About this page see: About "On the Road to Frugality
Island". Like modern financial alchemists this blog tries
to exploit the second derivative (comments on the blog posts) of infospace
;-)
I think many IT professionals including myself are still living in a
fool's paradise and have yet to understand the gravity of the economic crisis.
Not only we do not understand how deeply fraudulent the stock market is.
Stocks casino gambling losses aside, there is only one measure of
the health of an economy: how many fulfilling, living-wage jobs are created
or destroyed (most other factors can be distilled to this.) In this area
we should expect frugal future. For many educated professionals (including
IT specialists) markets are shrinking, not expanding. Unemployed or
underemployed, they need to learn to live on lower cash flows... Many,
especially those over 40 might not be able to find full time jobs. And I
know from personal experience that it's very hard to adjust your lifestyle
down.
The word "Recovery" is seldom defined. If it means a return to the recent
past, it will never happen. There can be no remedies that can allow IT professionals
as a group to keep living exactly the way we're accustomed to with all the
trappings of comfort and convenience we are so used to. Structural
changes including structurally high unemployment in IT are inevitable. Companies
will be keeping fewer employees for any particular level of sales revenue
and try to fill more jobs as part time. Outsourcing might also continue,
albeit at slower pace. Potyomkin village façade of recovery that the
administration presents is a fake. It looks like they have nether
courage, nor real intention to make any structural changes and want just
to kick the can down the road. As David Einhorn observed in
his October, 2009
speech:
Presently, Ben Bernanke and Tim Geithner have become
the quintessential short-term decision makers.
They explicitly “do whatever it takes” to “solve one problem at a time” and deal with the unintended consequences
later. It is too soon for history to evaluate their work,
because there hasn’t been time for the unintended consequences of the
“do whatever it takes” decision-making to materialize.
While triumph of financial masturbation over productive economic activities
is funny and tragic at the same time we can do nothing about it. During
difficult times a lighter look on the whole situation is very important.
See Financial Skeptic
Humor. Among them:
Delayed Reverberations of Financial Blogs Forums ;-)
Note from a reader of Naked Capitalism
blog about importance of support of blogs such as Naked Capitalism,
Big Picture, Calculated Risk and Zero Hedge:
I have a wild hare, but it does amaze me that many blogs
like Naked Capitalism and Calculated Risk, along with many other
fine places like Zero Hedge (the list goes on and on) are often
run by drunks, and dopers that sit around in bunny slippers,
often half if not fully undressed, sipping glasses of wine,
drinking coffee and chain smoking — while they tap out this
pulsing written stuff that ends up on your screens for F’ing
FREE.
Folks, I’m in no way affiliated with any of these fools,
but it does strike me tonight that it “probably” take money
to run this type of dream business — where you get to be in
a near coma state and just make shit up and then see if people
believe it — after all, newspapers all around the world have
been doing this for at least a century, and no one caught on
… until today.
It’s time to F’ing pay the piper! I’d like to be the first
to contribute cash to many of these fine people, but I’m about
as broke as a bum can be — but many of you that can still afford
normal stuff, might want to think about the amount of time that
goes into the work that all these people do and consider that
even a donation of $5.00 is about the price of a triple tall,
double whipped mocha (which just gets you fat).
Take it from me, a blogging bum, I really appreciate all
that I read here for free; this is a great resource, which helps
educate us in a time of great chaos! We need to support our
blogger friends!
“The US economy desperately needs less of our bloated, unproductive
and increasingly parasitic banking system … The banking system has
become an agent of destruction for the gross domestic product and
of impoverishment for the middle class.”
David
Stockman, Ronald Reagan’s former director
of the Office of Management and Budget.
FT Alphaville
"We face two possible states of the world. One is a world in
which our economic problems are largely solved, profits are on the
mend, and things will soon be back to normal, except for a lot of
unemployed people whose fate is, let's face it, of no concern to
Wall Street.
The other is a world that has enjoyed a brief intermission prior
to a terrific second act in which an even larger share of credit
losses will be taken, and in which the range of policy choices will
be more restricted because we've already issued more government
liabilities than a banana republic, and will steeply debase our
currency if we do it again.
It is not at all clear that the recent data have removed any
uncertainty as to which world we are in."
John Hussman
Government by organized
money is just as dangerous as Government by organized mob.
The reason Cramer continues on the air has more to do with the way the
industry markets cable content. Mad Money is part of the CNBC package. Imagine
you go to dinner at your favorite chain restaurant and the waitress brings
you a Pepsi. You say, I hate Pepsi, get it out of here, she says it comes
with your meal. Even if you refuse it registers as a sale. Now if you
think that violates the racketeering laws you are probably correct. The
difficulty is there is no feedback mechanism in place to registers viewer
complaints, not that anyone would complain about free Pepsi anyway. What
do you want, fewer channels maybe?
Sure the FCC should do something, but without
the cover of the CNBC corporate umbrella, (how much of theStreet.com do
they own I wonder?, his business would dry up and blow away probably. However
even if his ratings slip, CNBC would just move him back into the main body
of the show, which is what they do with Kudlow, and they would stuff him
down your throat anyway. Their programming is an extended stock market informercial,
and Cramer plays a role in the process, and will continue to do so until
the bear market reasserts itself, although you must admit the CNBC people
are pretty nimble at getting on the bears side when the market turns. The
NBC Nightly News is just as porous. Soon they will go to custom subscriptions,
and that should change a lot of things.
NGC 6888:
I totally agree w/ you and would go one further. First, one needs
to realize that the FCC, the SEC, etcetera are simple bureaucracies that
can easily be exploited and do not have a grand picture of how to protect
investors/viewers from all but the most obviously criminal infractions.
Second, Cramer is an entertainer (in my view a cheesy one in a land of total
boors) in an industry (television programming) that does not care about
the health of its viewers. THIRD, CNBC programming is attrocious,
but it is truly one of the best franchises on TV. The reason is that
there is a dependable stream of businesses that keep it running in the background
with the volume turned off. It is a singular monopoly in business
programming. Most people have never heard of Bloomberg or Fox Business.
Also, most people hate watching investments TV and don't understand it but
are aware of the CNBC product so it is appropriate to air the network in
a place of business on mute.
Most of the so called viewers are oblivious to the programming quality
or lack thereof. How many nursing homes or senile old timers flipping
channels get counted as Mad Money viewers?
I see a total resistance to change for any outcome other than indictment
and/or complete scandal (but then again we are talking about boors so that
is unlikely).
the grateful un...:
you were aware that while he ran his hedge fund back in the go go late
90's that he was accused by some of his own people of using maria bartiromo
to pump up shares of mister softy, in the morning, so he could sell into
the rally in the afternoon. that high fives among them were common place.
that he bragged about the relationship and how profitable it was.
his hedge fund was a comparative bust. his website was better, i was
a subscriber for a while, and the information they gave out was solid. and
he did some bylines i still remember, good stuff. he knows how rotten the
system was, and still is probably, which is why his multiple personality
skit is so disturbing.
i wonder does anyone know, is the karen who is on fast money, the trading
goddess, his wife, he spoke about in reverential terms? sometime the history
of jim cramer should be written (as a cautionary tale).
NGC 6888:
I never got into his website. I was mentioned once, in a small
blurb, on his website and still have the clipping somewhere.
Yes, he was a scammer that exploited the system in borderline illegal
ways and probable fraudulent ways but was never prosecuted. He made
a gazillion dollars before his scams were busted. In a bar, he would probably
admit as much. I guess that makes him a sharp dresser, a talented
opera singer and unnaturally pleasant smelling.
lsbumblebee:
No wonder I saw an extra special shit-eatin-grin on his face tonight.
I think this can be taken care of with an autographed copy of "Getting Back
to Even".
Reflexivity:
It would be interesting to know the demographics of his audience...IQ,
net worth, career, schooling, income, etc., etc.
Unbelievable that people watch him.
lsbumblebee:
To give you an example of the sad state of this country, I've seen shows
where he gives "advice" to crowds of students on college campuses.
NGC 6888:
There is a fresh batch of suckers at MIT or U of Michigan every year.
Cramer is smart enough to realize that. Fact is, his long time viewers
(?) are serial money losers or skeptics, critics or fans of dark humor.
My guess is there are fewer than 50,000 sane people that watch CNBC regularly
for more than 5 minutes a day- unmuted- and take it seriously.
Reflexivity:
College students: people with overconfidence and zero excess cash
(and usually in debt)... The last people who should be messing
with the stock market. They should be finding good jobs and paying
off student loans and building up a healthy emergency fund of cash.
I'm not saying a few day-trading millionaires weren't made in the last bull
market in dorm rooms across America's college campuses, but buy and large
Cramer's buy, buy, buy, sell, sell, sell trading recommendations are not
a real strategy for the average college student (or really anyone else for
that matter).
Although: zero cash + in debt + overly-self-confident =
hungry market for get-rich-quick advice
Charles has a long career that includes stints at medical school,
Merrill Lynch, Rabobank, and 12 years at Goldman Sachs. He has spent
three decades developing his proprietary Cycle Analysis System, which
generates calls of tops and bottoms for every major market in the world.
Charles developed a huge following after 2007, when he accurately nailed
the top in the Dow at 14,500 and urged his clients to put on short positions
when everyone else was predicting that the market would keep grinding
higher. I have been following Charles daily research reports myself
for two years, and found them to be uncannily accurate.
Master Bates
Yes, holding dollars and doing nothing is a big problem, because
you will always lose to inflation. My opinion though is that much of the inflation that will come in
the future has already been priced into the gold market, and more.
Of course, this is where our opinions differ.
My other argument is the opportunity cost that comes with tying
up money in physical assets over a large period of time. This
leaves you exposed to the market's fluctuations more than I would
personally like.
Anyway, I agree with you in some ways, and disagree in others.
It doesn't mean that I don't like you though. :)
trav7777:
Rates of 13% are impossible.
There is NO ACTIVITY in the US in the aggregate that can produce
this profit margin.
Yields are declining and will continue to do so. Now, the
effective inflation rate may look like we should have 13% yields,
but only because the Fed is buying the coupon.
An interest rate of 13% is highly deflationary...that would suck
the life out of any borrowing demand in existence. It's hard
enough to move credit at 1% right now.
merehuman:
liquidity in banks OH hurrah..so what!
where are the JOBS? What are we PRODUCING?
I apologize for the evident hostility in my words.It is not directed
at any of you reading this.
BTW This is not mentally or emotionally healthy
to live under these stressful conditions .
i suggest we all do something fun today as well as give ourselves
a moment to be thankful for what we DO have.
curbyourrisk:
Agree with everything except the time table. I believe it plays
out over a longer period of time. Sorry Leo, things are getting
worse, not better. I deal with thousands of different companies
in the mid to semi-large size as our customers at work and they
all tell me the same thing. There is no work, there is nothing to
do and we are going to start laying off again....probably by the
end of May. You take the otherside of that trade, but hold it for
a while....as I believe his time frame is too short.
Master Bates :
Out of all of my friends (we're all relatively young people)
about half have been laid off in the last three to six months.
From my buddy who worked as a baked goods salesman, who got laid
off because his company folded, to my buddy the master welder, to
my buddy the master carpenter, to me, who got laid off to "cut costs."
I was running the business for my owner, who spent his money all
day while I handled the day to day stresses. Now, he came back to
run the company to save my 60k salary, and told me "thanks, but
I'm sure you'll find something else". I could go on and on with
these stories.
Out of my friends who still have work, most work in a liquor distribution
warehouse. This business would not be solid, except for it has a
monopoly distributing many popular brands like Jack Daniels to area
liquor stores without any competition.
Of my other friends who still have jobs, most are just hanging on.
My other buddy who is also a master carpenter (who has been in the
business for 15 years or so) says that most of the people at his
company have already been laid off, and he's lucky to be working
on the one project that his company has right now. When this project
finishes, there is no guarantee that there will be more work.
Anybody that says that this economy is recovering clearly are not
looking at the real picture. I would estimate that unemployment for people in their mid to late
20s is probably closer to 30-40%. I could go on and on with my stories
of layoffs of bright, hardworking people that never missed work.
I can name at least four more people that I know directly, probably
more.
The only truth is that this economy is not recovering.
Master Bates:
I'm pretty much on your level. I know that we tend to disagree
about gold, but I do see deflation happening now, followed by hyper
inflation when people get angry and can't stand it anymore. With
that said, I'm really in agreement with you.
People WILL get pissed and riot when they have no food or viable
futures, and that's when the government will really crank up the
presses. Personally, I believe that this is already priced into
gold, but we're not really talking about gold, so I don't want to
travel down that road.
Anyway, it's a rough time in America. I'm happy that your daughter
has a good job. She's not lucky, she deserves it I'm sure. Many
other people deserve it too, but are unlucky. Anyway, I'd never
been unhappy because somebody else is doing better than me, so good!
I'm somewhat lucky because I managed to save some money and I was
already a student for a couple of years when I lost my job. If I
can't get another one, I can live off the UI for a while, then exhaust
my savings, then if worst comes to worst - at least I'm a proven
student with a 4.0. I can probably get some student loans.
Still, I'm scared for the future. All I want is the opportunity
to succeed. I'm sure most Americans are in my boat.
PicassoInActions:
Future will be contained. Nothing bad will happen in near term.
Look trough the history. As long as we can feed people with the
"hope" or "faith" ( anything) - we are good to prolong the agony.
We will change the top and will blame on the previous one ( which
is in other terms will renew the idea of hope).
And don't forget , then everything falls- we just simply will be
pushing patriotism.
And pardon my spelling...
augmister :
How deflated is your 4.0 GPA? Look what that is buying you now
in the marketplace?
It seems rather worthless now, doesn't it? If you do go back to
paying that inflated price for an American education, make sure
you study high tech or anything food/ag related. You will be able
to at least, get by in the Depression. Be very afraid. The good
times are over.
I can see the markets tanking from here and April is not far fetched....wait
till the taxes are collected and the accounting on the collection
baskets show huge shortfalls, both on Fed and local levels. Everything
but the politicians throats get the knife! Deflation. The baby will
be thrown out with the wash.... No jobs, hungry angry people and
civil disobedience to follow. Nobody cares and everyone ready to
throw the next guy under the bus. Grow a pair and get your skin
thick. Think survival. Ugly, and no way around it. Leave It to Beaver
will look like a wet dream.....
Master Bates
I am accounting/finance dual major. I would like to potentially
attend law school after I get my bachelors (I'm a junior now.)
I would have been an electrical engineer- but I have the mind of
an engineer, and the dexterity of a disabled person. (LOL) I have
a great knack for working on electrical systems and analyzing problems,
but I've blown a couple of circuit boards in my day because of being
clumsy too! With that said, being an engineer probably isn't right
for me! As far as high tech, many of those jobs are going to India anyway,
which is why I didn't pick that, although I may just get an information
systems minor instead of a finance minor.
I still stand by my decision to go to school and also to get a 4.0.
I still believe that luck favors those that try hard, and also that
this economic mess will get better someday. The sun will come out
tomorrow, even if it isn't tomorrow.
GoodBanker
Join the club, Bates. I'm a 20-something with an identical degree
profile, and living in FLA hasn't made my life any easier after
being laid off over a year ago. I was able to procure contract work
(thank god the world still needs auditors... for some reason) in
order to fill the gap, but that doesn't mean I'm back on the horse;
all the benefits have disappeared, and I'm relying on my relative
youth and my COBRA extension to carry me through. Times are certainly
hard, but I understand the drive behind your educational destination.
Although I was quite adept in a number of subjects, few appealed
to me on a holistic level like FIN/ACC. You're bright, and although
I question some of your positions, they're generally thought provoking
(until you start harassing the gold bugs ad infinitum :-)). Best
of luck going forward; we'll all need it.
Master Bates:
Good luck to you too man. It's a shame that so many people like
us want to work as hard as we can and can't. Anybody that wants
to work in America should be able to.
ChevronSky :
It's not just the high-tech jobs going to India. You mentioned
going to law school. Well, law firms are also outsourcing legal
work to India. Indian students attend law school in the US, typically
graduating in the top 20% of their class, pass a state bar exam,
and return to India. There, they can perform legal research/writing
(it's all done online anyway through Westlaw/Lexis), earn $35,000
USD/year, and live in a nice house with two Mercedes and all the
upper-middle-class trimmings they could want. Why pay new associates
100k plus a year, when equal talent is available for a fraction
of the cost?
Just another frustrating piece of the system...
SteveNYC
Same age group as you dude. Been busting my hump since 15, finished
school, bachelors, masters degrees, all while working. There is
no easy route, but the one thing I can honestly say: be true to
yourself.
Don't go sucking someone's ass just to get a job, 'cause you'll
fuckin hate it and hate yourself. I see this all the time these
days and I feel so bad for these people.
I basically pay my own wage, however, if I don't want to do that
anymore, it's a bundle of cash from the safe, and a nice third world
country/surf board for me (Thailand, Indonesia, Philippines, Vietnam,
somewhere in South America perhaps?)
Good luck to you dude.
chet:
I agree as well. I'm a consultant in a small firm. We're chasing
people for payment, people are chasing us for payment, and we're
all chasing after a dwindling share of jobs to bid on. We used to
compete against maybe two or three other local firms for jobs. Now
we compete with ten to twenty from all across the West.
I don't know how much longer I'll be here. Have been stashing away
as much money as possible to prepare for unemployment, but with
a young family there isn't a lot of fat in the budget.
Anyway, looking around, listening to people, I have a very grim
sense of the business climate for the remainder of this year. Layoffs
starting in May sound about right to me. A very slow, hot summer.
I live in Portland, OR where we've had a ton of young people moving
here. Many were underemployed even in the good times. We'll see
what they do when the reality of all this really sinks in.
SWRichmond:
Taking this post and this quote from your above: "The only truth
is that this economy is not recovering." While that may not be the
only truth, is certainly is true.
Mostly, all you ever say is "gold is bad". So again, I'd like to
invite you to lay out for us your scenario going forward. How does
this debt-deflation / deleveraging resolve itself? How does the
government / currency survive a self-reinforcing deflationary spiral?
Master Bates:
I think that we all know that the end to deflation will come
from inflation. I'm not disagreeing with anybody here that we will
need more currency to absolve the problem.
Where I deviate from the general concensus is that I believe that
this has already been anticipated by the markets. Gold had a huge
run up with relatively little underlying inflation. People have
already placed inflation into the price of gold, I believe.
Also, I don't believe that the fix will be as bad as some people
believe it to be.
While I know that inflation is coming, I just don't think that it
will be as bad as people think, for one, and two, I think that it
is already priced into gold.
Greyzone
Gold has been prices between $1050 and $1150 for about 6 months
now with a couple small spikes upward in that time. A $30 move doesn't
concern me at this point, in either direction. Gold is in a range
and when the trend line moves clearly out of that range would be
time to watch.
Having said that, I still think deflation is the next big act in
the theater of the absurd. But I disagree with you in that this
deflation is going to be worse than anything we've ever seen, including
the Great Depression. I expect the "Great Recession" to morph into
the "Greater Depression" in the next 12-24 months. There is still
way, way, way too much debt outstanding that can never be collected
at its current mark-to-fantasy pricing. Actual collections will
run from a few cents on the dollar to maybe $0.30 on the dollar
tops. And I mark that $0.30 on the dollar based on what I see happening
with each bank closed by the FDIC, and other such actual market
resolutions to existing debt.
