes.com, 4/2/08

"Goldman sees $1.2 trillion global credit loss", Reuters, 3/25/08

"Factory Orders in US Decline More Than Forecast" by Bob Willis, Bloomberg.com, 4/2/08

3.30.08

Today the bunny is pleased to welcome Colin Harrison, author of six novels, including The Finder, which will be published by Farrar, Straus & Giroux on 10 April. Mr. Harrison is also a senior editor at Scribner, a division of Simon & Schuster (itself a division of Viacom). The bunny thinks that makes him an excellent candidate to question about the book publishing industry, since he has the view from both sides of the desk.

The Bunny Papers: Where is the publishing industry now?

Colin Harrison: As a writer and as an editor, I am bullish on the future of books, for the foreseeable future. Call it 10, 15, 20 years. After that, who knows, we’ll all be reading books on the inside of our eyelids. I’m not worried about the book business. Now, it’s true, the book business has big challenges, but those challenges are well-known. People like books, they like to feel books, they like throwing them into their bags.

TBP: So people still like to read. But will they read in print or on screen?

CH:I have a broad theoretical answer to that. My theory is that content in its short form has lost almost all its market value. Once upon a time, if you wanted to have stock prices that were pretty current, you needed to pay $11K to have a little box on your desk. Now it’s free. 20 minutes delayed, but free. There are a bunch of newspapers now you don’t have to subscribe to, because they’re free. People will download short films, but will still go to movie theaters for feature-length films. I think the structural pressure is on magazines and newspapers. The way this is maybe going to be solved is with these new electronic readers. But I say "maybe". With an electronic box, people drop it on the pavement, it might break. When it comes to books, the culture still celebrates books as a fetish item. Books are still something people collect. One of my pet phrases is, "There’s nothing like a book."

TBP: There's nothing like the consignment model of returns, which the industry has been running on since the Depression, either.

CH:The book business still sells newly-printed books published 50 or 75 years ago or more. You don’t see the same parallel in the auto industry. Books don’t have the same kind of obsolescence curve other consumer items do.

TBP: Have you ever worked in sewage?

CH: No. I just thought it was an intriguing way to kill somebody.

(Author photo by Joyce Ravid)

3.23.08

The bunny is in a reflective frame of mind these days. In particular, he's been thinking of 1981 and 1982, and how they might be seen as offering a premonition of the current morass.

No, it wasn't Reaganomics, or crack cocaine. It wasn't Ultravox or AIDS, Swatch watches or masses of black rubber bracelets. These were the years that saw the theatrical releases of The Road Warrior, Escape from New York, and Blade Runner, seminal filmic visions of the full-throttle progress of modernity smashing head-on into the retaining wall of dystopia. The bunny wonders if David Bowie, who preceded this mood of celluloid Da-Sein himself, on vinyl, by a good decade, saw any of these movies, and what he made of them. Come to think of it, he wonders the same about Fritz Lang, Adam Smith, Thomas Malthus, and Aristotle. But that could just be all the blueberries he scarfed for breakfast going to his head.

Towards the point: the bunny sees this cute little crevice of doomsday augury (replete with some choice rides!) as perhaps offering a metaphorical prism through which to view a trend that was actually going on, though not in those years specifically (the bunny likes to truncate time, it's one of his few indulgences, humor him). To wit: the shift in mentality that seemed to occur as more and more financial houses went public. Again, it's not specific to 1981-82. It's not some sort of averaging of dates, not with the staggered IPOs of Merrill Lynch (1971), Bear Stearns (1985), Lehman Brothers (1994) or Goldman Sachs (1999). Remember, we are in the realm of allegory, not algorithm.

What has transpired since the start of the 1980s is not merely the longest bull market in (US) financial history, but also a transformation, nay, transmogrification, of the financial mindset from one of thrift, efficiency and self-sustainability to the firebombed casino before you today. And that, the bunny believes, is because the industry became a game of Playing With Other Peoples' Money.

The bunny can already hear the nay-sayers out there, braying about transparency and responsibility to shareholders. And what, the bunny would retort with a wry whisker twitch, would they make of the Bear Stearns debacle? What did they make of Alan Schwartz desperately saying anything he could to prevent a Pamplona-style run on the bank, while Jimmy Cayne and Warren Spector played bridge as Bear burned? For that matter, what did they make of Credit Suisse CEO Walter Kieholz mugging for the TV crews in Davos saying they didn't have large fourth-quarter write-downs, followed by sf2.86 billion in losses due to "trading improprieties" not two months later?

