When has the market fully priced in the end of QE2?

Commodity stocks and inflation bulls have taken a nice hit the past week.  The Market appears to be pricing in the end of Fed QE2 monetary policy.  As the Board stops monetizing the debt by purchasing treasury securities, interest rates should rise, albeit slightly.  Keep in mind the Fed funds rate is still at 0-0.25% range (<http://en.wikipedia.org/wiki/Federal_funds_rate>).  I do not expect the target rate to be raised anytime soon.

At what point does the market have QE2 fully priced in?  Does the FOMC factor in Chinese inflation to their monetary policy decisions?

The exported inflation is essentially soaked up when China buys T-Bills to keep the currency peg in place.  If they stopped buying T-Bills and let the currency float, interest rates in the US would rise, increasing the cost of US borrowing.  This would also encourage US exports as they become more competitive in the global market.

Michael Fletcher of the Washington Post published an article in today's paper about manufacturing jobs in the Rust Belt (<http://www.washingtonpost.com/business/economy/in-rust-belt-manufacturers-add-jobs-but-factory-pay-isnt-what-it-used-to-be/2011/05/17/AFDmL55G_story.html>).  These jobs are a direct result of easy monetary policy.

How long will these manufacturing jobs last? When does the FOMC initiate the first rate increase? Do they miss the boat and increase 0.5%? Or do they gradually lift the rate by 0.25%?  What role does China play in the FOMC target rate decision?

The European Central Bank is consistently ahead of the Fed in terms of raising the target interest rate.  The ECB has too much political power concentrated within the German economy.  While America lowers its target rate to help the struggling economies of MI, CA, FL and NV;  the ECB raises its target rate as Greece, Portugal, Ireland and Spain pay higher interest rates to finance their debt.  If the entire Eurozone were as healthy as Germany there would not be a problem, but this is not the case.   

Are Drugs Really Illegal in America? A Bachelor's guide to strip clubs in Charm City:

Well, it depends on where you are. And the level of acceptance versus enforcement. I will get to the politics in just a moment.

I recently attended a bachelor party for a buddy from college. The destination of choice for these east coast kids: Baltimore, Maryland, AKA Charm City. Is there a better place for a bachelor than 'THE BLOCK' (http://en.wikipedia.org/wiki/The_Block_(Baltimore) ? They say this is the place where boys travel to become Men.  

Located a stone's throw from the inner harbor on East Baltimore Street directly beside the Baltimore City Police Station; the Block is a strip of all strips..lined with strip clubs.  Some, such as the Hustler Club are very nice, while others make you feel like you are getting ripped apart by a pack of pumas at night in the amazon jungle. On the block, this area is usually disguised as a basement entry strip club with a permeating smell of rank vagina.

Rule number 1: its always better to go to heaven than hell; so for your average strip club going male (once or twice a year), avoid the clubs leading down a long stairwell. If its free admission, there is a reason for it.

So we went upstairs to the Hustler Club and ordered a couple bottles of Absolut and watched in amazement as the employees climbed a three-story fire pole, only to drop themselves upside down by one leg and stop on a dime before ever hitting the floor. This my friends is quite a skill to acquire. And they somehow manage to perform this gracefully and fulfill their fiduciary duties as true professionals.  Two thumbs up and 5 out of 5 Stars.

After a few hours and a nice evening at Larry Flint's establishment, the group decided it would be a good idea to club hop. The first place, right next door, had the oldest and most worn out strippers you could imagine. These girls did not work regular hours or live day by day. They lived minute by minute, fix by fix, dollar by dollar. The pimps either stood near the door or located within shouting distance at the other clubs, just in case an unhappy customer tried to walk out on his tab (not that anything in here could or should cost very much). 


Luckily for me, I had grown the thickest beard possible in about 7 weeks, kept my head down attempting to avoid the stinch and getting eye fucked at the same time.  Part Mark Ruffalo (as I would say), part Unabomber, part guy from The Hangover (as my buddies would say).  The shadier you look, the better you fit in.  Black shirt, dark jeans, thick beard, grey newbies, black guess watch.

HBO's hit series The Wire portrays inner city Baltimore in a very chilling light. The show is a fictional tale based on experiences of a journalist and a former Baltimore city cop. The term 'eye fuck' is a very real term. For more information, watch the series or walk down East Baltimore Street and Gay Street at 2 o'clock in the morning.

After finishing out our rounds at heaven and hell, it was time to call it quits around 2am.  What better place to eat in the middle of a Red Light District than Subway, made fresh daily.  I ordered my club melt sub and proceeded to wait outside for the rest of the crew to finish ordering their late night snack.  I was half drunken, half sober after 14 hours of drinking, baseball, and strip clubs and watched the hoppers as they casually sold drugs on the corner in the middle of Gay street, between The Block and the police station.  Was this the real life Hamsterdam (http://en.wikipedia.org/wiki/Hamsterdam)?