The US is in a trap that the hyperinflationists
miss - the US cannot inflate faster than the rest of the world or
else it will lose its status as the world reserve currency. The Fed, faced with the choice between losing its source
of power (the dollar as the global reserve currency) versus bankrupting
the rest of America, will surely choose to bankrupt the rest of
America before it gives up the levers of power. Indeed, a massive
deflationary collapse further enhances Fed power over the entire
world as other currencies are hyperinflated to try to "cure" the
depression but then collapse in failure. This leaves the dollar
as king, a sort of one-eyed man leading the blind.
Sometimes I wonder if deflation was
the goal all along. It allows those in power to grab real assets
at firesale prices while at the same time strengthening the dollar,
which further entrenches the banking class. Hyperinflation
is just a ploy by politicians to buy more time for one more election
and it destroys the currency. Deflation is a move by a master chess
player who wants all the pieces for himself and his is planning
his next 10 moves at the same time. Nations that have hyperinflated had direct control of their currencies.
So far the US does not. In fact, the bankers themselves control
the Fed which controls the currency. So which scenario
makes more sense? Destroy themselves and the very thing that gives
them their power (the dollar) to try to save politicians for one
more election cycle? Or destroy the middle class to obtain even
more long term control over the real economy?
good stuff George, thanks for your blogging efforts.
The claims that “Wall Stret is paid to delude itself” and “people
see what they’re incentivized to see” is really rather shallow analysis
— as much as I enjoy Mr. Lewis’ writing.
People with a sense of empathy for society at large, a degree of
character and dignity, and a general sense of personal responsibility
will in fact see beyond what they are incentivized to see.
They will stand up and say “No. This is wrong. We have to fix this.
This is hurting people. We are leaders and we can lead in a different
direction.”
Many of the people that could have done that and said that before
and during the GFC were millionaires many times over. They didn’t
need to keep “getting paid”. They didn’t, in fact, need another
penny — and even then they would have been rich for the rest of
their lives.
This is beyond incentives. It reaches
into the realms of cult-like addiction, pyschopathology and the
structure of invidual and group consciousness. There are no heavyweights
that have the ability to analyze all this to the degree it merits.
Most of the stuff written about it is shallow bullshit, little journalistic
nibbles of thought, like Doritoes.
TheHube:
Paying bonuses in toxic assets flat out will not work.
This whole thing reminds me of the tax shelter game which went
on for decates and involved nearly every major law firm, accounting
firm and investment bank. It didn’t stop until they started putting
people in jail. They ruined some lives in the process but everyone
got the word loud and clear and the activity stopped dead in its
tracs.
If it were up to me I would require all compensation to be paid
in cash in the year earned. If a bank fails (and a failure would
include a government bailout) any compensation paid in the last
5 years in excess of $250,000 per year would be treater as a fraudulent
conveyance and subject to forfeiture in favor of the creditors or
stockholders if anything was left.
Additionally, if they really start putting people in jail for
accounting fraud it will stop.
I decided to check it out. I didn’t make it past the first page
of the transcript and wrote him back –
You believe this???
“I’m afraid that our culture will come to the conclusion, ’cause
it’s always the easy conclusion, that everybody was just a bunch
of criminals*. I think the story is much more interesting than that.
I think it’s a story of mass delusion,” Lewis said.
Lewis’ forte has always been discovering little-known facts and
characters that change people’s perception about a story. So when
he finally sat down at his computer with sacks full of research
to write about this calamity, he had no interest in Treasury Secretary
Hank Paulson, or Ben Bernanke, or the CEOs of Wall Street’s big
investment banks, who he believes had no clue what was going on
while it was going on. **
He wanted to tell the story through the eyes of people who were
paying attention and who knew that a financial disaster was inevitable.
“There are a handful of characters who actually had seen it coming
and made a fortune off of it ***. And there were so few of them,
and there were so many people who had been on the other side that
I thought that I kind of wondered who they were and why they got
themselves into that position,” Lewis said. “What they saw. Almost
more how they saw.”
Asked how many people he thinks were in the world who understood
what was going on, Lewis told Kroft, “Between 10 and 20 investors
**** at most and this is from the universe of tens of thousands
of people who could have conceivably made that bet.”
——-
* If they aren’t criminals it’s because they got the laws changed
to decriminalize their methods. But I think there is also fraud
involved.
** Like Greenspan, with his “I’m shocked, shocked…” stance. They
knew.
And — JEEEZ — if Paulson and Bernanke were such retards that they
were ignorant of what was going on, why do they get to be in charge
of all the money now? It has been suggested that people who were
among those who saw the situation coming a long way off should be
the ones put in charge, rather than the current Goldman clique.
***There were whole troops of people working for various financial
institutions eagerly manufacturing subprime loans, bundling and
processing them into tranched and retranched Toxic Waste to deceptively
label AAA and sell. This was such a hot industry that bartenders
were being drafted off the streets to become Loan Officers to feed
more and more NINJA loans into the massively lucrative derivatives
market.
****Between 10 and 20 people knew what was going on? Good lord….
Helming has had dark visions of tomorrow before. For example, when
the stock market crashed in October 1987, Helming feared the worst.
“We’re heading for a recession we haven’t seen the likes of since
the 1930s,” he told The Star at the time.
Helming saw summer 1990 as the onset of “the most serious deflationary
recession we’ve had in over 50 years.”
He declared outright in November 1992 that the nation’s economy had
entered a depression. And July 1994 reminded him of “what happened in
the early 1930s.”
We know now he was wrong. That doesn’t keep his or others’ dire forecasts
from attracting attention during hard times.
A depression remains in the economic forecasts of author Harry Dent
Jr., and deflation figures strongly in the views of economist Gary Shilling
and technical analyst Robert Prechter.
Gloom and doom never really goes away, as if in good times we want
reminders not to overdo it. But predictions of a sharp depression are
clearly outside the mainstream of economic forecasts today.
Talk of depression had rattled markets a year ago, for example, when
Harvard economist Robert Barro put the odds at 20 percent. Recently,
he set them “close to zero” for 2010.
Most economists expect a weak, slow recovery — but a recovery all
the same.
Bubbles don’t burst
Helming makes his case for what he calls a “modern-day depression”
in his 195-page, self-published book.
We’ll see a sustained drop in the prices of just about everything,
from stocks and real estate to wages and commodities. Some of that is
happening now.
Helming argues that much more lies ahead.
He said decades of easy credit and increasingly widespread use of debt
— by governments, companies and consumers — have inflated the economy
and the price of nearly everything to unreasonable heights.
“We borrowed our way to prosperity, and that has never in history
been sustainable,” Helming said.
In short, we’re living in an economy packed with bubbles.
But in Helming’s forecast, bubbles this big don’t burst. They deflate.
It will take years, difficult years, to deflate prices, unwind excessive
debt and stabilize the overblown economy, he said. It will take a depression.
Think of Japan’s lost economic decade of the 1990s, he said.
... ... ...
Eyes of the storm
As bad as the last two years have been, Helming says the most difficult
stretch starts later this year.
By 2012, unemployment will climb to 12 percent from the current 9.7
percent. Add in discouraged workers or those who are underemployed and
Helming sees 32 million, or 20 percent of the work force, suffering
from a lousy job market.
Houses will lose half the value they had in 2006, he said, adding that
they’re already down by a third.
The Dow Jones industrial average, currently
above 10,600, likely falls below 4,000 and possibly as low as 1,500
or even 500, he said. Little wonder that Helming’s advice is to dump
all your stocks by the end of April.
Cash will be king, so you’d want to own federally insured bank deposits,
U.S. Treasury debts, and only the best corporate bonds and annuities.
... ... ...
Where’s the proof?
For all its numbers and graphs, Helming’s book is short on proof that
he is right this time.
He offered three reasons his earlier predictions fizzled.
World trade grew more than he’d expected.
The technological boom created jobs he hadn’t counted on.
He also hadn’t appreciated the impact that baby boomers would
have on the economy as they reached a spending peak in the 1990s
and 2000s.
“That’s something that clearly bought more time,” Helming said.
Many other economists say government support of credit markets avoided
a depression. Others say debt’s burden can be dealt with gradually by
saving more as a nation without wrecking the economy.
Those who don’t expect a severe depression have the same problem Helming
faces.
They can’t prove we won’t have one.
... ... ...
My own thoughts on this is that we have
escaped the worst case scenario, but we are in for a long, tough slug
ahead. The forces of deflation and inflation are playing
themselves out, leaving financial markets wishy-washy. I still think
stocks are the best asset class and that corporate spreads will come
in further in 2010, but my buddy who trades currencies is right, this
is a great environment to be selling volatility.
I am, however, less enthusiastic on private markets, especially
commercial real estate which is the next bubble to burst, hammering
many banks in the process. And it's not just banks. Many pension funds
invested enormous sums in commercial real estate through direct equity
stakes and mezzanine real estate debt. They too are going to get hammered.
So while I am cautiously optimistic and try to focus on the little good
news percolating up from the global recovery, there are still many significant
challenges that lie ahead. Is another Great Depression headed our way?
Let's all pray and Bill Helming is wrong — again.
Was it staged ? If so what was the motive ? To sue Toyota ? Was
he financially strapped ?
Investigators with
Toyota Motor Corp. and the federal government were unable to make a
Toyota Prius speed out of control as its owner said it did on a California
freeway, according to a memorandum obtained Saturday by the AP that
a congressional spokesman says casts doubt on the driver's story.
James Sikes, 61, called
police Monday to report losing control of his Prius as the hybrid reached
speeds of 94 mph (151 kph). A California Highway Patrol officer helped
Sikes bring the vehicle to a safe stop on Interstate 8 near San Diego.
Federal and Toyota
investigators who examined and test drove the car could not replicate
the problems Sikes said he encountered, the memo said.
The findings raise questions about "the
credibility of Mr. Sikes' reporting of events," said
Kurt Bardella, a spokesman for California Rep. Darrell Issa, the top
Republican on the House Oversight Committee that is looking into the
incident.
Sikes could not be
reached to comment. However, his wife, Patty Sikes, said he stands by
his story.
"Everyone can just
leave us alone," she said. "Jim didn't get hurt. There's no intent at
all to sue Toyota. If any good can come out of this, maybe they can
find out what happened so other people don't get killed."
Mrs. Sikes said the
couple's lives have been turned upside down since Monday and they are
getting death threats.
"We're just fed up
with all of it," she said. "Our careers are ruined and life is just
not good anymore."
During two hours
of test drives Thursday, technicians with Toyota and the National Highway
Traffic Safety Administration failed to duplicate the same experience
that Sikes described, according to the memo prepared for the Oversight
Committee.
"It does not appear to be feasibly possible,
both electronically and mechanically that his gas pedal was stuck to
the floor and he was slamming on the brake at the same time," the memo
stated.
The brakes on the
Prius also did not show wear consistent with having been applied at
full force at high speedsfor a long period, the Wall Street Journal reported
Saturday, citing three people familiar with the probe, whom it did not
name. The newspaper said the brakes may
have been applied intermittently.
Toyota spokesman Mike Michels declined to confirm
the Journal's report. He said the investigation was continuing and the
company planned to release technical findings soon.
Michels said the
hybrid braking system in the Prius would make the engine lose power
if the brakes and accelerator were pressed at the same time.
Transportation Department spokeswoman Jill Zuckman said investigators
"are still reviewing data and have not reached any conclusions."
Sikes called police from the freeway on Monday and reported that his
gas pedal was stuck and he could not slow down. In two calls that
spanned 23 minutes, a dispatcher repeatedly told him to throw the car
into neutral and turn it off.
Sikes later said he had put down the phone to keep both hands on the
wheel and was afraid the car would flip if he put it in neutral at such
high speed.
The officer — who eventually pulled alongside the car and told Sikes
over a loudspeaker to push the brake pedal to the floor and apply the
emergency brake — said Sikes braking coincided with a steep incline
on the freeway.
Once the car slowed to 50 mph, Sikes shut off
the engine, the officer said.
The memorandum obtained by The AP said when investigators placed the
Prius up on a lift, they found the driver side front wheel well was
dislodged and the brake pads were worn down. "Visually checking the
brake pads and rotor it was clearly visible that there was nothing left,"
the memo said.
Drivers of two other Toyota vehicles that crashed last week said those
incidents also resulted from the vehicles accelerating suddenly.
NHTSA is sending experts to a New York City suburb where the driver
of a 2005 Prius said she crashed into a stone wall Monday after the
car accelerated on its own.
And in Fort Wayne, Indiana, the driver of a 2007 Lexus said it careened
through a parking lot and crashed into a light pole Thursday after its
accelerator suddenly dropped to the floor. That car was the subject
of a floor mat recall. Driver Myrna Cook of Paulding, Ohio, said it
had been repaired.
Oh boy..... After the ( even by his standarts.... ) famous "Housing
& Bank Stock Shortage" call from January 2008 ( NO KIDDING > see
"Ten Trillion $ Worth Of Good Calls" ) was a little bit "premature"
he is predicting a bank stock shortage version 2.0.... Would at least
be honest if he mentioned the "ultimate moral hazard trade" & the "Enron-esque
characteristics" when it comes to accounting as the two main reasons
behind the motives to own banks.... ;-)
Just for the record here are the two main ETF´s tracking the financial
sector.....
In reflecting on why the past 15 years have been so riddled
by irresponsible speculation, it is impossible to ignore the rise
over that same period of widely-viewed financial programming that
is equally riddled with cartoonish content that encourages short-term
thinking and speculation (buy-buy-buy! sell-sell-sell! boo-yah!)
In fact, the banking system is continuing to sink under
bad loans and even worse securities losses.Telling
the public that the banks are “fixed” is irresponsible.
Unfortunately this false perception is widespread, including
among major media such as CNBC and also with a number of my clients
in the hedge fund world.
But at least Bubblevision is a very good tool to spot sentiment......
The factors most responsible for reducing demand since 1971 cannot
be repeated. Almost all the low-hanging fruit has now been picked;
it cannot be picked again. The OECD has already done the easy fuel-switching,
away from oil used in electricity generation and space heating.
The authors' inference is not an optimistic one:
If annual per-capita oil demand growth rates to 2030 were assumed
to be held zero in the OECD, 1% in the [former Soviet Union], and
at its 1971-2008 historical rate (2.54% annually) in the rest of
the world, total oil demand will be 138 mbd in 2030-- about 30 mbd
greater than what is projected by DOE, IEA, and OPEC.
If you have a plan for how the world might produce 138 mbd, I'd like
to hear it. If not, the
challenges
of 2007-2008 will return with a vengeance.
Transportation adjustments will be the key. Trying to make more use
of natural gas as a transportation fuel should be a high priority for
the United States.
Comments
Indy
Coal-To-Liquids is waiting in the wings. We'll simply have to
make a choice between supplying world demand for motor fuels at
affordable prices, but tolerating increased CO2 emissions, or living
with crushing oil prices, with the resulting cash flows to unfriendly
OPEC countries. There's also the "plug-in-hybrids" solution, but
affordability there will likewise depend on increasing the supply
of coal-burning electric power plants.
Question: When the option for affordable, plentiful, and
domestically-produced (and domestically job-expanding) coal-to-liquids
technology is presented in an political context where gas is +$4
a gallon for an extended duration, how long would any commitment
to CO2 emissions control in the US survive? And in other coal-reserve
nations? China? Canada? India? Russia? South Africa?
For a long-term bet, in a petroleum-constrained world, I'd have
to go with higher coal utilization and higher CO2 levels.
Cedric Regula
Here's the Honda Civic GX.
http://automobiles.honda.com/civic-gx/
A.V. Suni
There are plenty of unconventional sources left (see e.g. Rogner,
1997). Coal-to-liquids are profitable when oil price is above 30-35
USD/barrel. We'll run out of nature much before running out of oil.
ronald
This is not news to those who have followed the oil industry
for years but maybe this series of papers will help educate those
who believe that our energy intensive lifestyle can continue on
the cheap.
From the December 2009 issue of The Baffler (no online version of this article available).
For those not familiar with The Baffler, this is the revival
of a magazine of business and culture edited by Thomas Frank that had
previously been published from 1988 to 2007. This issue was called “Margin
Call” and included articles by Matt Taibbi, Naomi Klein, Michael Lind.
I believe readers will find this piece to be relevant. Enjoy!
Since inequalities of privilege are greater than could possibly
be defended rationally, the intelligence of privileged groups is usually
applied to the task of inventing specious proofs for the theory that
universal values spring from, and that general interests are served
by, the special privileges which they hold.
Reinhold Niebuhr, Moral Man and Immoral Society
A year on from its brush with Armageddon, the financial services
industry has resumed its reckless, self-serving ways It isn’t hard to
see why this has aroused simmering rage in normally complacent, pro-capitalist
Main Street America. The budget commitments to salvaging the financial
sector come to nearly $3 trillion, equivalent to more than $20,000 per
federal income tax payer. To add insult to injury, the miscreants have
also availed themselves of more welfare programs in the form of lending
facilities and guarantees, totaling nearly $12 trillion, not all of
which will prove to be money well spent.
Wall Street just looted the public on a massive scale. Having found
this to be a wondrously lucrative exercise, it looks set to do it all
over again.
These people above all were supposed to understand money, the value
of it, the risks attendant with it. The industry broadly defined, even
including once lowly commercial bank employees, profited handsomely
as the debt bubble grew. Compensation per worker in the early 1980s
was similar to that of all non-government employees. It started accelerating
in 1983, and hit 181 percent of the level of private sector pay by 2007.
The rewards at the top were rich indeed. The average employee at Goldman
Sachs made $630,000 in 2007. That includes everyone, the receptionists,
the guys in the mail room, the back office staff. Eight-figure bonuses
for big producers became standard in the last cycle. And if the fourth
quarter of 2009 proves as lucrative as the first three, Goldman’s bonuses
for the year will exceed bubble-peak levels.
Selected Comments
Tom Crowl:
Fantastic article and overview of the culture of Wall Street
and it’s unfortunate evolution. Paradoxically,
much of this arises as a consequence
of biological altruism’s dysfunction in scaled societies…
Which is why we need regulations and oversight…
A couple of brief posts on these issues if interested:
“It seems to me that the
core problem is a horrifically skewed incentive structure, amplified
through a microcosm that seeks to extract everything possible
out of humans like strip miners destroying a landscape. The personality traits and skill set useful to surviving
the experience are not those conducive to correcting the problem,
or to improving the business. The whole business becomes extractive
in all its dealings.”
That reminds me of this Niebuhr quote:
The spirit of capitalism is the spirit of an irreverent
exploitation of nature, conceived as a treasure-house of riches
which will guarantee everything which might be regarded as the
good life. Man master’s nature. But the social organization
of capitalism at least theoretically rests upon the naive faith
that nature masters man and that her pre-established harmonies
will prevent the human enterprise from involving itself in any
serious catastrophes (physiocratic theory).
–Reinhold Niebuhr, The Nature and Destiny of Man
Hugh:
More excellent writing. This is a
good description of the paper economy. It doesn’t produce real,
sustained wealth or serve any useful societal function.It is all about money chasing itself,
about markets divorced from their real world underpinnings,
yet which at the same time have large, distorting, destructive effects
on the real world economy.
These people whether you call them MOTU or banksters are unreformable.
They are gamers. They only know the game. Anything you do to control
them they will game on you. This is why regulation will not work
with them. There was regulation. They filled the regulatory apparatus
with their people. What about the politicians? No problem, they
bought them too. Then they had them deregulate the regulators.
Fraud has become an institutionalized part of the financial system.
