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News that Moves: "Buy America" Bill, US Treas.Yields Up, Andrew Hughes "Bad Bank", Bad News

White House reviewing "Buy American" measure, according to White House spokesman Robert Gibbs - Reuters
Reuters reports that the Obama administration is still mulling its position on 'Buy American' steel provisions approved this week by the House of Representatives and that have caused concern among trading partners, a White House spokesman said on Friday. "The administration is reviewing those provisions as part of the recovery plan, and that review is continuing," White House spokesman Robert Gibbs told reporters.

RCM Comment: I just can't believe this story! I guess history is simply bound to repeat itself. This same sort of protectionist legislation occurred during the great depression and was a DISASTER. Protectionism never helps the economy, but is, of course, wonderful if you are pandering for votes. I am told by my friends who are ardent Obama supporters that he is smart and has surrounded himself with smart people. Well, here is a simple IQ test. Let's see if they get this right. I genuinely hope they do and I will be the first to applaud using this blog.

Treasuries Drop as Record Sale Draws Higher-Than-Forecast Yield
Jan. 29 (Bloomberg) -- Treasuries plunged as the government sold a record $30 billion of five-year notes at a higher yield than forecast, indicating weak demand.
The auction, which caps a week when the Treasury raised $78 billion in notes and bonds, may signal investors will have trouble absorbing the as-much-as $2.5 trillion in debt the U.S. is likely to issue this year to pay for a $1 trillion budget deficit and programs to spur the economy. The Federal Reserve’s failure to provide a timetable for possible purchases of Treasuries yesterday also weighed on prices.

RCM Comment: This story goes hand in hand with the story about the German debt auction failure. Expect to see more of these issuance problems as the tsunami of supply hits the market this year. And remember, Gold prices rise as yields rise.

"Bad Bank", Bad News
Another miserable failure in the making
by Andrew Hughes

...The emphasis on getting credit flowing again for car loans, consumer credit and mortgages ony serves to aggravate the basic problem that these pundits seem to be ignoring; Consumers are flat broke and over indebted as it is, they don't need more credit; they need more jobs. The Banks don't need any more free money; they need to be put in to bankruptcy to purge the system of the junk on which they have based their business model. The reason the banks refuse to lend is that they are holding on to the money to cover their accelerating losses. As each company fails, as each debtor loses their job the dominoes are falling faster and are obliterating the banking sector.

In case you wanted to know why the financials continue to implode...More Andrew Hughes:

The most recent report from the Comptroller of the Currency seems to have gone unnoticed in Washington and the press. If banks are not lending because of increased capital requirements in the face of Credit Default Swaps, other derivatives and loan defaults then the report goes a long way in describing exactly why:

Credit Exposure to Capital ratio. Amounts in $Trillions

Bank Assets Derivatives Derivatives Credit Exposure to Capital Ratio
J.P. Morgan Chase $1.8 $87.6 400.2
Citi $1.2 $35.6 259.5
Bank Of America $1.4 $38.7 177.6
HSBC $.18 $4.1 664.2

RCM Editorial: Financial Stocks' Effect on the DOW, Obama & the Stimulus Package, Greenlight Cap. & Gold

Interesting thought: "Jim Bianco points out that if the remaining financials in the Dow were priced at zero, it would only lose another 300 points. So, they are rapidly running out of room to take the market lower."

While this thought has merit I would also point out that the financials will have an almost impossible time leading the market higher. I heard on the financial news networks yesterday the usual hysteria that accompanies any rally. Cheerleaders were blathering on about the rally led by the financials and pundits were picking the oft elusive bottom. What they fail to discuss is the simple fact that this group requires a dramatic infusion of capital. And whether or not this infusion will be government assisted or constant follow-on offerings, the result is the same: endless supply and dilution leading to weak or underperforming equity prices.

And another thing...

Why can't the Obama administration and Congress devise a stimulus package that will, you know ... stimulate the economy? Am I asking too much? Is this concept too difficult to comprehend? Instead of focusing their efforts on the crisis at hand this package appears to have the usual pork barrel spending and handouts to special interest groups. Someone please tell me why ACORN, a group whose activities (while it is not PC to say) are arguably one of the root causes of the banking crisis, is receiving funds from this stimulus bill? Does ACORN's involvement in the election process - an involvement that some have suggested amounts to voter fraud - have anything to do with this handout? So basically 'change' to the Obama team means changing which special interests get the handouts. How should we reconcile the situation? I guess we could say: "the more things change the more they stay the same."

Greenlight Founder Takes Grandfather’s Advice on Gold By Stewart Bailey and Saijel Kishan
Jan. 28 (Bloomberg) — Greenlight Capital Inc. founder David Einhorn is finally taking his grandfather’s advice. The $5.1 billion hedge fund is buying gold for the first time amid the threat of inflation from increased government spending. Since Einhorn was 10 years old, his grandfather has warned him that investing in bullion and gold-mining stocks was the only “sensible” thing to do given the threat of inflation and the risks of so-called fiat currencies, New York-based Greenlight said in a Jan. 20 letter to clients. The firm had never before considered buying bullion or mining-company shares.“To everyone’s dismay, we believe some of Grandpa Ben’s predictions are playing out,” Greenlight said in the letter, a copy of which was obtained by Bloomberg News. “The size of the Fed’s balance sheet is exploding, and the currency is being debased.”Greenlight is turning to the centuries-old currency to mitigate the effects of the economic collapse and government efforts to end it. Bullion gained for the eighth straight year in 2008 as governments in Europe and the U.S. rescued banks from collapse.

RCM Comment: David, I know of a good way for Greenlight to move assets into precious metals: Consider investing in the hedge fund Fortune's Favor Precious Metals. The fund was up 4.99% net in 2008 even with the collapse of the mining companies and an approximately 24% decline in the price of silver. Plus, I hear the managers have their own money in the Fund and are pretty cagey veterans.