This, the bunny believes, is a classic case of oversophistication. Put too many people into too many dollars NOT THEIR OWN and promise them astronomical bonuses based on performance (you don't think the shareholders in investment banks, even solvent ones, get paid first, do yez?), and you will get Uncontrolled Investment Diversification Mitosis, the technical term for which is Greed. And greed, as all bunnies know, metastasizes.

This oversophistication is a direct result of financial sharpies constantly dreaming up new ways to make money, which is a lot easier to do when you're not gambling with your own. Let it go long enough and you get an unraveling of the whole gesamkunstwerk (yes, the bunny knows German), which then prompts government regulators to get involved, who are guaranteed to screw things up further, thus leading to the sort of meltdown depicted in the three films named at the top of this rant. Oversophistication, cheap money, SOMEONE ELSE'S MONEY, and human greed led humanity down this road.

The bunny sincerely hopes the bipeds can sort things out amongst themselves. A bit of self-restraint, doncha know. The bunny is a prey animal. He has no self-imposed delusions of morality as humans do. His concerns are to eat without being eaten, and to find enough does to sire his kittens before meeting up with the Black Rabbit of Death. His kind have been at this a long time (90 million years, give or take, and still counting!). He knows about survival. He hopes the banks and brokerages that made this mess will have the instincts to pull themselves--and the rest of their world--out of it, or we'll all be listening to that opening voiceover from The Road Warrior in live Surround Sound.

But, he fears, there's just too many of them in charge who clearly don't know what the buck they're talking about.

Bunny buttresses:

"Credit Suisse faces first-quarter loss" by Simon Kennedy, Marketwatch, 3/20/08

"UBS enters ranks of record losers after $14 billion subprime write-down" by Warren Giles, Business Report, 1/30/08

"Mortgage crisis talks under way" by Chris Giles and Krishna Guha, Financial Times, 3/23/08

"What Created This Monster? by Nelson D. Schwarz and Julie Creswell, New York Times, 3/23/08

"What Went Wrong", Economist special report (pp.79-80), 3/22/08

"Natural History of the Rabbit (Oryctolagus Cuniculus), by Alexandra Sardi and Janelle Cooper,

http://www.baa.duke.edu/companat/BAA_289L_2004/Natural_History/Rabbit/rabbit_Natural_History.htm

3.16.08

O, to be blessed with an embarrassment of riches, chortles the bunny to himself.

Ordinarily, he doesn't like to think of himself as the sort that chortles, sniggers, or otherwise engages in gloating. A creature of the land, he is well versed in its gentry's mores.

But these are extraordinary times, and the getting's just too good. It's a bumper crop, a bounteous harvest of misery and woe and finger-pointing, with much of it being done exceptionally well. If pressed, he'd have to give the laurel wreath to Gretchen Morgenson in this morning's Times:

"But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street...Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A.R. Baron, clearing dubious stock trades. And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt.) It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there...As of February, according to Bloomberg data, 15% of those loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4%..." (p.1)

Great going, Gretch, cheers the bunny. Give it 'em good, by jingo!

Here's another, from Liz Rappaport and Justin Lahart in today's Journal:

"The US is at the recieivng end of a massive margin call...For years, the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer...The growing crisis of confidence now extends to the credit-worthiness of borowers across the spectrum--touching American homeowners, who are seeing the value of their bedrock asset decline, and raising questions about the capacity of the Federal Reserve and the US government to rapidly repair the problems." (p.A1)

Marvelous stuff, isn't it? Give it up for Tom Cahill and Katherine Burton at Bloomberg last week:

"'If you have leverage, you're stuffed,' said Alex Allen, chief investment officer of London-based Eddington Capital Management Ltd., which has $195 million invested in hedge funds for clients. He likens the crisis to a bank panic turned upside down with bankers, not depositors, concerned they won't get their money back."

Bully for you, Bloombergers, rants the bunny. Rah, rah, sis-boom-bah, greedy bipeds all go BROKE BROKE BROKE!

The bunny does his best to keep his nose above politics, so it's not the fetid fumes from the national mudslinging contest nor state sex scandals (as if that would really roil a rabbit's equilibrium) that have gone to his head. Nay, this is karma in its terrible eternal majesty, the great circling of the cosmic clock. In a word: payback.

