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Jr Deputy Accountant and Michael Panzner Discuss 2010 Part II: The Impotent Fed; An Election Year; Waiting for the Recovery

Thumbnail image for Thumbnail image for Thumbnail image for angry bear.jpgIn case you missed part one of JDA’s 2010 Outlook interview with Financial Armageddon’s Michael Panzner, you can find it on Going Concern here.
For the first half of my 2010 talk with Panzner, I focused on the other shoes left to drop; commercial real estate, political backlash, and the threat of the massive bubble still being inflated in China. But even bears have their bright sides and Panzner is no different. So what do we have to look forward to this year? Oh crap, more doom and gloom; sorry, I got my interviews mixed up.

Panzner points to our leaders’ missteps throughout the crisis as a major factor that could place a damper on any hope of recovery. “Many of the problems and imbalances that helped about the crisis have gotten worse,” he says, “That means people have less in reserve than they did before, and many have not positioned themselves for a ‘new normal.’ That suggests the next leg down, economically speaking at least, could be much worse than what we’ve experienced so far.” If only we’d been prepared for the worst instead of coddled into believing everything is better, eh?
When asked to take a guess as to when the Fed would finally raise interest rates, Panzner gave an interesting answer. “In my view, the Fed is no longer in control – of the economy or its destiny. For the most part, market and other forces, not the FOMC, will determine what happens to interest rates in future.” So I guess it doesn’t matter when they’ll raise rates, markets are no longer listening. Or are they?
A big picture sort of guy, Panzner identifies sociopolitical threats as another major concern this year, and with this being an election year (hello, Scott Brown anyone?), I’m willing to go on the record as agreeing wholeheartedly with him (shock). “Wait and see what happens to the social and political mood if and when the economy rolls over,” he says ominously.
Oh, believe me, JDA is waiting. And waiting. And waiting. Still no rollover but dammit, I’ll still be here twiddling my thumbs.
Hopefully I’ll get a chance to check in with Panzner again come summer to see where we are.
Editor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.

The JDA and Michael Panzner Discuss the Year Ahead

Thumbnail image for 2010.jpgEditor’s Note: Want more JDA? You can see all of her posts for GC here, her blog here and stalk her on Twitter.
The last time I spoke to Financial Armageddon’s Michael Panzner for Going Concern, it was about how to prepare for the worst (while not necessarily hopinin September of last year. This time around, it’s the beginning of the year so even though I’m late, it’s time to discuss the 2010 outlook.
Panzner can also be found writing at
When Giants Fall and Huffington Post and if you don’t know his bio, it’s here.
First of all, before we could get to anything I had to have him explain his strong dollar policy again:
“There are a number of reasons why I expect a technical rally in the dollar even though my long-term view remains quite negative,” he said, “The fact is that even if the fundamental outlook is poor, prices can still rise in the short run if too many people — speculators and investors — are short or if other factors temporarily gain in importance.”
This explains why he seemed spooked by recent market behaviors, like everything from March 2009 on. You know, when things started getting wonky. Panzner is a classy bastard so he’s not about to make conspiratorial statements about the behavior of markets but let’s just say his feeling is that they’re performing less rationally these days. No shit. Might be all that fishy stuff going on but who am I to speculate?

He points to massive speculation and gigantic stockpiling in commodities, specifically oil. Gee, wonder who is behind that. He recognizes that China is at least attempting to clamp down on speculation.
He also admits to having underestimated how people will behave with free money. I find that statement incredible; didn’t we see the houses, big screens, and Hummers? It was obvious at the time and it feels obvious now. “Last time they speculated like there was no tomorrow, they were worried tomorrow would never come,” he says. Again, this from the man who brought us Financial Armageddon.
Interestingly, Panzner says if he could do the book over, he would have better predicted the contagious nature of the financial crisis. It scared the shit out of me when I read it for the first time in 2008. It didn’t seem sluggish at all the way he’d imagined it. In fact, I’ve been waiting for the bottom to drop out for months now after seeing how he painted it.
As far as threats go, he pretty much agrees with most of what I identify as the largest (the Fed’s dumb behavior, sociopolitical pressures, blahblahblah) and adds a few. He’s with most of us who feel CRE still has to drop, which places additional pressure on smaller banks. There are also the usual suspects; conflicts in the Middle East putting pressure on energy markets and municipal debt problems. Birmingham, Alabama is not an isolated incident, in other words.
I know Caleb gets pissed when I write too much so I think we’re good on the economic outlook for now, lest he come flame me as Guest. Whatever. Back with Part 2 on Monday: What comes after?