And why not? Who is going to call the banksters on it? The regulators?
People who either have or will work for them? The politicians whom
they own? We just went through two years of the worst financial
crisis since the Great Depression and we could well have worse to
come, yet what was the upshot for Wall Street? Trillions in bailouts,
no strings attached, no punishment of the banksters, no prosecutions,
not even any investigations, and, of course, no curbs on bonuses.
And reform? Do you even need to ask? DOA. Or maybe I should say,
DBA. Dead before arrival.
Because of its size, complexity, and
above all culture of fraud and criminality, the only way real reform
is going to work is if the system is taken over in its entirety
and restructured from the ground up. Most of those now in the financial
industry need to be banned for life from it. Their
assets need to be RICO’ed, and they need to face charges. I am talking
of prosecutions in the 10,000 plus range.
We should not view these people by what
they say they are or how their bought stooges in government and
the media defend them, but rather we should judge them by their
actions. Do this and you will see they are the great financial terrorists
of our times. They have done more damage to us and
our country than Osama bin Laden or al Qaeda could ever dream of.
I am not looking for revenge here. No Gitmos. I think simple justice
fairly applied would be harsh enough. But I don’t see that. I see
another collapse and somewhere an explosion that will either reassert
our Constitutional processes or more likely destroy them.
scraping_by:
Calling this mindset sociopathology
is spot on. It’s a common disease in this country, mostly infecting
the jobs involving expensive wardrobes and obscure vocabulary. One
of the ways you can see this is a current example and how it relates
to law.
The Lehman report reveals an act with Repos that was certainly an
attempt to defraud. Yet, the report calls the deception “colorable”
rather than unlawful, a fraud that’s only a fraud against, oh, someone
somewhere. Not something that would send people to jail, rather
something that should be settled by civil lawsuits. Lots of civil
lawsuits, requiring lots of hours of legal work by lots of highly-paid
lawyers. One notes in passing this was a report by lawyers, but
that may not have relevance.
The relevance is that instead of public officials defending the
public, we have private individuals settling things among themselves.
From honest finance being a public good, it’s now just a civil arrangement.
You can’t expect anything, since it’s all negotiable before and
after you say yes. Hand over your money and take what they give
you. Both as an individual and as the state.
The danger is that the descent from public law to civil law will
keep going. Getting to private law, like the Open Carry wackos,
is no longer so wacky.
Nice note on potential harm of excessive financial masturbation :-)
High levels of debt, followed by extended
low interest rates… Are
these morons serious? This is an inviolable principle, if these
economic imbeciles actually treated seriously their “field of study”.
Aren’t these central planners supposed to be “adults” who dress themselves,
tie their own shoes in the morning, and make themselves cold cereal
before they go off to work to destroy people’s lives? What the
hell are they thinking?
This is like surgeons in the 1840’s
strutting around, “Hey, we’re surgeons, and our brains are HUGE,
and hand washing is stupid, because we’ve never heard of these things
called ‘germs’!” Surgeons continued to kill over a quarter of
their patients for decades, including women delivering babies in hospitals,
until the 1880’s when Pasteur extended Koch’s germ theory of disease.
The murderers had no idea they were killing literally every one they
touched, and were even so bold as to ridicule, show hostility, and discredit
anyone who suggested hand washing was a good idea. Poor Holmes.
Poor Semmelweis.
Our central planners in our central
banks are religious nuts. They show none of the attributes of
professionals in a disciplined field of study, and all the attributes
of brain-dead zombies performing ritualistic incantations (like the
banks they pretend to manage and regulate). Our treasury departments
are equally insane. They refuse to wash their hands as they un-invitedly
break into each of our homes to devalue our currency, and ensure sovereign
defaults worldwide. They have muddy feet too.
“We’re economists, and our brains are
HUGE, and we can have free lunches FOREVER because
we’ve never heard of this thing called ‘debt’!” There’s no possible
way to engineer a setup for more complete destruction. Murderers.
Morons.
Being charitable: Economists
have a different world view from “normal” people.
Being non-charitable: Economists
are literal economic and common-sense morons.
By artificially forcing interest rates
too low for an extended period, economists are literally fanning the
flames of stupidity. When deleveraging begins, the rates will
rise sharply, causing a feedback loop that explodes the conflagration
of debt unwind to the point where it will annihilate everything in its
path. Can this be avoided? Not anymore, with Captain Jackass
at the helm ensuring that little old ladies can no longer live on their
fixed income CDs. We’ve already had our record levels of leverage
and our extended period of low interest rates.
It’s a good thing economists don’t
have any professional standards, or they would be guilty of professional
incompetence. It’s a good thing they remain unaccountable to society,
because their actions are criminal negligence.
When a fire science professional screws
up, someone usually dies, and the professional goes to jail. When
an economist screws up, people lose everything they have spent a lifetime
accumulating, people starve, nations fall, we go to war, and millions
die. Economists will then pretend to tweak their theories and
go on book tours.
How hard is this to understand?
With high fuels loading, you will get a fire. We hope
and pray the acreage burns when we have high humidity and low winds,
to ensure it doesn’t burn too hot and too fast. That helps ensure
the destruction is not *so* complete that nothing remains.
It’s silly talk to say you won’t get a fire, because that immediately
disqualifies you from any sensible participation in the discussion with
actual adults.
With record high debt levels, you
will deleverage. We hope and pray the deleveraging occurs
when you have a relatively healthy economy (ha!) and relatively
high interest rates (ha!), to ensure leverage remains only
for productive activities (ha!) and deleveraging starts with
non-productive activities (ha!).
We are in a period of record high debt
levels, followed by an extended period of record low interest rates.
Oh, CR*P! At this point, because of the debt levels and
leverage, raising interest rates is impossible (nearly all sovereigns
would default instantly with even a one or two percentage point increase
in interest rates). CR*P! CR*P! CR*P! Even today,
we are held together only through accounting fraud collusion among private
institutions, central banks, and sovereigns. (Yes, we’re talking
about go-to-jail fraud.) CR*P! CR*P! CR*P! CR*P! CR*P! CR*P!
Still, we can be assured that defaults will inevitably happen, and interest
rates will inevitably rise. These private institutions, central
banks, and sovereigns are all toast. Pathetically, they all earned
it.
The ship has sailed, and we are betrayed
by the economists. Central banks and sovereigns the world over
utterly failed in their job, not that they were ever qualified to do
the job they pretended to perform. We will get a spark.
Some happy camper will be irresponsible with his adult beverage around
the too-big campfire. When the spark happens, a million acres
burning across Yellowstone will look like a cute evening of nostalgic
fun.
No, at this point, there is no way
out. Thanks a lot, you friggin’ central planning feeble-minded
morons! Unlike you, normal people can actually do the math.
Even now, you economists won’t recognize your utter failure in your
“field of study”? You pretend to use big words, but it’s easy
to recognize them as merely confused baby-mumblings. Clearly nobody
should have let you wear “big boy” pants. In the true mark of
immaturity, you won’t even admit to the increasing stench from the pile
of brown stuff in your underwear. Who the hell do you think will
actually have to clean up that mess?
Mammas, don’t let your babies grow
up to be economists.
Really economics is a great profession
"The government is always right!
Now where is my paycheck"
they might as well hire bums and
invalids to do the job. It's
not hard to parrot what Uncle Sugar
is saying. Though in your
example it might also fit in that
these economists are willful arsonists.
They pour gas everywhere while chain
smoking, and when the fire does
break out they scream for more gasoline
to put the fire out.
The real
painful thing is the bad ideas never
leave. Like you said they
have a minor tweak and are presented
to a new generation of believing
suckers. I know to many professors
that have said "Oh it won't happen
this time, he learned form the past".
the only thing they learned fro
teh past was how to cover their
ass.
We are nearing the
next stage in this saga.
Please understand that
economics, at least
to those on the inside,
has never been confused
as a science. It is
merely a useful device
in advancing the interests
of those who play with
people's lives on a
global macro scale.
So sad that I agree with
your statement. We
agree that economics today
is merely a rationalization
tool to move the sheep around.
I did not want to complicate
my assertion with things
like fiscal v. monetary
policy, separation of the
treasury from the central
bank, fractional reserve
lending, etc., because I
want to make a very simple
assertion, which is two-fold:
IMHO most people
have some level of respect
for economists, as professionals.
I don't, and I'm calling
"bullshit" in a manner
that cannot be misunderstood.
Economists make
the world worse, never
better, and are never
accountable for the
continual grievous harm
they inflict on the
rest of us.
For any economists out
there, your rebuttal MUST
start with the phrase,
"We've shown economists
made the world better by
[insert
your unsupported bullshit
here]".
In short, I'm calling
them out: They continue
to claim their "societal
tweaks" will keep giving
us new, good, free stuff
that we wouldn't have gotten
except for their HUGE brains.
I call bullshit.
And yes, IMHO the damage
they do is on purpose (although
lots of it is simply because
they are morons).
Finally, as I allude
in the article, I have respect
for the concept of economics.
I just don't think that
should ever be trusted to
economists, who happen to
be economic morons.
For example, if surgeons
today never washed their
hands, I could similarly
say, "I have respect
for the concept of surgery,
I just don't think that
it should ever be trusted
to surgeons, who are moronic
murderers."
As a wildland fire professional
and amateur doom economist, I couldn't
agree more. When I think of the
"garbage-in-garbage-out" nature
of the long- and short-term fire
behavior modeling I routinely do,
I am simply amused by the idea of
economics as a science. Milton Friedman
and his followers will someday be
reviled as the soulless, discompassionate
killers that they really are. In
other words, they'll be revealved
as shills for the wealthy in the
class war that's rapidly coming
to a head. There does seem to be
a lot of fire in Greece these days,
but it's not the kind I would care
to predict. Fire on the landscape,
with all the nuanced effects of
thermodynamics and surface winds,
is far more predictable than people
are. And maybe, just maybe, we will
begin to reward those who DO NOT
simply act in their own self-interest.
imo the revelation of friedman
you speak of is already well
begun in naomi klein's "the
shock doctrine" (next real life
installment coming soon to a
sovereign debt market near someone).
But it’s not that complicated. Lots of people knew that Lehman
was playing games with its numbers, even if they didn’t know exactly
how. What they didn’t know was the chain reaction that Lehman’s
catastrophic failure would cause. And Dick Fuld, who was signing off on bogus quarterly statements,
has no right to be aggrieved, not after pocketing hundreds of millions
even as his company imploded — much of which, we
hope, will be squandered in an unsuccessful legal defense.
Barry Ritholtz was one of the Wall Street watchers calling bullshit
on Lehman at exactly the time when the bank was cooking the books,
and he was ridiculed by name for it on CNBC. Ritholtz seized upon
the release of the new report as an opportunity to settle some old
scores. The video is instructive if only to remind us how complicit
the financial press was in the whole charade.
Equityval:
March 13th, 2010 at 7:46 am
A little more detail from the Examiner’s Report on the SEC’s handling
of short sellers who focused on Lehman.
Note how the regulators are doing Lehman’s bidding by calling out
short sellers as manipulators. This is pretty clear evidence of
how politicized the SEC has become. They too, like Gasparino, had
ceased to worry about facts and apparently were more concerned with
who was on the other end of the phone and who they worked for. Thomsen
and Sirri of the SEC resigned in early 2009 in the wake of the Madoff
revelations.
“p. 713: After Bear Stearns nearly collapsed, short sellers began
to focus on Lehman and other banks. On March 20, 2008, Russo [LEH's
general counsel] contacted Linda Thomsen, the SEC’s Head of Enforcement,
regarding rumors of hedge funds “taking another run at Lehman.”
On April 1, 2008, at Lehman’s prompting, Erik R. Sirri, head of
the SEC’s CSE program, made a statement at an annual conference
regarding the SEC’s view of the seriousness of rumors and stock
manipulation in the context of short sales. At the April 15, 2008
Board meeting, Lehman’s management discussed Lehman’s concerns regarding
short selling. On May 21, 2008, at the Ira Sohn Conference, one
day after the comment period for the SEC’s proposed rule concluded,
Einhorn gave a presentation on Lehman, analyzing Lehman’s Form 10‐Q,
filed April 9, 2008.2767 Einhorn announced that he was shorting
Lehman’s stock based on his belief that the stock was over‐valued.
Before that presentation, Einhorn had corresponded with Callan in
mid‐May 2008, as part of what he described as fact‐checking in advance
of his presentation at the Ira Sohn Conference. Einhorn focused
on four major issues in his correspondence with Callan and in his
May 21, 2008 speech: (1) Lehman’s disclosures regarding CDO exposure
and related write‐downs; (2) the difference between the amount of
Level III assets disclosed in the Form 10‐Q filed in February 2008
and during Lehman’s first quarter 2008 earnings call; (3) Lehman’s
disclosure and valuation of its stake in KSK Energy; and (4) Lehman’s
write downs of its CMBS assets. On the day of Einhorn’s speech,
Lehman’s stock closed down $2.44, with its highest volume of the
entire month of May 2008. Einhorn’s criticism of Lehman and Callan
is commonly cited as the reason for Callan’s replacement less than
three weeks later.”
Highlighting the pervasiveness of the rot in the regulatory system,
this excerpt from the Report indicates that the general counsel
of the NY Fed concluded, after reading Einhorn’s book on Allied
Capital, that maybe these shorts knew what they were doing. However,
the institution was unable to make the leap from that insight to
actually mustering up some inquiry into Lehman’s solvency. So who
might have quashed Baxter’s initiative? Most likely his boss and
your current Treasury secretary, TurboTax Timmy
“Following the near collapse of Bear Stearns, Einhorn published
a book, Fooling Some of the People All of the Time, which focused
on Allied Capital. Thomas C. Baxter, Jr., General Counsel to the
FRBNY, said that reading Einhorn’s book made him think that the
FRBNY should pay more attention to short sellers’ concerns. However,
Baxter did not reach that conclusion for the reason that Lehman
would have wanted, namely to persuade the Government to regulate
short sellers, but rather because it appeared to Baxter that Einhorn
may have been shorting Lehman for good cause. Baxter was unable
to say, however, whether anyone at the Federal Reserve followed
up on Einhorn’s criticism of Lehman in his speech.”
Anybody who looks carefully at the world economy will recognise that
a degree of monetary and fiscal stimulus unprecedented in peacetime
is all that is prodding it along, not only in high-income countries,
but also in big emerging ones. The conventional wisdom is that it will
also be possible to manage a smooth exit. Nothing seems less likely.
So let us consider the endgame, instead.
The remainder of this column can be read here.
Please post comments below.
Nice illustration of criminally negligent regulators. Should not they
reopen Alcatraz specifically for white collar criminals in regulatory agencies
? In many ways it not suprizting that despite window dressing the mechanism
was so transparently fraudulent.
March 13
The Real Limey:
I think I've got it worked out from reading through the appropriate
parts of FAS140 and the report:
Throughout this I'm going to refer to the entity that holds the
assets in the first place as the "borrower" and the entity that
has the money as the "lender"
FAS140 says that a repo agreement can be booked as a sale by the
borrower under the following conditions:
1) Assets are out of the control of the borrower, even in bankruptcy.
2) Assets can be re-repo'd by the lender.
3) The borrower does not maintain effective control over the transferred
assets through either
a) An agreement that entitles and obligates the borrower to repurchase
or redeem them before their maturity or
b) The ability to unilaterally cause the lender to return certain
assets (other than in certain circumstances.
Let's take these things one by one.
1) Is the issue that appears
to be the subject of the "True Sale" opinion from Linklaters. Paras
27 and 28 go in to more detail about what is required for this condition
to be true:
"Derecognition of transferred assets is appropriate only
if the available evidence provides reasonable assurance that
the transferred assets would be beyond the reach of the powers
of a bankruptcy trustee or other receiver for the transferor
or any consolidated affiliate of the transferor that is not
a special-purpose corporation or other entity designed to make
remote the possibility that it would enter bankruptcy or other
receivership (paragraph 83(c))"
In fact, it even states that "It also may include making judgments
about the kind of bankruptcy or other receivership into which a
transferor or SPE might be placed, whether a transfer of financial
assets would likely be deemed a true sale at law.".
We know that a repo is a "true sale at law" under English law
- is it under US?
2) This would be within the master agreement with each counterparty
and is under the control of lender/borrower. In this case it appears
obvious that such agreement could be easily arrived at.
3)
A) The agreement that entitles and obligates the borrower to
repurchase or redeem them before their maturity:
Para 47 sets out the requirements for an agreement under part
A:
"• The assets to be repurchased or redeemed are the same or substantially
the same as those
transferred (paragraph 48).
• The transferor is able to repurchase or redeem them on substantially
the agreed terms, even
in the event of default by the transferee (paragraph 49).
• The agreement is to repurchase or redeem them before maturity,
at a fixed or determinable
price.
• The agreement is entered into concurrently with the transfer."
So all of those conditions were not met. From what I can tell Lehman's
focused on the second part of this. The guidance in para 49 states
"To be able to repurchase or redeem assets on substantially the
agreed terms, even in the event of default by the transferee, a
transferor must at all times during the contract term have obtained
cash or other collateral sufficient to fund substantially all of
the cost of purchasing replacement assets from others"
This is where the extra-large haircut
comes in. Because of the over collateralisation, the borrower (AKA
transferor) had not obtained cash sufficient to buy replacement
assets from others.
This all comes down to the definition of "substantially all". Para
218 of FAS140 says this:
"Judgment is needed to interpret the term substantially
all and other aspects of the criterion that the terms of a repurchase
agreement do not maintain effective control over the transferred
asset. However, arrangements to repurchase or lend readily obtainable
securities, typically with as much as 98 percent collateralization
(for entities agreeing to repurchase) or as little as 102 percent
overcollateralization (for securities lenders), valued daily
and adjusted up or down frequently for changes in the market
price of the security transferred and with clear powers to use
that collateral quickly in the event of default, typically fall
clearly with in that guideline. The Board believes that other
collateral arrangements typically fall well outside that guideline."
In other words, the 105% failed the substantially all test, and
thus the requirements of Para 47 are met.
My (personal, non-US GAAP qualified, non lawyer) opinion:
Lehmans were within the letter of the standard by quite
a bit.
EY cocked up by not ensuring that the disclosed accounting
policy on repos included a line about "or a sale if the conditions
in FAS140 to classify as such" are met.
Linklaters were correct on true sale under English law aspect.
US GAAP sucks.
The one line I quoted earlier from FRS5 Appendix B would stop
this happening under UK GAAP.
Felix Salmon gives a partial answer to RapidFire's question:
"Total credit-card debt outstanding dropped by $93 billion, or almost
10%, over the course of 2009. Is that cause for celebration, and
evidence that U.S. households are finally getting their act together
when it comes to deleveraging their personal finances? No. A fascinating
spreadsheet from CardHub breaks that number down by looking at two
variables: time, on the one hand, and charge-offs, on the other.
It turns out that while total debt outstanding dropped by $93 billion,
charge-offs added up to $83 billion — which means that
only 10% of the decrease in credit card
debt — less than $10 billion — was due to people actually paying
down their balances."
"two weeks of protests aimed at Goldman Sachs Group Inc., the most profitable
securities firm in U.S. history, and the country’s five other largest banks.
03/11/2010
America's labor unions are finally waking up from their deep slumber
and noticing the vast schism in American society between the haves and
the have nots. The catalyst: Wall Street's $16.2 billion bonus pay day.
