Tuesday, December 21, 2010

Thoughts on Rest, The Peoples World Conference on Climate Change, and What Will Become of Municipal Bonds in 2011?

12/21/2010 Cochabamba, Bolivia Pop in your mints

As the days of 2010 wind down and the markets begin to calm down for the upcoming Holidays, we here at The Mint will take a few days to relax and unwind.  Relaxation, the art of doing nothing, either physically or mentally, is extremely underrated in today’s go-go society.  God gave us the Sabbath when He created all that we know and see and later commanded us to observe it.  The logic of relaxing at least one day a week is infallible.  Anyone who has worked weeks on end will tell you they are completely stressed out and tired.  Even plants and fields produce more abundantly for longer periods of time if you give them adequate rest, which would be every 7th year.

Anyone who has been alive for a while and put their mind to the question will tell you that no, we humans are not logical beings.  Therefore, with few exceptions, we fail to observe Sabbaths (i.e. we don’t rest!)  Our weekends are full of activities which rarely count as restful.  Our Holidays and vacations are often more demanding than everyday life.  Yes, moments of pure, blissful rest are few and far between on this wonderful planet.

We are still here in Bolivia.  Our In-Law’s house, where we are staying, is a stone’s throw away from the stadium in Tiquipaya where Evo Morales, the first indigenous President in Bolivian History, recently held the “The People's World Conference on Climate Change and Mother Earth Rights.”  

From what we understand from the locals it was a week of pure political nonsense.  In what we imagine is a wonderful irony, the road to the stadium, where the foreign dignitaries would pass on their way to the conference, is lined with sawmills.  These sawmills are a big no-no for sensitive environmentalists.  The government had the foresight to put tarps over the street frontage of these sawmills to hide the screaming trees from those with sensitive eyes.  This is how politics work on all levels in our times.

Screaming Trees in Tiquipaya
The best thing that any government body can do is to take a long Sabbath themselves and leave the people to their daily toils.  Life is hard enough without a non-productive class demanding tribute at every turn.

This brings us in a round about way back to the coming problems in the Municipal Bond Market.  You will recall that this market has been subsidized by the “Build America Bonds” program.  Instead of merely keeping State and Local governments on life support through the crisis, as a decent bailout should, this program has turned into an incentive for States and Municipalities to embark on projects that make no economic sense and therefore have no chance of succeeding or operating on any level without continued subsidies.  This program, and by default the implied subsidy that they represent, ends on December 31, 2010.

This would not be such bad news were it not for how governments compile and present their finances and for the general lack of understanding of how government finances work by those in the finance industry.  Up until a few years ago, commercial bankers made money writing loans to productive enterprises.  These loans would be paid back by future surpluses of a productive activity.  More recently, commercial bankers have been forced, for lack of better credit quality elsewhere, to take a crash course on government and non-profit finances, tax law, and to finance questionable projects that they do not entirely understand.

As far as Municipal Bonds and by extension the larger bond market are concerned, the blind (government officials) are leading the blind (commercial bankers) down a path that will lead them straight off a cliff on January 1, 2011.

Bailouts, whether announced or covert, will certainly take place.  Will they arrive in time to stave off the coming Armageddon?

We wish you and your family a Fresh Holiday Season from us here at The Mint!  Please relax and play it safe this Holiday season.  Don’t drink and drive and stay out of Bonds!

Stay Fresh!

P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!

Key Indicators for Tuesday, December 21st, 2010

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.