Review Comments | 12.07.09

Thumbnail image for markcuban.jpgCourt Allows Cuban to Seek Discovery in S.E.C. Case – No one questions Mark Cuban’s patriotism and gets away with it. [DealBook]
Ohio school will return Petters’ scholarship donations – Miami of Ohio is giving back $5 million that was gifted to establish the John T. Petters Center for Leadership, Ethics and Skills Development. [Pioneer Press]
Doesn’t Sound V-Shaped to Me – The recovery that is. [Financial Armageddon]
Fixed assets and year-end planning – Joe Kristan is getting you ready for the upcoming tax prep season. [Tax Update Blog]
Nonprofit Executive Compensation Changes in 2009 – Charity doesn’t pay like it used to. [Mission Accountable]

Do it Like an Eagle Scout: ‘Be Prepared’ if the Recovery Fails

Thumbnail image for angry bear.jpgEditor’s note: This is part one of a two part interview. Look for part two tomorrow.

I recently had the absolute honor of interrogating Michael Panzner, 25-year veteran of the global stock, bond, and currency markets who has worked in New York and London for such leading companies as HSBC, Soros Funds, ABN Amro, Dresdner Bank, and J.P. Morgan Chase.

If you are familu know that to call him a doom and gloomer might be a tad of an understatement. Besides his body of literary work which includes Financial Armageddon and most recently When Giants Fall, he maintains blogs by the same name (Financial Armageddon and When Giants Fall), documenting each stage of our continued unraveling.

What struck me upon first finding his work was that though he wasn’t exactly subscribed to the “unicorns and rainbows” school of thought for our inevitable future, he managed to present his vision for our destiny in a way that even the most misguided sheep among us could understand.

To call him your average doom and gloomer does a disservice to his ability to paint our path in detailed horror. Trust me kids, to borrow Panzner’s own parlance, it’s always better to know than not to know and we’d much rather you know where we might be headed instead of stumbling along blindly towards slaughter.

Keep in mind that I already knew how Panzner would answer but I do it for you kids who have no idea just how bad things might be out there. But you’re in public accounting so you should already be more than aware. Panzner isn’t trying to scare you and neither are we, it’s all about preparing for the worst and hoping for the best. Hope can only get you so far but preparation can get you a whole hell of a lot farther when the two are combined.

So the first important question is how the hell did we get here?

His answer is simple: negative incentivisation (or an absolute lack of reasonable punishments for unreasonable behavior) and an enabling mentality. He paints the analogy that Wall Street behaves like a bunch of crack addicts; instead of cutting them off of the financial crack pipe, the powers that be fed their addiction with easier money and more securitization, essentially handing over the dope to the dope fiends instead of serving their regulatory purpose and saying “enough is enough, now give me your keys and sleep it off.” The combination has, of course, proved to be deadly, at least in the financial sense.

Says Panzner, “The many imbalances that still exist in the U.S. economy and the aggressive actions that Washington has taken so far means that policymakers will find it harder and harder to keep the ship afloat without resorting to maneuvers, like cranking up the proverbial printing presses, that lead to even bigger problems down the road. Meanwhile, it’s only a matter of time before already stretched individuals and bottom-line-focused businesses either run out of resources or patience — or both — and decide to cut and run.” Meaning the dealer is running out of product, leaving the addicts stumbling around in the street unable to get their next fix.

“Constant stroking out of Washington” can only lead to a let down later on, he says, pointing out that Wall Street appears to have run out of hands to juggle the balls in the air.

“The problem now,” he says, “is that all the bullets are gone.” Monetary policy and political ammunition have left the powers that be with nothing in the chamber now that they’ve shot their load. Figuratively, we hope.

The mistake we appear to be making now is in assuming that this is your average downturn or a series of events that we’ve seen before, the sort of economic slump that academic brainiacs like Ben Bernanke penciled out on worksheets in their early doctorate years.

What they seem unable to wrap their big heads around, he says, is that this is not your traditional sort of recessionary episode. Until they accept that tiny detail, we will only exacerbate the issue, digging a deeper hole and merely staving off the real fallout when we could be better spending our time working towards picking up the pieces. Adding fuel to the fire, Panzner points out, “no one got fired and people think they beat the system.” Where’s the punishment in that?
So where does that leave us now? I guess you’ll just have to wait for the second part of our interview to find out.