As a result Richard Trumka, head of the AFL-CIO, the nation's largest
union organization, and a firm supporter of the transaction tax which
was proposed in late 2009 and then promptly buried after some serious
lobbying by Wall Street, will announce today "two weeks of protests
aimed at Goldman Sachs Group Inc., the most profitable securities firm
in U.S. history, and the country’s five other largest banks. The AFL-CIO
says it plans 200 events covering all 50 states, starting March 15."
Summarizing the mood of increasing populist aggression across the nation
against Wall Street's uber-wealthy is labor professor at UC Berkley
Harley Shaiken:
“Wall Street has become a symbol
of greed run amok, and what labor is doing here is seeking to demonstrate
that it is speaking for working families generally, union member
or non- union member.”
Strikes in Greece have already paralyzed the country. Will
America soon follow?
Complaints of runaway Priuses spike, but it could have something
to do with psychology
A 2005 Toyota Prius, which was in an accident, is seen at a police
station in Harrison, New York, Wednesday, March 10, 2010. The driver
of the Toyota Prius told police that the car accelerated on its own,
then lurched down a driveway, across a road and into a stone wall.(AP
Photo/Seth Wenig)
Erin Mcclam and Tom Krisher, Associated Press
Writers, On Wednesday March 10, 2010,
9:25 pm
NEW YORK (AP) -- Reports of sudden acceleration in the
Toyota Prius have spiked across
the country. But that doesn't mean there's an epidemic of bad gas pedals
in the popular hybrid.
Experts on consumer psychology say the
relentless negative media attention
Toyota has received since the fall
makes it much more likely that drivers will mistake anything unexpected
-- or even a misplaced foot -- for actual danger.
"When people expect problems, they're more likely to find them,"
said Lars Perner, a professor of clinical marketing at Marshall School
of Business at University of Southern California.
In just the first 10 weeks of this year, 272 complaints have been
filed nationwide for speed control problems with the Prius, according
to an Associated Press analysis of unverified complaints received by
the
National Highway Traffic Safety Administration.
By comparison, only 74 complaints were filed in all of last year,
and just eight the year before that.
For problems with the brakes, rather
than the gas, the figures are even more stark: 1,816 filed so far this
year versus just 90 in all of 2009 and fewer than 20 in every other
year of the last decade. Toyota recalled 440,000 Priuses
on Feb. 8 because its antilock brakes seemed to fail momentarily on
bumpy roads.
It's doubtful the Priuses of the past two years suddenly became more
dangerous than those made in years past. After all,
Toyota's own recall for Prius
floor mats that can trap gas pedals covers model years 2004 to 2009.
Earlier this week came one of the most high-profile case of any
Toyota problem so far:
A man driving on a Southern California freeway said his 2008 Prius sped
out of control, reaching 94 mph, before a patrol officer helped him
bring it to a stop.
Then, in suburban New York, the owner of a 2005 Prius said his housekeeper
was driving it forward down the driveway when the car lurched forward,
crossed the street and hit a stone wall.
"She appears to have all her faculties," Capt. Anthony Marraccini
of the Harrison, N.Y., police said of the housekeeper Wednesday. "She
didn't appear to be disoriented in any way. There's nothing at this
particular time that would indicate driver error."
Investigators from the federal government and
Toyota are looking at both cases,
and authorities have not suggested either case is anything but legitimate.
Toyota has continually said it
has found nothing wrong with its electronic throttle controls and that
it is confident they work properly.
The automaker has recalled 8.5 million vehicles worldwide -- more
than 6 million in the United States -- because of acceleration problems
in multiple models and braking issues in the Prius. Regulators have
linked 52 deaths to crashes allegedly caused by accelerator problems.
Electronics experts say the computers, sensors and wires that control
the throttle can be compromised by electronic interference.
Toyota insists the problems with
its cars have been mechanical.
Toyota has a "quite lengthy" procedure
for its specialists when they evaluate cars, including a diagnostic
check, an oscilloscope to test electronics and a checklist of potential
problems, spokesman Brian Lyons said.
The 2008 Prius, the model involved in
the California freeway runaway, would have been equipped with a backup
mechanism designed to cut power to the wheels if the gas and brake pedals
are depressed at the same time,
Toyota says.
The driver, James Sikes, said he jammed the brake repeatedly, even
stood on it, before he was able to bring the car under control.
A
Toyota spokesman, John Hanson,
said Toyota engineers talked with
Sikes on Tuesday, but he did not know what was said in the interview.
Toyota's engineers, as well as
investigators from the
National Highway Traffic Safety Administration,
will check physical evidence from the Prius
and compare that with what Sikes said in the interviews,
Hanson said.
The government does not give statistics on how many of the reported
car problems are actually confirmed.
Toyota keeps its own stats --
and, perhaps not surprisingly, does not release them.
So there's no way to know how many runaway
cases are for real -- even as the figures pile ever higher.
The phenomenon has plenty of parallels.
In 2003, thanks to a media blitz by the police union, New Yorkers
were convinced the cops were on a ticket-writing spree, for everything
from sitting on a milk crate to resting on the steps of subway station.
It turned out tickets were actually on the decline.
Think of medical students who learn about
all sorts of disorders and then suspect they may be stricken by them.
Or muckraking journalist Lincoln Steffens, who competed for police scoops
with his fellow newspapermen and once wrote: "I enjoy crime waves. I
made one once."
Even the heightened number of complaints is relatively small compared
with how many Priuses are on the road.
Toyota sold about 750,000 of
them from 2004 to 2009.
But as long as reports of Prius profile keep rolling in -- just look
at the extensive coverage given to a single crash in that New York suburb,
something that would have gone utterly unnoticed a year ago -- expect
complaints to keep rising.
"We are basically anticipating them happening,
and we may be prone to jump to conclusions," said L.J. Shrum, a marketing
professor who specializes in consumer psychology at University of Texas
at San Antonio.
AP Auto Writer Tom Krisher reported from Detroit. AP Auto Writer
Dan Strumpf in New York and Associated Press writers Jim Fitzgerald
in Harrison, N.Y., Emily Fredrix in New York and Elliot Spagat in San
Diego contributed to this report.
Poor economic data in the US coupled with Europe's debt crisis are
contributing to an increase of the risk of the US economy going through
a double-dip recession, Nouriel Roubini, who predicted the 2007 financial
crisis, wrote in a research paper.
At best, the US economy is headed for a U-shaped recovery this year,
Roubini said. That has been his prediction in recent months.
The US faces challenges in the second
half, especially as fiscal stimulus measures fade, and "appears far
too close to the tipping point of a double-dip recession," he said.
The euro zone is also facing an increased risk of a double-dip fall,
because of its ongoing debt crisis, he wrote.
Even if the euro zone does not suffer
a double dip, growth in demand will be even more limited and this will
hurt the United States' potential for export growth, according to Roubini's
paper.
The Roubini Global Economics benchmark scenario puts the risk of
a double dip at 20 percent, while a slow, protracted, U-shaped recovery
is given the highest probability of 60 percent.
But since the end of February new macroeconomic data from the US
have come out and "they have been almost uniformly poor, if not outright
awful," Roubini wrote.
Consumer confidence has "tanked", new
home sales are "collapsing," existing home sales are also falling sharply,
as is construction activity, while initial jobless claims remain "stubbornly
high" above the 400,000 mark, he said.
Despite the fact that the growth in gross domestic product (GDP)
was revised upwards to an annual rate of 5.9 percent in the fourth quarter,
most of it, around 3.9 percent, was due to inventories, Roubini noted.
rk
Roubini says U-shaped recovery 60 percent, double dip recovery
20 percent -- seems like a reasonable guess. However, the other
thing I found interesting in this article was the statement:
"So, at the time of maximum policy
STIMULUS (second-half of 2009), final sales were growing only at
a pathetic 1.8 percent average rate," Roubini explained.
That does not bode well for a second stimulus plan that is now
under discussion. Instead of throwing money at the problem, we need
to refocus our nation's goals, come up with our own debt-reduction
plan, and then get out of the way and let people get on with life.
The economy will heal itself when it has an established direction
and people can begin to make rational decisions again.
md412
When the Fed can’t back without a
re-collapse, when the market chirps and rallies over the latest
meaningless spin of its roulette wheel, when we realize the old
is dead and further and extraordinarily expensive
efforts at resuscitation continue to prove hopeless…we’ll then know
the truth about ourselves, and our country’s situation.
We won’t need any pundit to guide
us; we’ll be able to see (finally) the real wreckage of our past
shortsightedness, though many will still not have a clue about what
needs to be done next.
That’ll take even more wrangling and expensive hand wringing.
My main hope is that this happens much sooner than later. What
few resources we will have left (printed or borrowed) may not be
enough to remake (not merely rebuild) no matter how strong our belief
is.
Time is NOT on our side.
RealityChecker
Consumer confidence, construction, cost of homes, creation of
new jobs, and, might we add, claims of the jobless have all cast
a cloud on the culture of economy of, not just the US, but of the
Eurozone as well.
Asia, on the other hand, barring Japan, is relatively presenting
a fairly aggressive GDP, effortlessly enhanced educational standards,
and, last but not the least, a reasonable job market.
That gives all of us something to ponder about.
jeffreyj
Why doesn't he join the club and make constructive input, instead
of just armchair quarterbacking other people that have a difficult
job to do.
Roubini is just a CNBC staple component in the hype machine,,,
the hype machine that works for hedge fund criminals in efforts
to crash the market for short selling.
In the meantime, Mad Money is already working on the next pump
and dump... BUY BUY BUY,,, later it all works and we get the rug
pulled out from under us!!!! as always.
This CNBC, Mad Money, Roubini, and Fast Money circuit has more
effect on the market than anyone may think.
Matador43
Any positive news regarding the market lately is just false hope.
Hedge funds up - I wonder why - playing the downside with new money
after others pulled out. Companies returning to profit or making
more profit - this after cutting jobs and payroll. Real Estate turnaround
- people buying more homes - most foreclosures and short sales we've
seen ever. GDP up because inventories are up because people aren't
spending money. If only people in the government saw this and actually
did something about it.
Matador43
CNBC is so predictable, it's ridiculous. In yesterday's article
- US Stocks Could Rise Further; Double-Dip Less Likely: Cohen -
I left a comment saying:
"Tomorrow's headline: 'Why We Should Expect a Double-Dip'"
And here we are, one day after a moron says a double-dip is unlikely
we have another moron saying there's a double-dip right around the
corner.
It's getting old, to say the least. Why can't we hold these "analysts"
accountable for all their stupid predictions?
Matador43
But besides the annoying fact that CNBC flip-flops everyday as
to whether or not a double-dip is on the horizon, I do expect stocks
to pull back soon..
The market is up more than 40% over the past year despite an
economy that isn't improving at all, so I don't see how stocks can
sustain this run for much longer.
Oil going up is about the only thing I have much confidence in
right now. Everything else is just an illusion.
Obama administration are just neo-cons like Bush and Clinton administratios
were. It is naive to expect anything from them.
naked capitalism
...But banking boosterism has succeeded all too well, allowing Team
Obama to fantasize that it can get away with creating Potemkin prosperity
in lieu of waging the pitched battles needed to lay the groundwork for
the real thing.
Indeed, the adoption of the Theory of Positive Thinking has virtually
guaranteed that nothing will change, unless there is sufficient deterioration
in the real economy or the financial markets to provide compelling counter-evidence.
One example is the “paying back the TARP” charade. As the banks continued
to post improved earnings, no matter how phony they were, they argued
that they were now healthy and should be allowed to pay back the TARP
funding that had been crucial to their survival. The reason they were
so keenly motivated to do should have been reason enough to deny their
request: namely, that they wanted to escape restraints on executive
compensation, virtually the only demand that the government had made.
But overpaying staff and keeping too little in the way of risk reserves
was precisely the behavior that led to the near collapse of the financial
system. Going back to business as usual would virtually guarantee more
looting of major financial firm and another series of collapses.
But the Obama administration miscalculated badly.
First, it bought the financiers’ false promise
that massive subsidies to them would kick start a economy.
But economists are now estimating that it is likely to take five
years to return to pre-crisis levels of unemployment. Obama took his
eye off the ball. A Democratic President’s
most important responsibility is job creation. It is
simply unacceptable to most Americans for Wall Street to be reaping
record profits and bonuses while the rest of the country is suffering.
Second, it assumed finance was too complicated to hold the attention
of most citizens, and so the (non) initiatives under way now would attract
comparatively little scrutiny. But as public ire remains high, the press
coverage has become almost schizophrenic. Obvious public relations plants,
like Ben Bernanke designation as Time Magazine’s Man of the Year (precisely
when his confirmation is running into unexpected opposition) and stories
in the New York Times that incorrectly reported some Goldman executive
bonus cosmetics as meaningful concessions have co-existed with reports
on the abject failure of Geithner’s mortgage modification program. While
mainstream press coverage is still largely flattering, the desperation
of the recent PR moves versus the continued public ire and recognition
of where the Adminsitrations’s priorities truly lie means the fissures
are becoming a gaping chasm.
So with Obama’s popularity falling sharply, it should be no surprise
that the Administration is resorting to more concerted propaganda efforts.
It may have no choice. Having ceded so much ground to the financiers,
it has lost control of the battlefield. The banking lobbyists have perfected
their tactics for blocking reform over the last two decades.
Team Obama naively cast its lot with an
industry that is vastly more skilled in the the dark art of the manufacture
of consent than it is.
Selected comments
psychohistorian:
Powerful posting Yves!!!!
Thanks for that. I think about how effective their propaganda efforts
would be without the internet shadow press. Overwhelming comes to
mind.
Regardless of alternate perspectives on our situation, the folks
in control have all the money and power at their fingertips. They
are not going to let go of that control easily, if at all, ever.
To the extent that they let us craft our textual white noise and
rants about their malfeasance shows their strength. They have started
a preemptive war in America’s name, killed and maimed thousands
in America’s name tortured many in America’s name…..all in support
of economic imperialism that is never discussed or even admitted
to.
After dragging America’s name through the mud as they are doing,
what compunction do you think they will have for not taking us out
when we become too much of a problem for them?
After all, we all know it is the Dirty Fucking Hippies (DFH)fault
anyway…..
Bring on the evolution.
Alexandra Hamilton:
“This strategy, of relying on propaganda to mask their true intent,
has become inevitable, given the strategic corner the Obama Adminstration
has painted itself in. And this campaign has become increasingly
desperate as the inconsistency between the Adminsitration’s “product
positioning” and observable reality become increasingly evident.”
————————————————————-
The critical question here is: What will they do once this approach
fails?
Ignim Brites:
What will the response be when the current approach fails? Stunned
disbelief and catatonic paralysis. Does the Federal government really
have the credibility to muster another 2 trillion or more for another
bailout? Not likely. Consider how little it could get for another
jobs bill. 15 billion. Come on. People need to begin thinking about
how state governments can fill the void. And they need to start
thinking about how the US Armed Fot harsh. Since nobody believe
here that he would be in a political position to take a sounder
position.
But you made your point convincingly. Only “sound money proponents”,
Republicans à la Ron Paul, offer some kind of support for the sort
of policy you are pushing. Of course this means next to nothing.
fiscalliberal :
Excellent points to consider. I would just add that there has
been no effective prosecution of the fraud in loan origination,
ratings and regulaters not doing their jobs. Yes, I am suggesting
that when regulaters look the other way, they should be held accountable.
The Madow poster boy is meant to distract people, while the real
crooks get a pass.
Got your book yesterday and starting to reading it.
Walkabout:
Yes, that was brilliant.
Currently there are too few economist willing to question any line
of argument that comes from the propaganda machines. I fear many
economists have even partaken in the kool aid and cannot think for
themselves anymore. But as you suggest, we are not in Oz and all
the heel clicking won’t get us safely home.
Thank you. Please keep at it.
Siggy:
Nicely done. A bit long, but then that seems to reflect the necessity
of supporting what are otherwise self evident facts.
The previous administration was a failed
administration prior to and upon its exit. The new administration
would have 100 days to right the course of the ship of state. While
change was promised, we’ve seen no hard a port nor hard starboard.
It’s been full ahead and prime the money pump.
This is a very big ship of state and it does not turn on a dime.
While sentiment and the rudder may well be set to turn the ship,
it will lumber on mile after mile before it even begins to shudder
before initiating a turn. Knowing that, we’ve yet to see this administration
even order a full rudder port or starboard.
The light speed flow of media eminations are capable of applying
layer after layer of misinformation in a very short time. Leaks
and spin that build to propaganda are what is being undertaken.
It is blatant and cynical in its exercise and publication.
The thought that troubles me is that the children of light and the
children of darkness are in conflict and it appears that the children
of light are of insufficent number, awareness and power to prevail.
The children of darkness are small in number yet wield enormous
power that has been purchased with the bon mots of filthy lucre
they bestow on those entrusted with the protection of the commonweal.
In far too many aspects its not about ideology, its about money
grubbing and the self serving quest for power and all else be dammed.
i on the ball patriot :
Yves said;
“So with Obama’s popularity falling sharply, it should be no
surprise that the Administration is resorting to more concerted
propaganda efforts. It may have no choice. Having ceded so much
ground to the financiers, it has lost control of the battlefield.
The banking lobbyists have perfected their tactics for blocking
reform over the last two decades. Team Obama naively cast its lot
with an industry that is vastly more skilled in the the dark art
of the manufacture of consent than it is.”
Team Obama is team neo-con with its roots
in Reagan and his mentor, commie union bashing Lemuel Boulware of
GE. Team Obama is solidly in charge of the battlefield.
The more concerted propaganda efforts (and spin is propaganda, there
are no shades of gray) are meant to frenzify the divisiveness, easily
done with so many of the marks still believing that this is about
vanilla greed profit and taking such a limited domestic viewpoint.
It is not, it is about pernicious greed control, global in nature,
and creating a two tier global ruler and ruled world. Intentional
global credit trap bombs plus intentionally over leverged counterfeit
derivative bunker busting bombs, strategically dropped around the
globe, have set the stage for the real battlefield of perpetual
conflict that will cause the marks to struggle themselves to their
own deaths.
The ‘empire’, in your title, is a global empire. The propaganda
orchestration is global, and transparently similar in plan. Good
summary and fire in this article, but give your gift to the globe.
Broaden your viewpoint.
Deception is the strongest political force on the planet.
john c. halasz says:
Reposting a comment from another blog to save time and effort:
A slick, smooth-operating lawyer,
projecting a “vibrant” profile after a decrepit predecessor, highly
ambitious and therefore highly conformist, who accedes to power
by promising to restore the status quo ante by “reforming” it, while
struggling to hold together the “center” which will not hold, and
all the while possessing only the dimmest operational grasp of the
actual economic system he seeks to preserve/”reform”.
Sounds a lot like Obama, no? AFAICT, aside from the contract law
courses at Harvard, he’s imbibed the neo-liberal brew at U. of Chi.
with the slight leavening of behavioral economics/”libertarian paternalism”,
and that’s all he knows, while delegating the rest to his “highly
qualified” advisors.
But who else does that basic description evoke? Perhaps Gorbachev?
(Who attempted to revive the fortunes of the central planning system
by decentralizing it, without realizing that the system had long
since been a Potemkin village operation atop what amounted to an
already de-centralized industrial barter system, thus “decentralizing”
policies were actually re-centralizing and provoked an further economic
decline).
Danb:
A recent Rasmussen Poll indicates deep mistrust in government
expressed in the sentiment that it works to serve itself and big
business at the expense of the public.