After observing for a few more minutes, it was time for most of the establishments to close for the evening.  The people emptied onto the street.  One police officer was very eager to keep the crowds moving.  As I watched cars stop in front of the police station to buy drugs, the officer proceeded to spray pepper spray in the street to keep the foot traffic moving briskly.  Mission accomplished.  Tear gas grenades would have been slightly more efficient, but he still managed to got his point across.  After dealing with pepper spray in my eyes, three of us left to walk back to the hotel where the others joined shortly after. No arrests, no fights, no deaths, and one bachelor accounted for.  I would consider that a glowing success.

Rule #2:  No loitering. When the officer tells you to move at 2am, get the f*k out of there for obvious reasons.

The interesting question is, how on earth does this kid (probably no more than 16 years old) in a white t-shirt sell drugs on the corner in front of the police station?  I assume he was directing traffic to the corners where they could deliver and exchange payment, but it was blatantly obvious.  I just thought it was funny that I was the one getting pepper spray in my eyes.

From this experience, I pose a few questions:
What is the service fee for the turf in a high traffic, high volume corridor next to a police station?
Does Baltimore have De facto legalization?
Does the prevalence and high usage rates by residents influence the enforcement policies?
Can you measure the contribution of this black market to the local economy?
At what point does the government decide to collect tax revenues?

It is true the market exists.  Whether you support it or not, is not relevant.  The dollars that feed wars in Latin America could be used for filling budget gaps in cash strapped cities.  Depriving cartels of marijuana revenues have been conservatively estimated at 10 billion. This budget gap would force cartels to find other sources of revenue and deplete gangsters of their precious blood money egos.

If inner city and suburban youth cannot make money selling drugs, they will be forced to get an education to become successful.  Perhaps, they will then look up to the teenagers that are inspired to become pharmacists, engineers, financial professionals, and real business owners.

Conforming limit set to decrease October 1st

The maximum allowable loan eligible for sale to the GSEs is currently 730k. Beginning October 1st, this limit will decrease to 625k.

What does this mean for consumers?

Obtaining loans above 625 will be dependent upon institutions without the government insurance provided by Freddie Mac and Fannie Mae. This mean loans made by banks will either be retained on portfolio or sold into private label securities. In other words, higher down payments and higher interest rates are inevitable without the government guarantee.

Financing will become more difficult as banks will require larger down payments and higher interest rates. Financing for loan amounts between 625k and 730k will see the largest impact. These loans will pay jumbo rates similar to mortgages above 730k.

Higher interest rates in the future does not mean you should necessarily rush out and buy a home now or before the Oct 1st deadline. Sellers and agents will push for homes to be sold between 625 and 730k leading up to the deadline because financing will be tighter. The lower interest rate is essentially baked into the sales price of the home. In many cases, it may be in the buyer's best interest to wait for a price drop and take the higher interest rate. You can always refinance (if in positive equity). You cannot change the price you paid for the house. The higher interest rate means you will be paying down the principal at a slower rate. Interest rates will be reflected immediately after October 1, while it may take sellers a few months to adjust sales prices accordingly.

If supply and demand remained constant before and after October 1st, the monthly payment should not change. Do you want a higher interest rate and lower price? Or lower interest rate and higher price? Personally, I'll pay a higher rate for my mortgage if I get a better price on the house. The higher interest rates imply a smaller pool of buyers that can afford a home in the 625k to 730k range. Less people able to afford means less demand and less demand means prices need to adjust. This will have a larger effect in higher cost areas such as California.


For those calling for less government involvement in the mortgage market, this is one result.

Remember:
High land leverage ratio
Structures ALWAYS depreciate over time
Value is in location
If you can rent your property for the same price you pay the bank, it is probably a safe investment....

Bin Laden Killed in Mansion outside Islamabad

CNN reports that Osama Bin Laden was killed in a mansion outside of the capital city of Islamabad.  To what extent was the ISI providing security for his family and operations? Is it a coincidence that his home was so close to the Pakistani Capital and Military Academy?

CIA and Black Ops played a significant role in locating and ultimately hunting down the most sought after man in the 21st Century.  What will the response be from the Pakistani government? Was the ISI operating on behalf of both CIA and Bin Laden? How will the people of Pakistan view the operation?  I would assume that the ISI is large enough to have competing groups or sectors that could undermine each other's objectives.  How do Pakistani citizens react to the US involvement?

The official statements from Pakistan and US indicate a mutual respect for each others' work and accomplishment, as any diplomatic relationship should operate in a PR setting of this magnitude.  Multiple US news sources portrayed the Pakistani response as incompetent, while Pakistan attempted to spin the US actions as a team effort.

How did US gather intelligence to lead to Bin Laden's mansion?  Conservative news outlets and military rumors suggest 'enhanced' interrogation techniques were used to gather information from detainees.  Allegedly, a third party (or country) did the heavy lifting, while the CIA asked the questions.

At what point does a government lose the ability to control security operations within its own country? When does the US step up to provide security? How is foreign aid distributed?  How many people have to die before NATO, US or Allies step up to the plate to defend freedoms that our citizens so frequently take for granted?  Under what circumstances should NATO remove dictators from power? It is estimated that Joseph Stalin's killed regime executed anywhere from 2 million to 62 million citizens.