“The battle is not to the swift, nor the race to the strong,” wrote the late journalist Damon Runyon (of “Guys and Dolls” fame), “but that’s the way to bet.” It’s not just Mediterranean Europe: every government in the world is straining. The weakest will win the race to the bottom.

Own Treasuries vs. gilts.

Own Bunds vs. PIGS (Portugal, Italy, Greece, Spain).

Sell protection on Texas and buy protection on New York.

The world is discovering through a myriad of ways that the attempts by the US and other governments to pump up the economy through spending simply won’t work. I have been an employment bear all along and view the last two weeks’ higher-than-expected claims data as vindication of what was a pretty lonely position in early December.

1) Fannie and Freddie are likely to put back $10 billion of residential loans to banks that packaged them;

2) Harrisburg, Pennsylvania may declare bankrupty;

3) The Bank of England is ending its bond buying program because the British budget is out of control;

4) Obama is proposing to soak the rich (just what you want to do to encourage investment at the depth of a recession) in order to make it look like he is controlling the US budget;

5) The Social Security system is running in the red on a cash flow basis for the first time since 1982;

6) State and local governments, whom Obama bailed out with most of the stimulus money during 2009, cannot expect the same kind of help as they digest a $200 billion budget deficit during 2010;

7) Securitized asset spreads have blown out as the TALF program reaches expiration and the Fed’s trillion-dollar backing for the credit markets comes to an end;

and so on, and so on. This parrot is dead, as I wrote a month ago.

Everything looks bad, so buy the less bad (and short the worst against it).

This entry was posted on Thursday, February 4th, 2010 at 12:02 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.