With about 11 million+ unemployed,
peak oil, hidden debt, and so on, we have a system creaking and
straining to stay erect. This is classic unsustainability that leads
to collapse.
Team Obama is solving the wrong problem: relying on Edward Bernays
when it should understand M. King
weinerdog43:
This DFH will not be voting for Team Obama in 2012 unless some
serious changes are made and made soon.
Luckily for Obama, (and unluckily for
us) the Republic party is so chock full of nuts,
that the question becomes whether or not any truly serious person
could vote for more of GW Bush and friends again. With the exception
of Ron Paul, I can’t name another Republic that I consider serious
enough to ever vote for.
Jackrabbit:
Excellent Post!
But I think this point: “But the
Obama administration miscalculated badly. First, it bought the financiers’
false promise that massive subsidies to them would kick start a
economy.” needs further elaboration.
1) The Obama administration DID pass a stimulus plan also, so
they we’re relying entirely on the bank
bailout.
2) What they actually bought into was a bit more subtle than you
express: the fear that nationalization
was an unknown that could possibly do more harm than good.
The key failure was not that they didn’t nationalize the banks but
that they got absolutely nothing in return for their largess. Now
they are forced to put lipstick on this pig (”propaganda” as you
say) by pretending that banks are healthy (they repaid the TARP!)
and pretending that they are getting tough with the banks (Obama’s
going to get back “every dime” given to the “fat cat” bankers).
Geithner, Summers, et al saved the banks but their closeness to
the financial industry makes their actions in doing so suspect.
Whether true or not, the way that bankers and the wealthy and well
connected operate makes it easy to believe that Geithner, Summers,
et al. 1) manipulated the debate so that the banks got much more
favorable treatment than they deserved and 2) FAILED Obama by not
providing a fuller picture of what the trade-offs were going forward.
For his part, Obama FAILED the nation by ceding economic policymaking
to the banks (in the form of Geithner, Summers, et al). It seems
clear that Obama was more interested in reforming healthcare.
All in all, its a perfect political storm for Obama: he winds up
owning the problems of the Bush administration (economy, war) and
being much too close to the banks which are more hated now than
at any time since the Great Depression.
The sad thing is: 1) so many hoped for so much better, and 2)
the repubs would likely be much worse.
The best solution: take money out of politics: fixcongressfirst.org.
Independent Accountant:
The same Wall Street crowd which owned Bush owns Obama. I’ve
said the stress tests were a sham and so have you. I am bored with
this. The public will make no money from TARP. You have commented
on poor TARP accounting. What more can I say? Kill the Fed.
Ampleforth:
Under the spreading chestnut tree
I sold you and you sold me—
jake chase:
Yves,
Mainstream media financial and business and economic reporting has
been propaganda and nothing else since at least 1960. Before that
I was too young to pay attention, although the 1913 Federal Reserve
Act was certainly a triumph of manipulation and propaganda orchestrated
by the insertion of Teddy Roosevelt into the 1912 presidential election
as a third party candidate, which ousted the conservative, Taft,
and installed the Morgan stooge, Woodrow Wilson, in the White House
and made the Wall Street capture of money complete.
lambert strether:
Why do you think Obama’s naive? He was the bankster’s Manchurian
candidate from the start, and so far, he’s exceeded the expectations
his owners had for him.
Cynthia:
Obama’s critics are stuck between a rock and a hard place — they’ll
be accused of racism whether they criticize him for being naive
to fall for the banksters or for tricking the American people into
believing that he would stand up against the banksters. This makes
him above criticism. Which is why the banksters helped groom him
for the presidency.
Stelios Theoharidis :
The problem of political capture
has become largely intractable in US politics. Nothing short of
a constitutional convention for competitive redistricting of congressional
districts, reorganization of the senate to make it more democratic,
campaign finance reform, a windfall profit tax on lobbyists, reform
to the PAC system, and a universal day off for voting in the USA
is going to give us the possibility of real reform and responsiveness.
If the root issue is that the political system is broken it really
doesn’t matter who enters into political office and what types of
fantastic policy prescriptions you have for them. The latter is
certainly worth talking about. But the issues of the day are symptoms
of a larger disease. Until you begin to resolve the system you are
not going to see legislation that doesn’t simply work to perpetuate
the interests of a narrow section of the US population, the concentrated
groups that are protecting their privileges.
By one of those oddly serendipitous coincidences, this week marks
not one but two major Wall Street anniversaries:
Happy Bottoms:
The 12 year low was set one year ago this week. On March 6, 2009, the
markets made their “Devil” bottom: The S&P500 hit 666.79, down 57.69%
from October 11, 2007 high of 1576.09. The Dow Jones Industrials peaked
the same day at 14,198.10, and fell to 6,469.95. The Nasdaq peaked on
October 31, 2007 at 2,861.51 — far below the 2,000 peak (more on that
later). It plummeted to a March 9th low last year at 1595.99.
Over that 18 month period from October 2007 to March 2009, the Dow
lost 54.43% — a drop of 7728.15 points. The SPX fell 57.69%, or 909.30
points. The Nazz also fell 55.77%, or in total points, 1595.99.
From the lows, the Dow is now up 63.31%, while the S&P500 has gained
70.77%, and the Nasdaq has added a fiery 83.83.%.
As I have discussed since 2003, we are in a decade plus long
secular bear market that began with thee popping of the dot com
bubble. The evidence strongly suggests that the current up move is a
cyclical bull market rally within the context of this secular bear market
— and not the start of a new multi-decade bull move like 1982-2000 or
1946-1966. I expect this rally to end sometime over the next 12 months
or so — longer if the Fed keeps the accommodation on, shorter if they
retire the printing presses earlier. If history holds, markets should
encounter a 25%, or so correction at that future date, lasting about
13 months. What follows that correction is a broad trading range for
several years.
To put this into context, we are now somewhere mid 1975, with the
start of the next secular bull (i.e., 1982) a few years off in the future.
Note these dates are only used for the broadest of context, not precise
timing.
Unhappy Tops:
The other big date is the anniversary of the dot com, telecom and tech
bubble. That peaked on March 10, 2,000 at 5,132.52. Nasdaq bottomed
31 months later at 1,108.49 on October 10, 2002, it had lost 78% of
its 2000 peak value. At 2,326 today, the index remains 54% off that
record high — even after an 84% rally from a year ago.
That was the start of the secular bear market.
The strength of the rally from the rally
from 2003 Iraq war beginning to the 2007 peak was driven by extra-ordinary
Fed rates at generational lows, a financial sector that ignored risk,
and massive deficit spending in the way of unfunded tax cuts and huge
spending increases. Perhaps the best way to describe the 2003-07 rally
is “illusory.”
We will see if history renders a similar verdict on the current move
off of the March 2009 lows . . .
Jürgen Stark, Member of the Executive Board, European Central Bank,
spoke at the NABE Economic Policy Conference that is being held in Arlington,
Va. Stark's talk was titled: "Is the Global Economy Headed for a Lost
Decade? A European Perspective".
"The failure to address long-overdue reform challenges promptly
might result in a 'lost decade' for the global economy," Stark warned
Monday ... "Only partial progress has been made so far, and the
distortions that led to global imbalances are still present."
...
Despite some stability, "substantial fragilities remain and the
outlook is fraught with risks," Stark said.
Stark apparently discussed the need for reform of financial oversight,
flexible exchange rates (China), and more balanced trade.
My view is another lost decade in the U.S. is unlikely, and I'm more
concerned with deflationary pressures in the short term (next year or
so) than stagflation.
Note: As I mentioned in the
weekly schedule, Brian Sack, Executive Vice President, Federal Reserve
Bank of New York will speak tonight (5 PM ET) on the Fed's Balance Sheet
Policies. That is of more immediate interest!
pavel.chichikov :
No one will be able to predict the course of events of the next
decade.
pavel.chichikov:
which means domestic demand must rise to replace the retrenchment
playing out in the United States. Currency exchange rates must become
more flexible.
There will be no rise in demand if the
purchasing power of income continues to fall.
mock turtle:
i have a prediction for the next decade
pain, ....plenty of pain,..... and lots of it
weve raped the constitution and destroyed any notion of privacy
weve raped our economic system and sold it as a sex slave to
the puppet masters
and weve raped the ocean with garbage islands the size of small
states floating in the atlantic and pacific
weve raped the environment with cancerous chemicals and a huge
species mass extinction
If the most recent article on fusion power in Scientific American
is correct, there will be no commercially significant breakthrough
in fusion for the foreseeable future.
I believe it. Where is the money going to come from for the massive
R/D and capital investment necessary to make such a technological
leap? There's a reason why technology has advanced at such a breakneck
pace in the past fifty years or so - because we've used so much
future money to do so. Well, you can forget about that for the next
few decades.
RE:
I'm more concerned with deflationary pressures in the short
term (next year or so) than stagflation.
CR is joining my support group.
EvilHenryPaulson:
Stagflation is the process of stealing money through inflation
from loans with static interest rates
it only works for a short while, and then everyone expects/plans/hedges
against inflation such that there are no more exposed debts for
the government to skim (I say government in a general sense, all
debtors profit, and even if the government doesn't collect directly
you can consider it a stimulus measure that doesn't impinge government's
finances)
Even if this hypothetical stagflation were socially bearable,
I wonder for how long do the benefits continue before the financial
system adjusts and then what happens when that net boost to the
economy disappears
The stagflation of 1970s USA -- which ended up with just a pure
inflationary cycle providing no more benefits to debtors -- was
ended by massive credit growth, spurned on from the federal level
by deregulation and deficit spending. It would appear that this
hypothetical period of stagflation could not end in the same way.
If that is the case, then this hypothetical stagflation period just
ends in a round trip back to square one.
I think that any path forward must ultimately deal with the big
piles of debt, those who have to be rescued if they experience an
unplanned loss of capital, and international relations in political,
commercial, and cultural dimensions.
thoughts?
energyecon:
MLM wrote:
Tim Duy digging a little deeper into something CR brought up
a few days ago:
Tim Duy's Fed Watch: Real Personal Income Less Transfer Payments
Love this chestnut from Tim:
Remember how we used to think the next financial crisis would
be too little Treasury debt? Good times.
dryfly:
REBear wrote:
Were there any sectors (excluding commodities) that did well
during the 70s?
The sunbelt as jobs were 'outsourced' from New England & Great
Lakes south & west. Same going on today but the new 'south and west'
lies outside the US. The US south and west is now just a hot rust
belt.
RE:
EvilHenryPaulson wrote:
I think that any path forward must ultimately deal with the
big piles of debt, those who have to be rescued if they experience
an unplanned loss of capital, and international relations in political,
commercial, and cultural dimensions.
I'm with you. IMO in the present global economic climate, real
wage increases are highly unlikely and therefore private debt repayment
is basically impossible. As a result
private debt cannot be relieved unless it is first passed to the
public and then defaulted on either under a globally agreed upon
mechanism or otherwise in less pleasant fashion, in slow motion,
country by country.
fudge_hend:
U.S. energy production has seen little increase in 30 years
domestically with the increase in use being enabled by importing
fossil fuels.
Unfortunately, we really haven't increased our renewable production
or nuclear energy production much despite the hype (see the doe
tables). We are competing for imported energy now so we have to
produce our own domestic energy whether that be fossil or renewable
or nuclear. I vote for all three. Table
1.1 Primary Energy Overview, 1949-2008 (Quadrillion Btu)
Neo-conservative "free market" economic theory as both ideology
of political extremism and the "fifth column" providing patina of legitimacy
and ideological cover for political extremism (replaying the role of
Marxism -- "history repeats first as tragedy, next as farce" ) and at
the same time the main recruiter of new blood for this political
movement.
systemic instability of financial institutions. An alarming
story about merging of financial and political corruption
What William Black called "control fraud". Financial institutions
acting not as agent of capital redistribution but with their own (extremly
destructive) agenda. Chapter 9 contains the story of one particular
company which structured its operations to maximize its own profits
while devastating major economic sectors.
Price:$20.45 & eligible for FREE Super Saver Shipping
Why are we in such a financial mess today? There are lots of
proximate causes: over-leverage, global imbalances, bad financial technology
that lead to widespread underestimation of risk.
But these are all symptoms. Until we isolate and tackle fundamental
causes, we will fail to extirpate the disease. ECONned
is the first book to examine the unquestioned role of economists as
policy-makers, and how they helped create an unmitigated economic disaster.
Here, Yves Smith looks at how economists
in key policy positions put doctrine before hard evidence, ignoring
the deteriorating conditions and rising dangers that eventually led
them, and us, off the cliff and into financial meltdown.
Intelligently written for the layman, Smith takes us on
a terrifying investigation of the financial realm over the last twenty-five
years of misrepresentations, naive interpretations of economic conditions,
rationalizations of bad outcomes, and rejection of clear signs of growing
instability.
In eConned, author Yves Smith reveals:
why the measures taken by the Obama Administration are mere
palliatives and are unlikely to pave the way for a solid recovery
how economists have come to play a profoundly anti-democratic
role in policy
how financial models and concepts that were discredited more
than thirty years ago are still widely used by banks, regulators,
and investors
how management and employees of major financial firms looted
them, enriching themselves and leaving the mess to taxpayers
how financial regulation enabled predatory behavior by Wall
Street towards investors
how economics has no theory of financial systems, yet economists
fearlessly prescribe how to manage them
I have been a huge fan of author Yves Smith's Naked Capitalism
blog for years now, and this book is a major triumph, putting in
one place and fully developing the major themes that Smith has explored
on her blog over the course of the recent financial crisis. While
this might appear to be well-plowed territory,
Smith tells it as an economics story
that is really a story of a failed democracy.
The linchpin of her work is the ascendant power of Wall Street
over Main Street during the Greenspan era and now the Bernanke era.
Complicit with politicians, financial regulators, and the revolving
door of government service, the big
Wall Street firms and banks have, according to Smith, seized the
political process to serve their narrow, financial interests instead
of those interests that serve a well-functioning polity.
However, despite the seemingly inflammatory thesis, this book
is no rant. Smith, an industry insider, is one of the smartest
and expert observers of the flawed process that we now have, and
the book is loaded with incisive explanations that pull it all together
for the average reader in clear and at times thrilling language.
In the broadest sense, this is a
moral tract as much as an economics and political one.
The moral outrage, while controlled and polite, is palpable
on every page. In essence, this is a deeply informed book that does
what economics and political tracts almost never do: it tugs at
the heart as well as at the mind.
"Threatened with the exhaustion of its gold supply," Frum
said, "the government felt it had no choice: It had to close
the budget deficit. So, in the throes of a severe downturn,
the U.S. government did exactly the opposite of what economists
would otherwise advise: It cut spending and raised taxes — capsizing
the economy even deeper into depression."
But as the table below shows, that version of the history
of the Great Depression is entirely fictional.
During every year of Hoover's administration, from 1929 to
1932, federal expenditure increased.
Also conveniently left out by the economics profession is the
rate cuts in 1927 in order to "fix" the economy that lead to the
1928-1929 bubble blastoff.
Cinco-X:
black dog wrote:
"The average workweek for all employees on private nonfarm
payrolls declined by 0.1 hour to 33.8 hours in February.
In other words, America is barely working full time now; 2 hours
fewer, and we'll be a part-time nation....
Cinco-X:
ac wrote:
Also conveniently left out by the economics profession is
the rate cuts in 1927 in order to "fix" the economy that lead
to the 1928-1929 bubble blastoff.
Damn that sounds familiar! Has "easy money" ever been a problem
since then?
.sam.2 (profile) wrote on Fri, 3/5/2010 - 6:11 am U-6 increased
from 16.5 to 16.8 Jan>Feb
Also, census hires is masking underlying trend
Guess it doesn't matter anyway, the pom poms are out!
ResistanceIsFeudal:
ac wrote:
Also conveniently left out by the economics profession is
the rate cuts in 1927 in order to "fix" the economy that lead
to the 1928-1929 bubble blastoff.
One man's speculative bubble is another's economic recovery plan
Life is good for the bubblemakers.
Rob Dawg:
Interesting BLS methodology. 6.5m un/underemployed because of
weather were counted as employed. Gross
at Pimpco pointed out that 200k is needed to hold steady so -- 36k
is still far from recovery.
The Greek crisis has brought sovereign debt to the forefront, capturing
markets' attention. We think another dimension of the sovereign issue,
the inflation risks inherent in high levels of public debt for economies
that can print their own currency, is being overlooked by the markets.
High levels of public debt in many advanced economies raise the spectre
of inflation, in our view: if high debt is deemed undesirable, but the
political will for higher taxes and lower spending is lacking, then
‘soft default' through inflation becomes a possibility.
Recently, we have tried to put some numbers on the inflation risks
inherent in the current and prospective US fiscal position (see
The Return of Debtflation? February 10, 2010). We looked at a hypothetical
scenario whereby policymakers attempt to stabilise debt to GDP at the
current 60% level over the next ten years. The thought experiment assumes
the debt is dealt with in exactly the same way now as in the post-war
period (1946-2003). That is, if the same weight is given to inflation
and real GDP growth as factors behind the erosion of the debt, we are
able to back out the required inflation rates (for any given level of
the deficit). We calculate that, over the next ten years, on average,
a 5% deficit would require 9% inflation
a 3% deficit would require 6% inflation
achievement of a 2% inflation target requires a 1% of GDP budget
surplus.
Scary stuff.
Clients and colleagues have questioned both our assumptions and our
conclusions (see US Economics: We Can't Inflate Our Way Out,
February 19, 2010). This is our response.
I. Our Assumptions, or: Why Debtflation Is Possible
For simplicity, we have assumed that interest payments, as a share
of GDP, remain constant. True, this is a strong assumption. But even
if interest to GDP increases with inflation, we don't think it will
be by enough to prevent substantial debt erosion - at least for some
time. Here's why.
What matters most for successful debtflation, our colleagues rightly
point out, is whether the (effective, i.e., maturity-weighted) nominal
interest rate on the debt can be pushed below the rate of growth of
nominal GDP. Put another way, the question is whether, and for how long,
inflation can lower the effective real interest rate on the
debt. We believe that's possible for a sustained period: debt does not
roll instantaneously; and bond yields are slow to incorporate changes
in inflation. These two factors can be thought of as the crucial frictions
that allow for debt erosion.
1. Debt maturities
The fact that the whole stock of debt does not roll every period
means that the effective nominal interest rate on the debt is slow to
respond to an increase in market yields. For the US, average maturity
on Treasury debt is poised to exceed the postwar average of about 5
years by the end of fiscal 2012 (September), on our forecasts. The implication
is that even if market yields were to adjust instantaneously to the
higher inflation regime, effective nominal interest rates on the debt
would respond only partially. So there is a debt erosion effect even
if inflation were to be perfectly anticipated.
2. Yields are slow to adjust to a new inflation regime
Inflation - especially a change in the inflation regime - is rarely,
if ever, perfectly anticipated. Inflation expectations lag behind actual
inflation. In turn, bond yields lag behind inflation expectations. Evidence
is abundant:
Historically, yields lag behind inflation.
Throughout the 1970s, bond yields never meaningfully caught up with
the inflation takeoff: real interest rates were mostly very low
- indeed negative for sustained periods - a bad time for bonds.
Exactly the opposite happened during the Great Moderation of the
1980s and 90s. The sustained decline in inflation meant real interest
rates were high, giving rise to a long bull market for bonds.
Statistical work suggests the same conclusion.
The empirical academic literature suggests both that bond yields
take a long time to incorporate inflation expectations, and that
inflation expectations themselves are sticky. Put another way, the
fact that nominal yields take time to catch up with inflation gives
rise to the observed negative correlation between inflation and
real yields.