The Great Unwinding, as the bunny has come to think of it, is all atwirl like a streamer of firecrackers dangling from the fire escape of a Mott Street community center on the Lunar New Year. For years, the great pyramid of banks, brokerage firms, funds of all stripe and spot, Blackberry-toting businessmen and Joe Sixpacks alike have all spun to the same tune of Intangible Investing, AKA Spend What You Don't Have (perhaps taking their cues from their elected leaders). Then after dancing as fast as they could the music stopped, the markers were called in and lo, borrowing from Peter to pay Paul just didn't work when Paul showed up with his bros, a roll of electrical tape, two tire irons and a case of beer. (In a telling aside, casino revenues in Vegas are down almost 5%.) The panjandrums of Wall Street and Points Hedged clearly thought they would be immune to credit-borne pathogens, and now that their condition has progressed from symptomatic to full-blown, they have (predictably) become dependent on the Quick Fix handed out by Uncle Sam on the quarterly corner (or even a block or two away).

The mountain of leverage, like that of garbage in Naples, has come crashing down. Government intervention teamed with deep private pockets (J.P. Morgan, wherever he may be, must be greatly amused) can only prolong the inevitable reckoning. Those with debt-to-equity ratios too swollen from too many trips to the borrowing trough will be called to account. Once again the perils of cheap money are thrown into sharp relief, and the all-but-done rate cut coming this Tuesday won't help.

The bunny is a burrower. Now's as good a time as any to dig deep and wait out the carnage happening topside. Lest we forget, it's Tax Time.

Bunny Barrage:

"Rescue Me: A Fed Bailout Crosses a Line" by Gretchen Morgenson, New York Times, 3/16/08

"Debt Reckoning: US Recieves a Margin Call" by Liz Rappaport and Justin Lahart, Wall Street Journal, 3/16/08

"Hedge Funds Reel From Margin Calls Even on Treasuries (update 1)" by Tom Cahill and Katherine Burton, Bloomberg.com, 3/10/08

"One Ill Compounds Another, Hammering the Economy" by Vikas Bajaj, New York Times, 3/14/08

"Hedge Funds Squeezed As Lenders Get Tougher" by Carrick Mollenkamp and Serena Ng, Wall Street Journal 3/7/08

"Mortgage Fallout Exposes Holes in New Bank-Risk Rules" by Damian Paletta and Alistair MacDonald, Wall Street Journal, 3/4/08

"New Spasm Jolts Credit Markets" by Liz Rappaport, Joellen Perry and Deborah Lynn Blumberg, Wall Street Journal, 3/6/08

"Chips are down as Las Vegas feels pinch", ny Matthew Garrahan, Financial Times, 3/9/08

2.26.08

Ave, Jeffrey Robinson!

The bunny has been working the phones, trying to assuage the nagging suspicion that's been buzzing around his brain like a noisy gnat. He would much rather be getting familiar with his Tibetan cousin (Ochotona himalayana), but once again, humanity has driven him to distraction.

What's been driving the bunny batty lately is the rapid insinuation of sovereign wealth funds' capital into large financial institutions. It's not that SWFs are anything new (indeed, one early bird wormed out the fact that this vehicle's make dates at least to 1956), but the speed with which they have amassed container ships of cash for immediate injection into badly battered banks (can you stand all the alliteration?) without much need (nor, indeed, requirement) for oversight sets the bunny's incisors on edge. In fact, it's worrisome enough that Bob Davis at the Wall Street Journal got a front-page above-the-fold slot today for putting his finger on the swollen, throbbing problem at the heart of the matter:

"Executives from the world's largest SWF--the Abui Dhabi Investment Authority--and from the Government Investment Corp. of Singapore met Thursday with a US Treasury delegation led by the assistant secretary for international affairs, Clay Lowery. The talks are part of delicate global negotiations to draft rules to oversee the behavior of such funds, without discouraging them from investing in the US, Canada and Europe at a time of global financial turmoil."

The bunny would like to thank Mr. Davis for his deep visceral grasp of such a thorny obstruction. How does a UBS or a Citigroup, both of which have received massive capital transfusions from SWFs recently, respond when a simple request for transparency is met with a resounding "Hell, no" in various languages?

Mr. Davis is not alone in such sentiment. In the New York Times on 2/9, Steven Weisman wrote that "leaders of funds in Russia, the Middle East, China and other parts of Asia say that the West's demand for regulations is hypocritical in light of the failure to regulate European and American banks and hedge funds."

To be fair, some SWF captains have read the entrails and are acting accordingly. The China Investment Company (CIC) has gone out of its way to rise above the veil of secrecy for which SWFs are widely known, according to an article in the Financial Times by Andrew Wood on 2/4. Morgan Stanley, which rates CIC the sixth-largest SWF by assets (~$200 billion), was quoted in the same piece as predicting CIC would be the largest SWF by 2009.

