If I Had a Trillion Dollars, A Ballad From Ben Bernanke to the Banks (With Apologies to the Bare Naked Ladies)

11/2/2010 Portland, Oregon – Pop in your mints…

Today and tomorrow the entire world, that is, the investment world, will be watching what the Federal Reserve and its poster boy, Ben Bernanke.  What will he do?  Most money managers and bond traders are operating under the assumption that he will proceed to create approximately $1 Trillion US dollars out of thin air through a process known as Quantitative Easing (QE), which is nothing more than indirectly confiscating at least $1 Trillion worth of goods and services from those who produce them in good faith and are compelled to accept US dollars in exchange for them.

You see, Mr. Bernanke and his cohorts are presented with an impossible dilemma.  If they do nothing, bondholders get absolutely annihilated in short order and the dollar continues as a viable currency.  If they proceed with the $1 Trillion QE game, the currency is the sacrificial lamb and the bondholders get a lifeline, but will get annihilated in the end anyway.  Essentially it is the choice of when to feel the pain of massive default on dollar denominate paper.

But what must Mr. Bernanke be thinking at this very hour with so much at stake?  The world presumably expects $1 Trillion dollars.  Logic would follow that, at a minimum, what he must provide to avoid "disruption" in the markets.  You see, the markets have long since baked in these $1 Trillion dollars and if they do not appear will adjust prices accordingly.  Guessing which prices will change and when is what keeps things interesting.

Our guess here at The Mint is that Mr. Bernanke is not thinking at all.  He has his orders; the markets will wait and see if he follows them.  What he is likely doing is strumming his guitar and warming up his academic tenor voice with a song that goes something like this:

"If I Had a Trillion Dollars"  a Ballad from Ben Bernanke to the Banks (with Apologies to the Bare Naked Ladies):

To the tune of "If I Had a Million Dollars":

If I had a trillion dollars
(If I had a trillion dollars)
I'd buy the US a house
(I would buy the US a house)
If I had a trillion dollars
(If I had a trillion dollars)
I'd buy the US furniture for its house
(No interest or payments for a year)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy the US a Ford
(And get everyone's clunker off the road)
If I had a trillion dollars I'd buy your bonds!

If I had a trillion dollars
I'd buy some junk paper from your books
If I had trillion dollars
They could help, it'd be less you'd have to cook
If I had trillion dollars
Maybe we could put like a little collateral in there somewhere
You know, we could just act like everything's cool
Like show off the CUSIPs and stuff
Then there would still be liquidity available to us
As if we never bought subprime CDOs and other things

They have endless liquidity but they don't have asset quality anymore
Thanks to me, of course,
Uh, yeah

If I had a trillion dollars
(If I had a trillion dollars)
I'd buy up asset backed securities
(But not with real money I'd be a fool!)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy up Synthetic CDOs
(Yep, like a Hybrid or non-performing SIV)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy up Lehman Brother's remains
(Ooh, all them crazy Hudson Castle assets!)
And If I had a trillion dollars I'd buy your bonds!

If I had a trillion dollars
We wouldn't have to tax the people more
If I had a trillion dollars
Now, we'd stick to the foreign creditors
If I had a trillion dollars
We wouldn't have to eat our bad debts
But we would eat our bad debts
Of course we would, we'd just eat more
And pad our tier 1 ratios with new cash
That's right, all the free cash... FED credit!
Mmmmmm, Mmmm-Hmmm

If I had a trillion dollars
(If I had a trillion dollars)
Well, I'd get us out of this mortgage mess
(But not the homeowners, I'm no fool!)
And if I had a trillion dollars
(If I had a trillion dollars)
Well, I'd buy financial reform
(Ala  Dodd-Frank and Obama)
If I had a trillion dollars
(If I had a trillion dollars)
Well, I'd make you solvent
(Haven't you always wanted to be solvent?)

If I had a trillion dollars
I'd buy your bonds!

If I had a trillion dollars, If I had a trillion dollars
If I had a trillion dollars, If I had a trillion dollars
If I had a trillion dollars…
You'd be rich!

Seriously, to enjoy some real entertainment (and to get the tune in your head to sing along with Ben and the banks), check out the Bare Naked Ladies performing their 1996 hit "If I Had a Million Dollars" below.  As for tomorrow's FED announcement, rest easy and wait along with the rest of the investment world to see if Ben & Co. really have the $1 Trillion dollars expected of them.  Of course they don't really have it but at least it will be fun to see how they explain it this time, that is until those $1 trillion show up in commodity prices!

Stay Fresh!

David Mint

Key Indicators for Tuesday, November 2, 2010

Copper Price per Lb: $3.77
Oil Price per Barrel:  $83.40
10 Yr US Treasury Bond:  2.63%
FED Target Rate :  0.19%
Gold Price per Oz:  $1,356
Unemployment Rate:  9.6%
Inflation Rate (CPI):  0.1%
Dow Jones Industrial Average:  11,125
M1 Monetary Base:  $1,460,900,000,000
M2 Monetary Base:  $7,960,300,000,000