In short, inflation lowers the real effective interest rate the government
pays on the debt through reducing a) the nominal effective interest
rate, and b) real market yields. Moreover, the evidence suggests that
these mechanisms work over a sustained period of time - allowing substantial
debt erosion.
And there are additional reasons that make inflation relevant
today. The evidence strongly suggests that, for the US as well
as internationally, high debt has historically come hand in hand with
lower growth as well as higher inflation (see Carmen Reinhart and
Kenneth Rogoff, Growth in Times of Debt, NBER Working Paper 15639).
For the US, they show that debt to GDP ratios
in excess of 90% have meant materially higher inflation and lower growth.
Indeed, we expect trend growth to be lower across developed economies
over the next five years. But sluggish real growth leaves fewer options
of dealing with the debt.
II. The Road to Debtflation, or: Global Inflation Risks Intensifying
Yet inflation is low almost everywhere. And with yawning output gaps,
surely inflation is nothing to worry about. Policymakers, some say,
couldn't inflate even if they wanted to.
Not quite. It is true that inflation will remain subdued for some
time to come. But inflation risks are visible on the horizon.
Our US team expects the inflation picture
to turn at around the middle of the year, as import prices pick up and
the output gap narrows (see US Economics, Mind the
Gap: Even Record Slack in the Economy Won't Crush Inflation, January
29, 2010).
But there are further reasons to worry about inflation (see Global
QE, Global Inflation, July 1, 2009).
In many advanced economies, there may be less slack than
meets the eye. Output gap measures are highly unreliable most
of the time - but even more so when an economy is undergoing structural
change. The US and the UK for example need to turn from consumers
into producers. This means a lot of the spare capacity is in sectors
where it is not needed, for example in construction. But worker
skills may not be immediately transferable: the resulting unemployment
may not exert as much downward pressure on wages. And skill shortages
in the expanding sectors may still allow wages to be bid up there.
Dollar peggers in EM have been importing the Fed's ultraexpansionary
monetary policy. Some of these economies risk overheating,
generating upward pressure for commodity prices globally and DM
import prices.
There is an enormous amount of monetary stimulus in the
system. Since the beginning of QE in September 2008, narrow
money M1 is higher by 11.5% in the US, and 17% in the euro area.
This monetary expansion is unlikely to be reversed before policy
rates are back, or above, neutral - a long way off on our forecasts.
For the US, additional risks emanate
from the 1.1 trillion dollars of excess reserves in the banking
system: if banks decide to increase lending as growth
recovers, some of those reserves could find their way into the economy
(see ER, RR, IOR, and RRR, February 17, 2010).
III. Our Conclusions, or: Inflation Targeting in Times of Debt
Some clients and colleagues also disagree with our view of central
banks (CB). Surely, a DM CB would never monetise public debt? In a nutshell,
we think that in the game of chicken between the fiscal authority and
the CB, it may well be the CB that swerves: it could be preferable for
a rational CB to create some controlled inflation now to ease public
and private sectors with their debt burden, than risk the debt creating
greater problems down the line. We think that CBs are likely to continue
to pay lip service to existing inflation targets, while more often than
not overshooting them. Cynical? But this would only be a repeat of what
happened over the last ten years or so (see From Inflation Targeting
to Price Level Targeting? July 15, 2009).
Note also that when public - and private - debt is high, a CB that
is being consistent on its inflation targeting (IT) could do serious
damage to the economy. Recall that IT works if the CB responds to deviations
of inflation from the target by increasing the nominal interest rate
by more than one for one with inflation. In other words, IT
does by design what is worst for highly indebted public and
private sectors: increase the real interest rate on the debt.
In short, public and private leverage imply substantial constraints
on monetary policy. At best, the risks are ‘soft' IT and creeping inflation.
At worst, (continued) monetisation of public debt and a new regime of
high inflation.
Finally, consider this scenario. Suppose inflation jumps higher because
any of the risks the Fed itself recognises materialise - even against
the Fed's best intentions. Would the Fed then push the economy into
recession to squeeze inflation out of the system, or acquiesce and accept
higher inflation, at least temporarily? We leave the answer to investors'
own judgement.
Bottom Line
The Greek crisis likely marked the beginning
of a wider sovereign risk crisis. We think this crisis
may well engulf central banks too, as high
levels of public and private debt will test monetary authorities' resolve
- and ability - to deliver price stability going forward.
Meanwhile, we think investors should hedge against inflation
risks.
If you discard Sheller idealism (psychology drives events) the
statement that crisis is not over and turn down of houses prices is possible
(double dip in house prices). Stories and sentiment is a feedback
look but only a feedback loop. Real event still are of primary importance.
The Greek story resembles our story...
Just when we thought the recession was behind us, recent cracks have
emerged in America's recovery: Home sales are down, consumer confidence
fell sharply last month and the stock market has gone sideways since
peaking in mid-January.
February jobs report better than forecast.
The Labor Dept.
Friday morning reported U.S. employers cut 36,000 jobs last month,
with the unemployment rate holding steady at 9.7 percent.
The consensus had called for a bigger loss, about 60,000 jobs cut
(revised up after this week's ADP report and jobless claims data) and
unemployment ticking up to 9.8 percent.
While the
figures are better-than-feared, overall job weakness remains, as
fears of a "double-dip" recession have resurfaced in recent weeks.
"The more plausible, bad scenario is
not a double dip but just a very slow recovery... [where]
the unemployment rate comes down but only over years," says Robert
Shiller
of Yale University.
Fallout
of rising debt.
Unlike past downturns and recoveries, Shiller argues a powerful psychological
force is impacting the wealth and confidence of nations. Debt crises
in Dubai and Greece, and America's own spending binge have a "gnawing"
effectworries is America's nascent housing recovery.
Housing is in a "precarious state,"
Shiller says, expressing concern about the emerging trend of Americans
walking away from their mortgages.
"I think there is a definite risk of a turn down again in home prices,"
says Shiller, who co-created the Case-Shiller Home Price index, a widely-used
measure of the housing market. "If home prices decline 10% or 20% more,
we are in big trouble."
taopraxis:
A double dip is impossible, as there
has been no recovery.
The only reason I even watch these "markets" anymore is that
the rally in stocks over the last year,
coupled with the illusions of recovery fomented by the propaganda
press, have rendered the paper markets very vulnerable to another
crash.
Such a crash would probably drag gold down with everything else,
if only temporarily, which would create
what may be the last good buying opportunity for gold before the
next major currency crisis.
If it happens that way, I will put half of my remaining cash
into gold, retaining only enough for a couple of years' living expenses.
Once broken, some things cannot be fixed,
and the American financial system is now totally broke-n.
Thanks for the pointer to the latest update of the famous chart.
Almost all discussion around this chart confuses (1) interest
rate resets with (2) recasts from non-amortizing to amortizing payments.
The latter are far more important as long as interest rates remain
low. The chart apparently covers both (see the fine print at the
bottom).
Coming tsunami of recasts or not,
it is certainly interesting that the low point in the original chart
(no longer shown in the current one) coincides very closely with
the recent (temporary?) improvement in house prices.
HHB:
Thanks Stacy-Marie,
I didn't realize you linked directly to my post. I thought the
links at the bottom were a Wiki Invest plug-in (like I have on my
site) and just picking up keywords like "Option-ARM".
From my perspective the Option-ARMs are still a major problem.
While Bhattacharya is correct they are a regional issue,
for banks like Wells with such high
balance sheet exposure to California and with tens of billions of
Option-ARMs still carried at face value, we're definitely not out
of the woods. Anecdotally, I'm seeing these loans
continue to default locally and I believe this is just scratching
the surface.
I still think CS should address the 10 year recast issue in their
chart. It was interesting that after Calculated Risk started following
the issue Wells made a point of highlighting the 10 year recasts
in their next quarterly earnings release saying they had more time
to work with these loans. They are obviously trying to outrun the
problem, building up capital between now and the recasts. We'll
see if short rates continue to cooperate enabling them to earn money
hand over fist.
Finally, one pet peeve, I don't know if Bhattacharya was misquoted
but he seems to be confusing "reset" and "recast". He says "Option
ARM resets are still pending… Nothing much has happened yet because
rates were so low that resets were pushed back".
But Option-ARMs don't reset in the
traditional sense. The minimum payment increases by 7.5% per year
regardless of the interest rate. What low rates do is slow the rate
of negative amoritization. As the minimum payment
increases, if rates stay low enough the borrowers actually begin
to pay down principal.
The only way higher rates lead to a payment jump greater than
the 7.5% before the recast date is if they trigger a recast due
to neg-am hitting 125%. (see the table in my post for more details).
Thanks again for the post. I'm glad reporters are still following
the Option-ARM story.
The 111,693 consumer bankruptcies filed in February represented
a 14 percent increase nationwide over the 98,344 filings recorded
in February 2009, according to the American Bankruptcy Institute
(ABI), relying on data from the National Bankruptcy Research Center
(NBKRC). NBKRC’s data also showed that the February 2010 consumer
filings represented a 9 percent increase over the 102,254 consumer
filings recorded in January 2010. ...
“While Congress and the
Obama administration continue to consider measures to reduce high
unemployment and mortgage burdens, families with increasing debt
loads have little choice but to continue to turn to bankruptcy for
financial relief,” said ABI Executive Director Samuel J. Gerdano.
“Consumer filings this year will likely surpass 1.5 million
filings, or the same number of annual filings averaged
in the years leading up to the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005.”
This economic mess begs for a Financial Products Administration with
armed agents trained in Federal Drug Administration.
Mar 2, 2010 | zerohedge.com
The big boys have gotten a LOT bigger
But Simon Johnson gives an even
broader
perspective on how big the too big to fails have gotten:
Fifteen years ago, the combined assets of our six biggest banks
totaled 17 percent of our GDP. By 2006, that number was 55 percent.
Right now, it stands at 63 percent.
Johnson also points out that:
The big four have half of the market for mortgages and two-thirds
of the market for credit cards. Five banks have over 95 percent
of the market for over-the-counter derivatives. Three U.S. banks
have over 40 percent of the global market for stock underwriting.
As I've previously
noted, the government created
the mega-giants (they are not the product of free market competition),
and their very size destroys the real economy like a
massive black hole destroys the matter around it.
And as Johnson and many others have
pointed out, the very size of the giant banks enables them to
easily capture politicians ... about as easily as the
Great Attractor captures galaxies.
The problem is likely a comparison
of nominal balance sheet versus
inflation-adj GDP.
It tends to be hard to find pure
"nominal GDP" numbers.
Given that nominal GDP growth
is 5-7% annually... 15 years ago
it was 35-50% of today. Or 5-6T.
So the "top 6 banks" only had $1T
in assets in 1995? Hmm.
The article got my attention, on
the promise that the too big to
fail banks were created.
After
reading the various references,
nothing is advanced to support that
point.
Got my attention because it is
known the too big to fail status
is achieved through competition:
anyone reaching a certain plateau
in terms of competitiveness tries
to convert this competitiveness
into a more durable competitive
edge. So a claim of the opposite
might be worth reviewing.
Done on a daily basis by many
people around the world.
Too big to fail is not a product
of the government. Simply some banks
have grown big (competitive) enough
to play ball with the government
and graving that into the stone.
The government failed to resist
this process.
That government woman is delusional:
the government did not make the
banks. The fact is the government
could not resist the banks.
Governments all around the world
are in game theory cartels. Banks
know how to deal with cartels. At
least, the one who achieved the
critical mass needed to treat governments
as cartels.
Personal income increased $11.4 billion, or 0.1 percent, and disposable
personal income (DPI) decreased $47.6 billion, or 0.4 percent, in
January, according to the Bureau of Economic Analysis. ... Personal
consumption expenditures (PCE) increased $52.4 billion, or 0.5 percent.
Lawyerliz:
Or, the black/grey/underground economy is growing.
Eric K.:
I personally don't trust these numbers - at all. They don't foot
with actual sales tax receipts - at all. I'd like to see a good
explanation of that.
Otherwise, I'm believing somebody's cooking the books... OR ...
these numbers include silly things like revolving credit interest
paid as "consumer spending"... which would make sense after recent
card rate hikes.
dum luk:
Consumers are back spending more than they made...Glad to see
a return to the good old days.
Overview of U.S. Consumer Credit Status - Fourth quarter 2009
Average credit card borrower debt (defined as the aggregate balance
on all bank-issued credit cards for an individual bankcard borrower)
drifted downward nationally by 3.18 percent to $5,434 from the previous
quarter's $5,612, and down 5.15 percent compared to the fourth quarter
of 2008 ($5,729).
RATM :
Adding to what Eric K said, do UE benefits count towards
this personal income stat?
lawyerliz:
See Mish. Excellent, logical explanation.
gruntled:
As more people go into strategic default, they're probably spending
that extra cash instead of saving it. I wonder how much this is
contributing to the uptick in spending.
Personal income measures income from all sources. The largest
component of total income is wages and salaries, a figure which
can be estimated using payrolls and earnings data from the employment
report. Beyond that, there are many other categories of income,
including rental income, government subsidy payments, interest income,
and dividend income.
YLSP :
So FRBNY is taking $8.5B and buying $8.5B worth of AIG debt so
that AIG can repay $8.5B of debt.
Someone still needs to write the book on how FRB totally pw3ned
themselves with AIG.
Do you want to know why?
With their $85B essentially "secured by company" loan to AIG
I'm pretty sure FRBNY became the largest un-hedged counterparty
to AIG.
So if we had put AIG in bankruptcy like we should've, it would
result in an immediate loss of $85B to the NYFRB.
The other counterparties were aware of this, hence FRBNY's truly
week position.
"Oh, you want to default on those contracts... well you can do it
if you go through bankruptcy, but you're not going to since you
just pissed away $85B"
I mean, I guess all we've done since then is make the taxpayer
loss $120B, and funneled money to their counterparties.
Geithner is such a tool, and an idiot. Of course, that was obvious
when he was caught cheating on his taxes... in fact his defense
at the time was "I'm an idiot who didn't pay attention to my taxes..."
yes... and now we have this idiot running our Treasury.
griztown:
It would be great if CR did an explanation of PCE. With sales
taxes continuing to retreat, the increase must be coming from Uncle
Sam.
"It is right to be cautious, and it is human
to be afraid." "I think that the economy is currently held
together by bubble gum and Ben Bernanke's charm. " (Robert P. Murphy
in Inventories Don't Kill Growth —
People Kill Growth)
February 27, 2010
Even today, I think most people do not appreciate the sheer magnitude
of the decline, and the damage it has done to the real economy. This
is the result, I believe, of three factors:
1. An extraordinary expansion of the Monetary Base by the Federal
Reserve not seen since the aftermath of the Crash of 1929, and a
swath of financial sector support programs from the Fed and the
Treasury, resulting in a spectacular fifty percent retracement rally
from the stock market bottom. This is
the narcotic that permits the country to not notice that a leg is
missing.
2. A comprehensive program of perception
management by the government in conjunction with the financial sector
to sustain consumer confidence and reduce the chance of further
panic. In other words, a web of well-intentioned deceit, subject
to abuse.
3. An understandable preoccupation
by the individual with the details of breaking news, and a short
term focus on particular events, diversions, and controversies,
bread and circuses, without a true appreciation of the 'big picture,'
in part because of some very effective public relations campaigns
and a natural human reluctance to face hard problems.
This is resulting in a remarkable case of cognitive dissonance in
which some of the victims of a spectacular man-made calamity are opposing
remedies and aid as too costly and impractical, even as they walk around
amongst the bleeding carnage.
For those who read the contemporary literature in the early Thirties,
this is nothing new. In the early Thirties there was no sense, except
for a few notable exceptions, of the magnitude of what had so recently
happened. There was the sense of life goes on which seems almost
eerie now to a modern reader. Indeed, Herbert Hoover could dismiss a
delegation of concerned citizens with the advice that they were too
late, the crisis was past, and all was well. Sound familiar?
The parallels with the Thirties and the Teens (today) are many, and
uncanny.
There is the reformer President, elected to redress the extremely
pro-business policies of his Republican predecessor. In the Thirties
they had FDR who was a decisive and experienced leader. In the Teens
the US has a relatively inexperienced community organizer, more influenced
by the Wall Street monied interests, and a past history of 'playing
safe,' who is trying to manage through indirection and persuasion.
There is a Republican minority in the Congress which opposes all
new programs and actions despite giving lip service in order to delay
and debilitate. In the Thirties the Republicans were over-ridden by
a powerful, activist President, who created a "New Deal" set of legislation,
much of which was later overturned by a Supreme Court which had been
largely seated by the previous Republican Administrations.
Indeed, the remaining New Deal programs that were successful, the
reforms of Glass-Steagall and the safety net of Social Security, are
being overturned or are under attack in an almost bucket list fashion.
So what next?
Another leg down in the economy and the financial markets is a high
probability.
...Although one cannot see it just yet in the fog of corrupted government
statistics, the economy is not improving and the US Consumers are flat
on their back, scraping by for the most part, except for the upper percentiles
who were made fat by the credit bubble, and are still extracting rents
from it through officially sanctioned subsidies.
This was no accident; there is a consciousness behind it.
There are far too many otherwise responsible people who are not taking
the situation with the high seriousness it deserves. Some would even
like to see the US economy collapse, inflicting serious pain and deprivation
because it may:
1.suit their investment positions and feed their egos because they
think themselves above it all,
2. satisfy their ideological and
emotional needs to see punishment administered, almost always to
others, for the excesses of the credit bubble, especially if they
are relatively weak, unwitting victims, and
3. the sheer nastiness and immaturity of a portion of the population
which wallows in stereotypes, childish behaviour, and disappointment
with their own lives. They tend to find and follow demagogues that
feed their bitter hatreds.
They know not what they do, until they do it, and see the results.
It is often a good bet to assume that people will be irrational,
almost to the point of idiocy and self-destruction. And some of
them never wake up until they are overrun, and then will not admit
their error out of a stubborn sense of pride and embarrassment.
It seems likely that there will be a new leg down in financial asset
valuations, as reality overcomes often not-so-subtle propaganda and
disinformation. It may start in March, or it may be a 'market break'
that provides a subtle warning for a large decline that begins in September
2010, with multi year progression to lows that are, as of now, almost
unimaginable, at least in real terms. I cannot stress this issue of
nominal versus real enough. As inflation comes, it will initially be
in a 'stealth' manner, with the backing of the currency eroding slowly
but steadily, and largely unrecognized for some time. It is not enough
to try and count the dollars; one also has to consider the value behind
them, the quality of the wealth, and its vitality. This is the case
for stagflation.
The Fed is acting to mask quite a bit of this. One
would hope that they would also not re-enact the policy error of their
predecessors and raise rates prematurely out of fear of inflation before
the structural healing can occur.
The debt incurred during the credit bubble cannot be paid and must
be liquidated. So far we have largely seen transference of debt obligations
from insiders to the public. Ironically these same insiders are lobbying
to maintain these subsidies and transfers, and also to take a hard line
against any further remediation of the consequences of the collapse,
which they caused, on the public, to have more for themselves. Their
greed and hypocrisy know no bounds.
But the policy error might not be caused by the Fed's direct action,
but replicated by a governmental failure to stimulate the economy effectively
AND to reform the highly inefficient and impractical financial system.