Also, to be fair, the growth of SWFs can be tied directly to two factors--the astounding spike in oil and gas prices, and the massive accrual of savings, particularly in nations hardest hit by the Asian financial crisis of 1998. Neither one of these factors is illegal. And, in fact, the reversal of fortune displayed in the flow of capital from emerging back into established economies is, in the words of an Economist editorial from 1/19, "proof that capitalism works."

Ah, but is it? This is what bothers the bunny, and where the aforementioned Mr. Robinson comes in. This gentleman is the author of THE MERGER and THE LAUNDRYMEN, which chronicle (respectively) the mechanisms by which criminals optimize old-fashioned illegal moneymaking schemes in the modern age, and how they "wash" the proceeds through the digital economy to make "black" money "white". If 2% of assets traded worldwide are controlled by SWFs (this according to the Economist), Mr. Robinson notes that it is worth remembering that 2% of global GDP is black money. It therefore stands to reason that at least some of this black money would wash up in SWFs, though how much would be very difficult to quantify, not least because the fund managers probably cannot effectively document the origins of the money in their coffers themselves. So if some of the funds going into a UBS or Credit Suisse come from illegal drugs, or from the bodies of teenage prostitutes hooked on said drugs, or from the sales of guns sold to their pimps by rogue militas, what then? Mr. Robinson points out that while the US government claims jurisdiction over all financial crimes committed in US dollars (through the Treasury Department's Financial Crimes Enforcement Network, or FinCEN), it is in fact extremely difficult to enforce its own regulations across borders (case in point--BCCI).

Moreover, he points out that beyond the difficulties of auditing a foreign government, quantifying and qualifying its assets, and if necessary trying to impose a different government's set of rules...would you really want to? There is an estimated $7.5 trillion in offshore money today, he says, a good 10% of which is likely to be black money, mostly from drugs. If this kind of wealth were wiped out by a magic wand of uber-legislation, the ensuing wave of bankruptcies would likely usher in a new dark age.

This issue isn't going away anytime soon. The bunny will keep on digging, as is his nature.

(Emails to FinCEN at the US Treasury Department were not returned as of this writing.)


Begin at the beguining, bunny:

"The Invasion of the Sovereign Wealth Funds" (p.11) and "Asset-Backed Insecurity" (pp.78-80), The Economist, 1/19/08

"Asia Is Opening Up and Welcoming External Help" by Andrew Wood, Financial Times, 2/4/08

"Overseas Funds Resist Calls for a Code of Conduct" by Steven R. Weisman, New York Times, 2/9/08

"US Pushes Sovereign Funds to Open to Outside Scrutiny" by Bob Davis, Wall Street Journal, 2/26/08

1/27/08

You’ll have to excuse the bunny for a moment.

He’s had enough and is losing his cunicular cool.

This past week’s inter-meeting rate cut struck him as precipitous, political, and most of all, panicked. That it was motivated at least in part by the fact that other nations’ financial institutions are prone to the same human greedworm eating away at our own (Société Générale? Belgium’s Fortis, England’s Northern Rock, and the UAE’s Abu Dhabi Commercial Bank are all adding to that bitter bouillabaisse, just to name a few). The blatant pandering of the pols has spread to the Fed, and the bunny just can’t take it anymore.

To recap: it is not the Fed’s job to babysit Wall Street (nor to police it—that’s what Treasury’s for). The Fed’s mandate is twofold—first, to promote full employment, and second, to maintain a sound monetary policy to prevent the sort of hyperinflation and bank runs that lead to widespread misery, xenophobic massacres, and pseudo-intellectual pontification that’s the verbal equivalent of an M.C. Escher drawing. Incremental rate adjustments over measured periods (and none at all in election years) help keep the Ship of State on an even keel. Taking a halberd to interest rates, especially when other central banks around the world did not, can only appear as a declaration by the Fed of a state of emergency with which other governments (friendly or otherwise) do not seem to agree. (Never mind that rate cuts take 6-12 months to make their way through the national economy, a period only slightly less than the length of the last two recessions).

Why would Wall Street expect another 50-point cut this coming week, taking rates to 3% (or, the bunny shudders to think, even lower)? Again, the answer is twofold. First, it means that things are worse than the Fed admits to, and second, the Fed is letting Wall Street dictate its moves. This would be a political decision, and a hruffy, murthified one at that. It would be an outright invitation to inflation. Is this a dollar I see before me, getting ink on my clean white paws? Why no, the bunny declares hothfully, it is less than a dollar, and the dollar will continue to be crushed should rates continue to be scythed, not to mention a spike in already spiking import prices. Ur grubba naar, hraf fuffing shoom bletzkwell! Phlap wabble therwin potok! (When the Rabbit Rage is upon him, the bunny's first victim is verbiage.)