The purpose of stimulus is to provide a cushion for structural reform
and healing to occur, after an external shock, or even a period of reckless
excess and lawlessness. The natural cycle can be disrupted beyond its
ability to repair itself. But stimulus without reform is the road to
further deterioration and addiction.
As it stands today the global trade system is a farcical construct
that favors national elites and multinational corporations. Public policy
discussion has been trumped by a handful of economic myths and legends
that, even though disproved every day, nevertheless remain resilient
in public discussions and reactions. This is because they have become
familiar, and because they are the instruments of deception for certain
groups of disreputable economists and policy influencers.
A more serious market crash might cause people to recognize the severity
of their problems, and the thinness of the arguments of the monied interests
for the status quo which is most clearly unsustainable. But
a sizable minority of the population is always highly suggestible; demagogues
rely on this.
The eventual outcome for the US is difficult to forecast with any
precision now because there are multiple paths that events might take
at several key decision points. Some of them might be rather disruptive
and upsetting to civil tranquility. Game changers.
But as the dust continues to settle, the probabilities will continue
to clarify.
"Suffering can strengthen our endurance. Endurance encourages strength
of character. Character supports hope and confidence even during
hard times and trials. And hope does not disappoint us in the end,
because God has given us the Spirit and filled our hearts with His
love." Romans 5:3-5
It is right to be cautious, and it is human
to be afraid. But let us not allow our fears and trials
to turn us from our genuine humanity in God's grace no matter how dire
the day, even if it may drive some of the world once again into the
jaws of desperation and madness.
And if you stumble, gather yourself up and go forward again without
turning from the way. For what is the profit to gain and hold some small
and temporary advantage in this world, but to lose your self, forever.
An interesting nuance here is that CDS are often sold without any intention
to pay in case of default (so called a counterparty risk). "In the world
where nobody is allowed to fail, a big enough organization utilizing this
strategy will be back with hands out at government coffers and most likely
receive the money". They need to introduce insurance fee for naked CDSs
payable to a financial stability fund. For example 10% on top.
I generally do not like to propose bans. But I cannot understand
why we are still allowing the trade in
credit default swaps without ownership of the underlying securities.
Especially in the eurozone, currently subject to a series of speculative
attacks, a generalised ban on so-called naked CDSs should be a no-brainer.
Naked CDSs are the instrument of choice for those who take large
bets against European governments, most recently in Greece. Ben Bernanke,
the chairman of the Federal Reserve, said last week that the Fed was
investigating “a number of questions relating to
Goldman Sachs and other companies in their derivatives arrangements
with
Greece”. Using CDSs to destabilise a government was “counter-productive”,
he said. Unfortunately, it is legal.
CDSs are over-the-counter contracts negotiated by two parties. They
offer the buyer insurance on a bundle of underlying securities. A typical
bundle would be €10m worth of Greek government bonds. To insure against
default, the buyer of a CDS pays the seller a premium, whose value is
denoted in basis points. Last Thursday, a CDS contract on five-year
Greek bonds was quoted at 394 basis points. This means that it costs
the buyer €394,000 per year, for five years, to insure against default.
If Greece defaults, the buyer gets €10m, or some equivalent. What constitutes
default is subject to a complicated legal definition.
A naked CDS purchase means that you take out insurance on bonds without
actually owning them. It is a purely speculative gamble. There is not
one social or economic benefit. Even hardened speculators agree on this
point. Especially because naked CDSs constitute a large part of all
CDS transactions, the case for banning them is about as a strong as
that for banning bank robberies.
Economically, CDSs are insurance for the simple reason that they
insure the buyer against the default of an underlying security. A universally
accepted aspect of insurance regulation is that you can only insure
what you actually own. Insurance is not meant as a gamble, but an instrument
to allow the buyer to reduce incalculable risks. Not even the most libertarian
extremist would accept that you could take out insurance on your neighbour’s
house or the life of your boss.
Technically, CDS are not classified as insurance but as swaps, because
they involve an exchange of cash flows.
The CDS lobby makes much of those technical characteristics in its defence
of the status quo. But this is misleading. Even a traditional
insurance contract can be viewed as a swap, as it involves an exchange
of cash flows. But nobody in their right mind would use the swap-like
characteristics of an insurance contract as an excuse not to regulate
the insurance industry. The fact that, unlike insurance, CDSs are tradeable
contracts does not change the fundamental economic rationale.
The whole idea of modern financial products is to replicate the payment
streams of other, more traditional instruments, while offering better
conditions. Selling a CDS is like buying
a bond. Buying a CDS is a way of shorting a bond – or of insuring against
its default. But that does not change the fact that once
you strip away the complex technical machinery, you end up with a product
that offers insurance – even though it is a lot more versatile than
a standard insurance contract.
Another argument I have heard from a lobbyist is that naked CDSs
allow investors to hedge more effectively. This is like saying that
a bank robbery brings benefits to the robber. A further stated objection
to a ban is that it would be difficult to police. There is no question
that a ban of a complex product, such as a CDS, involves technical complexities
that commentators like myself probably underestimate. It is conceivable,
for example, that the industry might quickly find a legal way round
such a ban. Then again, we would not consider
legalising bank robberies on the grounds that it is difficult to catch
the robber.
So why are we so cautious? From conversations with regulators and
law-makers, I suspect they are not always familiar with those products,
to put it kindly, and that they may be afraid of regulating something
they do not understand. They understand, or think they do, what a hedge
fund is. Restricting hedge funds is something they can sell to their
electorates. Hedge funds were not at the centre of the crisis, but they
are a politically expedient target. Banning products with ugly acronyms
that nobody understands seems like unnecessarily hard work.
I do not want to exaggerate the case for a ban. This speculation
is neither the underlying cause of the global financial crisis, nor
of the eurozone’s underlying economic tensions. But naked CDSs have
played an important and direct role in destabilising the financial system.
They still do. And banks, whose shareholders and employees have benefited
from public rescue programmes, are now using CDSs to speculate against
governments.
Where is the political response? The
Germans want to bring it to the Group of 20, but they hesitate to do
anything unilaterally. Christine Lagarde, the French
finance minister, was recently quoted as saying: “What we are going
to take away from this crisis is certainly a second look at the validity,
solidity of sovereign [credit default swaps].”
A second look? I wonder what they saw when they looked the first
time.
helvetius
Disconnection from ownership of the underlying
instrument is one of the defining characteristics of derivatives.
If they were tied to ownership of the underlying, they wouldn't
be derivative - that's why they're called what they're called. In
this sense, the concept of a "naked" derivative is practically a
redundancy. Derivatives are no more mean to wear clothes than cats
or dogs.
By their nature, time risk derivatives (forwards, futures, options)
_cannot_ be tied to the underlying because, at least in their physical
commodity market origins, the underlying has not yet been produced,
therein lies the risk element.
However, despite the foolishness of praising "good" hedgers versus
"bad" speculators (common amongst politicians and tabloids, but
something I would have thought the FT was a bit beyond?), there
is a grain of sense in Munchau's concern about credit derivatives.
It's not that taking default 'insurance' against a nominal exposure
you don't have is in itself illegitimate. Today's lengthening, international
supply chains, means that companies are exposed to risks further
down the supply chain from their direct suppliers, often in different
jurisdictions to the ones they do direct transactions in, where
supplier failure would cause them losses. Yet you can't (easily
or cheaply) get insurance against such indirect risks - hence there
is a legitimate risk management role for such 'insurance' against
events for which you don't have direct exposure.
The problem with credit derivatives (and I don't recall Munchau
supporting George Soros when he called for CDS to be banned back
in 2008) is to do with their role in allowing the creation of credit
without the level of reserves required by banking regulations. As
such CDS have been the financial alchemy behind CDOs, the whole
originate-distribute model and the rise of the whole Shadow (for
which read, "reserve-lite") Banking sector.
What Bernanke got wrong in his 2000 statement that derivatives
would help to reduce systemic risk by spreading risk more evenly,
was that that only applies if the aggregate amount of risk remains
equal. One of the effects of the de-coupling of derivatives from
underlyings is that it also allows the multiplication of aggregate
risk, rather than just its redistribution. Together with the opacity
due to the dominantly OTC nature of most credit derivatives, resulted
in the global financial panic leading up to the 10 October 2008
ISDA auction of Lehman Bros CDS.
Credit derivatives create a specific problem that is not going
to be solved until two things happen.
1. Market transparency through central clearing on exchanges
(also mitigates counterparty risk)
2. Regulatory requirement for liquid capital reserves to be held
against credit derivative exposure, in the same way, and for the
same reason, as banks are required to hold against their loan book
(and similarly for insurance companies).
#1 Appears to be on the current agenda, although progress is
slow and the rearguard action being fought by the lobby is fierce.
But #2 doesn't seem to be making much of a showing. Until it does,
and until legislators (and, it would seem, some FT commentators),
actually acquaint themselves with the mechanics of derivatives in
general and credit derivatives in particular, we can look forward
to future shadow banking crises like the one we have recently lived
through.
Greycoat
Just introduce a small insurance fee for naked CDSs payable to
a financial stability fund. For example 10% on top.
gw:
@ A.N.Other,
What Mr Münchau means by saying you can´t insure what you don´t
own is the concept of Interest. You can take out life insurance
for yourself, partner and kids bcs you have an insurable interest
there. You also insure your own property e.g. against fire - but
there is very good reason your neighbor can neither take out insurance
on your property nor on your life. - One of the problems discussed
last year in this context was that as owner of certain CDS there
could be an advantage of forcing a company to default - and that
is socially not justifiable and should not be tolerated.
This said, as pointed out in my first posting below, I think
the analogy with insurance is wrong. What´s needed is market regulation,
giving transparency that is lost in the otc trade.
- Has it ever occurred to you that otc markets, due to their
relative smallness and illiquidity are subject to manipulation and
could in fact send the wrong price signals to markets? Just think
about Greece. Do the existing short positions really justify the
almost hysterical market reaktions?
Greek sov debt trading at EM levels is a joke. Someone seems
to have lost any sense of proportion there. May this gross exaggeration
be due to wrong price signals from the cds market?
Erol Riza:
Evreka, at last an FT writer has seen that naked CDS are simply
socialy unacceptable. MR Munchau deserves credit for highlighting
this fact which should have been on regulators radar long time ago.
For those who are not aware investment banks issued structured notes
with leveraged bets on countries going bust. Other trades were fist
to default trades which meant that a basket of countries where identified
and investors rceived a high rate so long as no country defaulted.
These rades have nothing to do with insurance but everything to
do with profit for the banks. Buying insurance when a bank has an
underlying exposue to a credit (be that corporate or sovereign)
is offstting the risk but sleculating on country's or corporates
is ertainl nothing to do with hedging.
Moreover, banks which acts as advisors to clients have to keep
Chinese walls; does anyone beleive this was religiously implemented
at some of the investment banks which have been providing CDS. On
top of this disreputable type of transctions one has the hedge funds
which were probably buying protection in the form of CDS and shorting
Greek bonds to widen the spread on greek bonds and hence profit
from the CDS side.
One hopes that Mr Munchau's proposal finds favour with rgulators
and naked CDS are BANNED. The world will be a better place.
A.N. Other
ANY risk-transfer tool serves an insurance-like purpose. Stock
index futures, short sales, calls, puts, caps, collars, interest
rate swaps. What is so different about the CDS risk-transfer compared
to these others?
"A universally accepted aspect of insurance regulation is that
you can only insure what you actually own."
Wrong. I can insure against my own death, the weather, my partner
dying, my companies CEO, business partner, or top salesman dying
(key man insurance), losing my job, becoming disabled, a collapse
(or boom) in stock prices, or pure market volatility. I don't own
any of those things.
"Insurance is not meant as a gamble, but an instrument to allow
the buyer to reduce incalculable risks."
Says who? Neither you nor the government get to decide what other
people are "meant" to do. We live in free countries not a Chavez-style
command economy. Even if your central point about speculation being
"socially useless" (more so than the sports cars, luxury watches,
or vintage wines your newspaper advertises) was correct, so what?
If I am legally and morally entitled to bet on a boxing match, a
political election, a throw of the dice or a card game, then I am
surely entitled to speculate on the price of financial assets. If
it's legal for me to have unprotected sex with 100 people, commit
suicide, or put my entire life savings into property with 20:1 leverage,
then why on earth should it be illegal to speculate on bond prices?
Do you understand the concept of liberty at all?
No country has a right to issue bonds at the price of its choosing.
Therefore no harm is being done by accurately pricing debt to reflect
default risk. If CDS buyers become too aggressive, then there is
sure profit to be made by selling the relevant CDS positions. Banning
CDS trading would reduce the price transparency and accuracy of
sovereign debt and default risk, and it would criminalize the freedom
of contract of consenting adults. Both those are not only socially
useless, they are socially harmful and immorally illiberal.
Anonymous: Tyler - GS is doing "god's work" by effectivelly managing
asset prices and interest rates for the Treasury and FED- beyond that
what else do you need to know? VAR? Comon we cant effectively manage
with rules that would apply to mere mortals....
It's probably premature to abandon "double dip" topic even if it sounds
like "depression porn".
February 25 | Money Supply FT.com
Calling a turning point is tricky, and offers ample room to make
oneself look silly.
But I reckon a good indicator is surprise. If pundits expect the
continuation of a trend, and are surprised, that suggests either a temporary
blip or a reversal. And if there are many such related surprises, evidence
strengthens for the reversal.
Well, there is a lot of surprise in this office at the moment. Every
day there seems to be a new (negative) data release for the UK or US
- and every day I see colleagues raising eyebrows at the size of that
surprise. An eyebrow raise, in Britain, is a powerful indicator.
So I’m keeping a list, below, of the latest data releases.
All the ones I’ve listed have been surprises,
either because of a change of direction, or an acceleration. Do counter
this list with positive economic indicators, if you can think of any.
I’m concerned I’m filtering unconsciously:
These are all latest data.
US
Unemployment: initial weekly claims rise; fall expected (FT,
DOL data)
so greed is good. even when you realize that you're about to
go off a cliff, you value wealth over self-preservation. Someone
once told me that while it is okay to be speculative, greedy when
it comes to advancing one's self, it is still prudent (and quite
smart) to fear poverty. I mean I dabble with stocks, blah blah blah,
but at the end of the day I can see the undeserved optimism and
overall collaborating, nay, collusion that regular joes are doing:
continuing to gamble casino style like mr.ritholtz (and i say regular
joe as to say he's not ultra rich like any one at regional fed or
NYS fed)...its amazing how complacent we are right now.
taopraxis
Too many people want to get rich quickly without working very
hard, thus the stock market is a very seductive game. Unfortunately,
life does not work that way. Unless you are rich, corrupt, and moving
in circles of money, power, and nepotism, my advice is to stay away
from the stock market. Most of the people who in stock funds, today,
are basically savers, not investors. They literally do not know
what they're buying. In a word, they're suckers. A generation is
in the process of being ruined, financially speaking. No exit, no
happy endings...depression.
> First a little background on why the SPY would be a good target
for some undercover manipulation.
Because of the intense competitive interest in trading SPY in
strat arb funds and the numerous ways to arbitrage it (cash market,
other ETFs like IVV, options, futures) - it is a horrible target
for any form of manipulation. I mean, it is I think far fetched
that Tyler thinks it is being manipulated in the pre-market, but
to think that at 10AM, someone is trying to manipulate SPY is INSANE!
You buy or sell large blocks of SPY exactly because it can handle
the volume *without* moving the market. You can make a very
large directional bet without paying much above fair value.
You can not however move SPY much away from fair value, because
you will lose your shirt in the process to other market participants.
> This exchange is used because of its very nice rebate structure
You can't be lifting the market with 10K blocks of SPY and getting
a rebate. The order book on SPY is incredibly deep and order
anticipation programs are seeing blocks go buy and attempting to
make a market in SPY to get the rebate. So, you can't keep
buying and expect that there will not already be a standing order
adding liquidity on the books that you'll have to take out.
If there was a single entity (as opposed to many) buying in the
period in question, then that buyer was paying a liquidity removal
fee to the ECN/Exchange, not getting a rebate.
> The S&P depository Trust buys and sells individual components
of the S&P's based on movement within the index. Simple right?
Apparently not simple enough! State Street buys and sells
the components of the index based only on creation and destruction
of "creation units", which are 50K blocks of SPY. If you are
an authorized participant and go to State Street with a block of
50K SPY, they'll give you some cash and the corresponding equities.
Conversely, if you go to them with the equities and cash and ask,
they'll convert them into shares of SPY. Beyond that, State
Street does not buy and sell individual components - rather, they
buy and sell the entire portfolio
https://www.spdrs.com/site-content/csv/SPY_All_Holdings.csv
> The algo in question starts buying at 110.04 with one block
of 9999 shares, followed by 60k more shares all bought in under
two minutes
First, you are assuming somehow that all of the trades happening
are from one buyer. Beyond the fact that is likely a very
wrong assumption - the volume you are talking about is not terribly
impressive.
SPY traded 173M shares today. Suppose 150M of that was
during regular trading hours (overly conservative figure, it is
probably a lot closer to the 173M) - then, 6,410 shares were traded
on average per second today during normal trading. So, 60K
shares in 2 minutes, even if you are only looking at INET (that's
where I am guessing you are looking) is a spit in the ocean.
On average over the entire course of the day, 769K shares should
trade of SPY in a 2 minute window.
> Once the price gets "jumped" the algo just sits and waits
till natural buyers and sellers are few and far between and it either
dumps or takes in more
Well, I can't fault your analysis here as being outright wrong,
since you are correct - the algorithm (or as I believe is the case,
the multiple overlapping algorithms from multiple entities and individual
traders that you erroneously believe to be all the same) do/does
in fact either dump or take more. Very insightful observation!
(yes, that was sarcasm).
> If there is a huge buyer day in and day out of the SPY whom
has no interest in holding for a long period of time how would this
affect the components?
A huge buyer who has no interest in holding for a long period
of time is obviously (well, I would have hoped it was obvious) a
huge seller of the same or a related asset at some not too distant
future time period.
> The direct affect of SPY purchasing would cause the cash market(individual
stocks, not futures) to trade in a much more liquid manner in whatever
direction the purchaser is leaning.
Things are not so clear. SPY can sometimes lead the cash
market, and sometimes it can lag. In either case, the time
differentials are measured in micro-seconds or several ms.... and
is not something you are going to be able to see with your off the
shelf charts and tools.
While SPY's volume may seem impressive at ~170M today, the top
10 holdings (as measured as their weight in the SP500 index) of
SPY traded over 240M shares today.... and that doesn't count the
remaining 490 components!
So, yes - some of the time, SPY can lead the cash market, but
more often than not, SPY is following the cash market - or being
arbitraged against the futures market.
A new proposal by House Republicans, lead by Rep. Scott Garrett (R.,
N.J.), is seeking to address changes to Fannie and Freddie accounting,
along the lines of what has been previously proposed by Zero Hedge,
and to not only include the GSE's losses as part of the Federal budget,
but to also count the debt from the two mortgage zombies toward the
nation's total statutory debt limit. As we stated previously, it is
only semantics at this point which distinguish the GSE obligations from
other Treasury obligations. Yet it is not just us, but the administration's
very own Peter Orzsag who was pushing for consolidated GSE accounting
two years ago. Yet with GSE debt most recently at $6.3 trillion, or
about half of the existing Treasury debt, this would mean total US debt
would not only explode by 50% overnight, but the recently increased
debt ceiling would be immediately breached and America would find itself
in technical default (where it really is right now for all technical
purposes).
jeff montanye
how similar is 1990 to 2008 vis a vis the stress test? but, and
i never thought i would say it (hard core obama campaigner) thank
whomever for the wascally wepublicans. because they actually are
an opposition party (as opposed to those incurably cowardly democrats).
even as obama copies bush in all but atmospherics, they oppose him.
audit the damn fed. count fannie and freddie bailout to infinity
in the debt. nominate ron paul. buy gold miners.