Politics and politicos, gentle reader, are bad for the bunny's brain, as you have seen, and even worse for economic policy. Let us hope that in the weeks ahead, cooler heads prevail over itchy trigger fingers.



Bits o’ Bunny Collateral Damage:
“Evolution of economy will tell whether Fed overreacted” by Krishna Guha, Financial Times, 1/26/08
“The start of the great unwinding”, editorial, Financial Times, 1/26/08
“Société Générale’s Sales May Have Incited Market Plunge” by Nelson D. Schwartz and Nicola Clark, New York Times, 1/26/08
“Stimulus Deal Spurred by Fears of Voter Backlash” by Michael M. Phillips, Sarah Lueck and Sudeep Reddy, Wall Street Journal, 1/26/08
“A Global Fed”, editorial, Wall Street Journal, 1/26/08
“Mideast banks to report subprime losses”, Reuters, 1/26/08

1/21/08

So who's worried?

After all, despite a $150 billion bad-loan sump, the global finance system hasn't collapsed, right?

And despite a year-over-year inflation spike of over 4% and global commodity prices indices at new highs, manufacturing hasn't collapsed, right?

And just because of dismal seasonal retail sales, a widening trade deficit and unprecedented and yet-uncharted credit card defaults, the consumer economy hasn't collapsed, right?

And just because incumbent and incontinent politicians alike are one-upping each other with emergency stimulus packages designed to put negligible amounts of tax-relief cash into the hands of voters least likely to save it thanks to lowering interest rates and prior to the elections that will shortly be followed by massive tax increases, the matrix of civilization (or at least its 24-hour news cycle) hasn't collasped, right?

The bunny would like you all to take a moment to relax and pass hraka. (He duly bobs his hirsute head to Richard Adams.)

On the last point especially would he like to focus his energies. That the US economy is in the midst of contraction is uncontested, and attested to by the frenzy with which the carping constipated corps of politicos, pundits and pen-wielding press pests is howling for more gruel and grist. Tax cuts. Lower interest rates. Bad loan bailouts. Cash on the barrelhead. With each news cycle, more mouths join the banshee choir.

The bunny has no patience for such nauseating drivel. Unlike many of his mammalian brethren, the bunny does not possess the ability to regurgitate hairballs after grooming, relying instead on the bounteous nature of timothy hay, which, like kasha, bulldozes the badness back and beyond. In bunnies, as in the great rivers of the world, the current goes one way.

The media maelstrom also obscures what is in fact an old tactic deployed on a new playing field: political use of money (or monetary policy) to curry favor at election time. He (or she) pushing payouts pre-primary is more likely to effect the short-sighted worried about mortgage or credit-card debt, as opposed to later (and potentially felonious) dangerously deferred tax debt, while he (or she) champing cheap money (i.e., immediate rate cuts), which are the darling of institutional investors such as hedge funds (which themselves are not above the occasional donation to a candidate's war chest) might also be (already) forgetting the fact that cheap money was what ignited the subprime storm to begin with. And 5% national unemployment is historically considered full employment (and compares favorably with economies of scale across the pond). And that, very quietly, the core blue chip companies of the S&P have been racking up earnings well beyond what's needed for ballast in these roiling 1Q '08 waters.

The bunny does not deny that there is some serious skinning going on. But this flensing should also be viewed as a cleansing. A 15% correction is still a correction; markets go down as well as up. This is part of the business cycle, the corrective mechanism by which, eventually, the ship of state of things rights itself with keel down and mast held high. What's different from 2000-2002? No foreign attacks? Well, actually, the bunny is wrinkling his nose at the increasing bankrolling of US financial nodes by foreign sovereign wealth funds (but hey, beggars can't be choosers). He has been grinding his teeth over this, and will in postings to come. Among other worries, he would like to know how you get the investment arm of an entire country to open its books; he knows of no lawyer-subhumans with this sort of suction, and very much doubts the political clot has such clout either.

The bunny watches.

The bunny waits.

The bunny is back.


Things that line the bunny's box of late:

"The Invasion of the Sovereign Wealth Funds"; "Asset-Backed Insecurity"; "A Delicate Condition"; "Economic and Financial Indicators", The Economist, 1/19-25/08

"'Til Next Paycheck, a Stimulus" by Michael Santoli, Barron's,1/21/08

"Adjustment or Affliction? Why the Dollar's Drop is Failing to Rebalance the World" by Chris Giles. Financial Times, 12/11/07

"No Quick Fix to Downturn: Some Fear Stimulus is Already Too Late" by Peter S. Goodman and Floyd Norris, New York Times, 1/13/08