Going Down :
"So are all of the countries going to race against each other
now?"
When I look at the US, I think it would be a very good thing
if Washington included all its liabilities in future budgets, up
to and including Fannie Mae, Freddie Mac, Ginnie Mae, FHLB and FHA,
since that would provide a much clearer (dare I say honest?) picture
of where the country stands. It would also be murder on the dollar.
Curiously (for many), the US is not the only party that wants the
trillions in mortgage losses off the American books. Germany wants
the exact same thing, something all these experts seem to be completely
oblivious to.
We have entered the beggar-thy-neighbor
phase of the downfall, the race to the bottom is on for currencies.
Obama's ludicrous call to double US exports in 5 years fits that
same idea. The one viable way left to soften the fall is to entice
other countries to buy your products, because that's the only money
you don't have to borrow. But you can't achieve that goal with a
strong currency. China knows that all too well and keeps the renminbi
pegged to the USD. Everything they own is denominated in dollars
anyway. But if Germany gets its way, the Chinese currency will rise
with the dollar, until the latter is on par with the Euro (it’s
€1 to $1.36 today). Once that is done, Germany hopes to once again
be the world's largest exporter....
This is not a fight for a meal of kings, this is a down and dirty
scramble about the scraps off the table.
mouser98 :
technically, its not default until you miss a payment right?
and that won't happen as long as the printing press still works...
oh you assumed payment in something other than green TP...
Anonymous
They will continue to be the largest [indirect] purchaser of
bonds, as that ensures the status quo. The alternative is a weaker
dollar, diminished exports and hundreds of millions hungry and unhappy
Chinese.
Your gold hoarding ambitions will also fall flat on their face.
Gold prices will be suppressed in a concerted sovereign effort,
lest you prefer to buy gold instead of clip coupons. Even if you're
right and we actually get to a point where you would actually have
use for gold, then you still won't be able to enjoy the rewards
of your brilliant foresight because you will be afraid to show/tell
you have gold.
Keep it real.
jesus:
They had basically two years to pass anything they wanted. What
did they do with it? Nothing but bicker and bullshit, along with
Republicrat approved measures like bank blowjobs. The Dems can be
counted on to be utterly worthless when in power.
milbank
I assume by "vote nearly everyone out" you mean "and vote the
other guys in" as the solution.
You're by definition, insane Connor. How many times do you have
to do that before you start to catch on to what's behind the curtain
when it comes to "elections" and "choice"?
Miles Kendig:
The ratings agencies are part and parcel of the National Security
State so even if the US hits 10K% debt to GDP the country would
still have a AAA rating as valid then as it is now.
Make no mistake. The shot has been fired across the bow, the chink
has appeared in the armor, and the crack has opened up in the dike.
The Fed’s move to raise the discount rate on Thursday from 0.5% to
0.75% may have been technical, widely telegraphed by the Fed minutes,
and an unwind of an artificial spike down in rates the economy no longer
needs. Sure there was only $15 billion in loans outstanding at the Fed
window, against $1 trillion in excess bank reserves.
But it was definitely an UP move for rates. The liquidity tide that
has been floating all asset boats has reversed and is starting to recede.
We’re about to find out who has been swimming without a swimming suit.
The train is leaving the station.
Next week the TALF expires, eventually
sucking another $1.5 trillion out of the system. The
Fed is reverting from its role as the lender of first resort back to
its traditional role as the lender of last resort. Inflationary expectations
are going to rise.
While overnight rates are going to remain miniscule, probably for
the rest of the year, the long end is going
to take this less well. That means that one of the steepest
yield curves in history is about to become a lot steeper. I’m thinking
the face of Half Dome. [Why ??? -- what
will be the driver ???]
Now I know that I have been predicting
that a short in 30 year Treasury bonds will be THE great trade of 2010.
But don’t pop the champagne bottles just yet. Without more aggressive
Fed action, the rise in long rates is unlikely to be a sudden, panicky
spike. [Why ??? -- what will
be the driver ???]
So while you can comfortably sit with non leveraged short play like
the TBF, you are going to have to nimbly trade the leveraged ones like
a demon, such as the TBT, to keep
the cost of carry from eating you alive. You are still
sailing upwind against a 4.7% yield, and you can multiply that with
leverage. Think of it more as a slow ground offensive, than a lightning
fast aerial assault.
But it will grind us inevitably closer towards a major triggering
event that will bring real fireworks...
For more iconoclastic and out of consensus analysis, you can always
visit me at www.madhedgefundtrader.com
, where the conventional wisdom is mercilessly flailed and tortured
daily, or listen to me on Hedge Fund Radio at
http://www.madhedgefundtrader.biz/
.
Gordon_Gekko
Unless, of course, we have Fed intentionally
crash the markets again...er..."deflation".
jdrose1985
I dont hear anyone thinking outside of the box
Failed treasury auction? Uhhh..how
many times has that happened since 1790? the answer starts with
a z***.
Please, let's be sort of realistic.
Now how about the real world...say
10 year yields fall to 3% and the CPI goes negative, your real return
is still pretty good. Beats the hell out of staying in equities
where prices are historically due to fall another 50-75% so we can
get back to paying realistic prices for earnings.
Preservation is the name of the game, methinks.
Oh and buy a little gold too
Anonymous
See Japan. We are entering deflation. I think being able to get
a real rate of 4+% is going to be the trade of 2010.
The global economy is going to find out that it's been swimming
naked as stimulus gets paired back.
The demand for Treasuries will be very strong once again.
I'd figure what you think is going to happen will happen after
2011
Anonymous
Why not just by the house for cash as you would any other consumer
durable, unless of course you still believe in the magic of credit
LOL.
Anonymous
Plain vanilla mortgages are one of the few legitimate uses of
'consumer credit', which is of course why everyone and their doucebag
brother started fancying them up to get a cut. While it's possible
(and desirable) to by a house for cash, most members of what we
once called the 'middle class' are busy making ends meet rather
than saving up.
When you get down to it, it makes
little difference whether you pay 20 years of rent while you're
saving or 30 years of interest while you live in a mortgaged house,
you're still paying someone else for the right to have that roof
over your head.
MarketTruth
Ripped Chunk ...
"If ye love wealth better than liberty, the tranquility
of servitude better than the animating contest of freedom, go home
from us in peace. We ask not your counsels or arms. Crouch
down and lick the hands which feed you. May your chains set lightly
upon you, and may posterity forget that ye were our countrymen."
-- Samuel Adams, speech at the Philadelphia State House, August
1, 1776.
-----------------
And with that said i expect to hear you also went on strike because
you and millions of others feel it is the right thing to do. If
not strike, please leave us in peace and we all wish you well in
your possible slavery to the State.
Anonymous
And you're proposing what, exactly as the alternative? It'll
do you well to remember that one of the first things the Founding
Fathers did once independence was declared was create the federal
government. Then, they discovered that making a pissant weak government
was almost worse than no government, so they made a stronger one.
So, again I ask you: what's the alternative?
California has a projected budget deficit of $20 billion dollars
for 2010-2011. However, this does not include a negative balance
of $6 billion in UI funds owed to the fed.gov. Since the UI deficit
is increasing each month to the tune of $500m+, we're looking at
$12 billion at the end of the year.
The total proposed California budget for 2010-2011 is around
$100B, so the 20+16 puts us in the territory of running a 35% deficit.
Since (state) debt has increased 80% over the last 3 years to $50b
($100b if one adds in local), any reconciliation is going to come
out of expenditures.
So how does one cut 20% (assuming the UI debt is forgiven by
Uncle Sam)? Well, considering that total state employment costs
are around $25B, you could fire everyone and still almost run a
deficit. So what's gonna happen is that it's going to come out of
schools (previously untouchable) and social spending.
I forgot to add that pensions are significantly underfunded,
so if we add in wandering students, out of work teachers/gov't employees,
the unemployed who are no longer receiving support and retired cops
without pensions, if 2010 doesn't do the trick, 2011 is when this
thing is gonna blow.
And some people think we're looking at hyper-inflation. Snort.
How can you make such a great case for hyperinflation and then
throw it all away with such a goofy line at the end?
Hyperinflation is simply monetary panic in the face of crushing
deflation. The crushing deflation is a cause of and prerequisite
for hyperinflation. You have made the case for hyperinflation
pretty well, bravo.
Asset prices drop, forcing the relative value of debt to increase,
so the absolute value of currency ... declines?
I fall in the camp that believes
there is a hard $USD oil peg - the days of unbridled QE are done.
I failed to mention that the state of California is hoping the
fed.gov contributes $10b to state coffers so that they only have
to cut $10b. (10+10=20 total deficit.)
The fed.gov money is not forthcoming. This is telling those who
spend their time combing through 1,000 page budgets what is really
goin' down.
It all comes down to whether a hard $USD oil peg exists. If so,
and Ben has to once again allow the market to set interest rates,
as opposed to printing with abandon, then this bitch is going down.
With longish term rates heading north of 6-7%, it's good night
Irene. Our little $1.7 trillion deficit isn't gonna get financed.
When that happens, the states are on their own. (No more, cough,
'stimulus' to mask direct state subsidies.)
See my post above for happens next in the great state of California.
Shameful
So what's the result of failed bond auctions then? Since
spending can't/won't be cut and if you think they won't print which
will break first? I mean it would be a hoot to see the USA
default on it's debt and not print it away, is that what you see
happening? Most of the states are screwed as is the whole
system, so whats left if there is no printing other then debt repudiation?
I mean I suppose they could just start seizing and taxing to
a massive level but that might make a few people decide that they
will fight to keep what they have.
Rusty_Shackleford
Of course we're going to print our way out of this. Don't
expect them to call it that though. They'll think of some
other interesting name for it.
"Targeted Quantification" or something like that.
Anonymous
Ah yes, the hard USD oil peg. Yet another guy that thinks oil
is infinite.
You're going to starve and die. Oil is not infinite. It doesn't
have to run out to starve you. It only needs to be insufficient,
and that's what it's going to be.
Gold won't help you. You can't eat it. Guns won't help you; they
just inform the mobs of where you are with food.
Oil runs the tractors that plant the hundreds of thousands of
acres. That is going to stop.
And then most starve. You want to prepare? Prepare for that.
Anonymous
Once Lord Blankfein and his Tribe are positioned correctly, trading
ahead, way ahead of the 'news' the rest of the world gets, for their
further enrichment, he and his "coincidences of interestees" will
tell the FED what to do next.
It matters not whether it is keeping rates the same, raising
them or lowering them. All that matters is the positions that Lord
Blankfein is building.
All the rest is just conversation.
jc125d
I am seeing a chiche' spike in the MHFT Index.
Cliche, that is...(pronounced klee-shay) is a saying,
expression, idea, or element of an artistic work which has been
overused to the point of losing its original meaning or effect rendering
it a
stereotype, especially when at some earlier time it was considered
meaningful or novel. Sorry, MHFT.
seventree
But at least we will see who is swimming naked when a shot is
fired across the bow of the train leaving the station.
RSDallas
Deflation will be the dominant winner
through about 2015. It will take that long
for the slow bleed (deleveraging) to free up some credit capacity.
You can't get inflation if the consumer is not spending and they
aren't and won't be anytime soon.
We may see isolated inflation in
the energy, metals and food industries, but they
will only inflate until they become to much a burden on the zombie
US consumer which will then spin or economy downward into many "mini"
recessions for a long time to come.
Things could get better quicker if they would get on with the
ever so needed liquidation of all this rancid, misallocated debt
as well as the cutting back spending in the local, state and national
governments that is clogging our system.
ghostfaceinvestah
"Next week the TALF expires, eventually sucking another $1.5
trillion out of the system."
Huh? TALF funded 1.5T?
Are you talking about the MBS program (which was not TALF)?
When is that money going to be sucked out of the system? Over
ten years when the mortgages pay down?
Anonymous
Rates don't go up in Depressions. I guess this time is different?
ghostfaceinvestah
Tell that to the Argentinians. Or the Greeks.
Anonymous
SO we will be the only G3 nation raising rates, ramping the USD
with the goal to kill the inflation bogey man and crush any sort
of housing recovery, mutlinational competitiveness at the same time....think
not Mad HFT but really like your articles. Look for the Reston 6
hedge funds continue to grow assets at above mkt rate...
Anonymous
Bank holiday coming:
Paul Joseph Watson
Prison Planet.com
Monday, February 22, 2010
A new advisory being sent by America’s
third largest bank to its account holders has stoked fears that
major financial institutions could be preparing for old fashioned
bank runs if the economy takes a turn for the worse.
Originally reported by John Carney over at the Business Insider
website, Citigroup is sending the following information to customers
along with their bank statements.
“Effective April 1, 2010, we reserve the right to require (7)
days advance notice before permitting a withdrawal from all checking
accounts.
While we do not currently exercise this right and have not exercised
it in the past, we are required by law to notify you of this change.”
Anonymous
If you think this is news, check your bank's account agreements.
Odds are pretty good you are already subject to this potential restriction
and don't even know it.
A few minutes and Google will get you:
Bank of America Deposit Agreement, Section XX.Q.
JPMorganChaseWAMU Account Rules, Page 11.
Anonymous
long the 30yr will indeed be a nice trade this year. ~3.50% at
end-of-year will be close to 25% return.
wait - you didn't say 'short', did you? what planet are you on?
Madcow
Debt and tax service are DEFLATIONARY. So look for further economic
contraction, defaults, etc.
Energy may rise due to production
declines and that will have an impact on food prices. So "volatile"
food an energy will rise. But everything else will fall.
If the Treasury continues to raise taxes and forces tens of millions
of families and small businesses into bankruptcy, the banks will
be able to swoop in and scoop up their liquidated assets at pennies
on the dollar.
Deflation is good for the "TBTF" banks and for the US Dollar
too -
Anonymous
The "short the 30 year t-bond trade" is looking stale and overcrowded,
particularly with the global recovery now in
serious doubt and the record decline in bank loans.
jc125d
I used to hear bullshit like this in the boardroom when I was
a rookie stockbroker 20 years ago.
We did a lot of damage with our great ideas, supplemented by
the great research we heard on the Morning Call, not to mention
the excellent business building ideas offered by the free lunch
purveyors.
Good thing with a hedge fund they are all qualified investors
with throw away money.
godfader
What happened to all those guys who were screaming to short JGBs
when the Japs bailed out their failed brokers in 1998, and then
after they started QE in 2001? I hope I don't have to post charts.
The JGB bears have been eaten alive.
Econophile
Mad. I tend to agree on the trend
to higher rates, but what about flight to safety issues
if European banks debt exposure to emerging markets is exposed plus
more sovereign debt crises? What's your view on this?
Anonymous
Got duration?
Who knows this cycle better, Wall St or the Japanese?
Japan Hoarding Treasuries Counters Retreat by China - BBG 2/22/2010
In a Bloomberg News survey at the end of 2009, Barclays Capital
Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest
of the 18 primary dealers that trade directly with the Federal Reserve
forecast the 10-year yield would rise to 4.14 percent in 2010, from
3.84 percent on Dec. 31.
“Employment is very fragile,” said Hiromasa Nakamura, a senior
investor who helps oversee the equivalent of $21.1 billion in Tokyo
at Mizuho, part of Japan’s second-largest bank by assets.
“U.S. households will increase their
savings. That’s negative for the economy and positive for bonds.”
Nakamura said the yield on the benchmark
U.S. 10-year note will decline to 3 percent by June 30 from 3.80
percent today.
Investors would earn 8 percent if Nakamura’s forecast is accurate,
according to data compiled by Bloomberg.
by Fruffing
on Mon, 02/22/2010 - 15:19
Japan Hoarding Treasuries Counters Retreat by China
Bloomberg today. My money's on those inscrutable Asiatics...
Yves Smith and I received a tip at the weekend from
a friend who reads the German press regularly about
credit default swaps (CDS) on Greek government debt. Read Yves’
piece based on that article
here. Below is mine.
So I find it interesting that the German daily Frankfurter
Allgemeine is focussing instead on the AIG CDS
connection to Greece. Here’s part of what they had to say
(my translation from German original):
London investment bankers named the American
insurer AIG as an additional seller of CDS. It had to be nationalised
during the financial crisis, because it had sold default insurance
on U.S. mortgage bonds. The burden would have led to the collapse
of the once largest insurer in the world. Before the financial crisis,
AIG is said to have insured a large amount of sovereign
credit risk. If there is still a major insurance positions on
Greece, then the American government would have a strong interest
in preventing a default of the country.
Even if it just concerns market rumours with
the Greek banks and AIG, the examples illustrate the weakness of
the CDS market. The protection is sold by banks or insurers, which
themselves have only limited capital resources. As a general rule,
they also have a much lower
credit rating than the countries whose default they are insuring.
The insurance provided by CDS may turn out to have been a bubble.
We await further details. But, what should
be clear here is that those banks and financial institutions that were
caught out during the initial crisis period are probably the same ones
now at risk yet again – except this time they start from a weaker capital
position.
One of the problems faced by economists is that everyone knows about
economics. Most people are ready to accept that a physicist, or a lawyer,
or a historian knows something they don't. Economists encounter no similar
deference. If you introduce yourself as an economist, you will probably
be asked for a prediction about what is going to happen to interest
rates, which the recipient will-rightly-not take very seriously.
Politicians regularly express views on economic matters. Not jusimilar
opinions about questions in hard sciences -- as with Stalin's adoption
of Lysenkoism or Mbeke's opinions on Aids -- it is understood that they
have overstepped the mark. Not so in economics.
Maybe economists do not deserve the professional
respect accorded to physicists, lawyers or historians.
Perhaps economics is tosh, like spiritualism or scientology; perhaps
what students learn in-demanding and sought-after-undergraduate
and postgraduate courses is mumbo-jumbo: perhaps the
language of economics is useful only in talking to other economists.
But if I were writing an...
From this point of view Lysenkoism has a strong footing in economics
as government pressure is quite noticeable. Moreover Wall Street pressure
can be substituted for government pressure as money are financing activities
of only particular types of economics. In this case muti-state propogation
of competely unscietific theories is not only possible but natural...
Unfortunately, the use of "Lysenkoism" as an epithet has been degraded
by overuse, especially in absurd situations.I propose to restrict
"Lysenkoism" to circumstances where a clear case can be made for coercive
enforcement of the belief system from outside the system (e.g., by state
patronage). For example, if a concept spreads concurrently among the
scientific communities of several countries
The statements, views and opinions presented on
this web page are those of the author and are not endorsed by, nor do they necessarily
reflect, the opinions of the author present and former employers, SDNP or any other
organization the author may be associated with.
We do not warrant the correctness of the information provided or its
fitness for any purpose
In no way this site is associated with or endorse cybersquatters
using
the term "softpanorama" with other main or country domains (e.g. softpanorama.com) with
bad faith intent to profit from the goodwill belonging to
someone else.
on Fri, 03/12/2010 - 17:34
#263752
The real painful thing is the bad ideas never leave. Like you said they have a minor tweak and are presented to a new generation of believing suckers. I know to many professors that have said "Oh it won't happen this time, he learned form the past". the only thing they learned fro teh past was how to cover their ass.