Video Interview on Tech Ticker: Roubini: “Bear Market Only Half Over, But It’s Not Armageddon”
This morning I gave a video interview at Yahoo Finance’s Tech Ticker; this video interview elaborated on my latest detailed article about “The Coming Systemic Bust of the US Banking System: Dead Stocks Rallying”.
And the third part “‘They’re All Toast’: Roubini Says Brokers, Even Goldman, Can’t Stay Independent” is here. …
And here are the Tech Ticker stories that came with that three-part video interview:
It is that “disorderly” outcome Roubini says the government cannot afford to let happen. With “the charade” that Fannie and Freddie weren’t already government agencies over, he believes a nationalization of the 50% of mortgages not owned or guaranteed by Fannie and Freddie will be necessary, and the Frank-Dodd Bill is a small step down that road.
From Roubini’s view, nationalizing housing avoids the government having to nationalization the entire banking system, making it the lesser of two evils.
387 Responses to “Video Interview on Tech Ticker: Roubini: “Bear Market Only Half Over, But It’s Not Armageddon””
Dr. Roubini:Please forgive this slightly off-topic reference back to a prior thread. Some foundational material got set out that I want to both emphasize and contribute to. ===========@LB:I was…I won’t say shocked, but very surprised and delighted with your post. I didn’t think you’d push it that far. In other forums, at other times, it would be very beneficial to advance that line of discussion. In times of turmoil, there are great opportunities to change things for the better, not just for the worse. Alessandro, I think you have put your finger on the enabling technology, and maybe add in the new encryption tools that have been the only upside of the so-called "war on terror". One more idea to put on the table: what we need is a public repository of credit information. Not one owned by TRW, or Equifax, but a public utility sort of like ICANN (internet domain name registrar of record). If you credit data was actually your property, and you could register and clear all your financial transactions (credit card companies already have them, right?) through this repository, why do you need a bank to make you a loan? Why not an investor, to whom you could grant the privilege of reviewing your credit, and the investor could believe what he/she sees?That would level the hell out of the credit origination market, and it would get the financial center intermediaries out of the allocation of capital business, which they’ve screwed up in a pretty spectacular way. Craigslist for loans grafted onto a credit transaction registry, with the registry possibly operated by and policed by the State. Very narrow mission: no misrepresentation of fin txns. Put in there what you want, but if it’s in there, it better be valid or you’re in the slammer.Transaction transmission security enforced also by the State – ICC or FBI. No role for the Fed, or by association, the big banks. They have abused our trust. The key, fundamental idea is LB’s: re-establish the direct relationship. Get the middle man out of the way.Yes, you will likely get in trouble for this, LB, and it’ll be all to your credit. Thanks.— For those that didn’t see the prior posts by LB and Alessandro, FreeTibet and others, I recommend you backtrack and read them. They are mid-way-down on Dr. Roubini’s last thread. They posit fundamental trends that will re-shape the credit origination process once the wreckage of the current one clears.backchannel remarks: firstname.lastname@example.org
I believe Professor Roubini is looking for a 40% decline, top to bottom, in the US stock market averages before we see a turnaround…1/2 way thru implies we haven’t seen the bottom yet.Target: ~8500 DOW (~40% down from 14,100 DOW)
Dr. Roubini:I’d still like to know what sort of favorable — if that term is appropriate — empirical evidence has lead you to conclude consistently that this recession will not last more than 18 months and become the U.S. equivalent of the Japanese "lost decade" or the Great Depression or, as you characterize it in this video, Armageddon. One thing that comes to mind is unemployment, which does not appear to be accelerating out of control as it did in the early 1930s, and is not projected to get too much worse (at least, not on the scale of the Great Depression, or arguably, even on the scale it reached during the 1970s and 1980s, despite arguable number-fudging by the government in how the data are calculated). I’d imagine, too, that there are more governmental safeguards in place (many enacted in response to the Great Depression) which would tend to mitigate the downside potential, e.g., the existence of an FDIC, the fact of Social Security, unemployment insurance benefits, etc. If you’ve ever addressed this question before, a reference to a URL or other source on that would be appreciated.Thank you,SWK
@ Gloomy [copied from last discussion]"What’s to keep commodity prices up in a depression?"Answer: (chase currency/money from your mind first), the relative pricing compared to other products/commodities. Remember that money is only a medium of exchange (since it already failed its function as store of value) and it serves as long as you can sell one thing, get the money then buy something else. This of course assumes that what you need will come from within the country, not imported (a big assumption I admit)First as I said valuable commodities, they will always have higher value and be demanded and needed in all cases. I say, especially in the case of a depression: products/commodities that have a negative elasticity of demand to income (the lower the income, the more the demand) and hopefully inelastic demand to prices. However, even if the price of this commodities will (relatively) go down, the question is what can you buy/barter against them during a depression(I believe more than you currently could). Also, as I said, in the case of a depression, and thanks to low exchange rates, you have more chance to attract foreign buyers.I believe it is along this lines why some OPEC countries are "hoarding" and keeping their oil in the ground – as soon as it is extracted, their price, in dollars is locked up today and they will lose value with the depreciation of the dollar, while if they don’t, their oil will always have the same value – ceteris paribus.So characteristics of the asset/commodity: negative elasticity to income, inelastic to prices, valuable, storable, transferable, relatively liquid and in preference divisible …Enough theory
http://www.cnbc.com/id/15840232?video=800926653&play=1No dilution; will you stake your job?, fallacy rally = FALLY. I hate being gamed. I hate power and dominion used only to further the evil design of the holder to the prostration of the poor in spirit. I hate falsehood being upheld and idol gods being worshipped. ALL my favourite histories and fictions are of evil being undone, of right finding standing as it subdues darkness. I am devoted to counteracting the repugnant gameplaying destroying good people, good companies, GOODNESS. Something smells putrid, and something is rotten in the state of Denmark.
Well …Checking in on our favorite banks:WaMu (WM)Wachovia (WB)Citigroup (C)all UP over the last few days. I guess a little bit of bad news on earnings shouldn’t affect a stock price, now should it Also, Ford (F) and GM (GM) showing exactly the same pattern of a miraculous recovery.Yeah, we know that options expiration time is a good chance to give those ailing players a shot in the arm, while simultaneously squeezing the shorts, BUT HAVE FUN BOYZ. The head trip is only temporary.PeteCA
"Financial Strip Mining for Dummies"the new book by Paulson, featuring "off the hook quotes" from "special guests", coming to a book store near you soon….
We may soon see capital allocated in small enclaves where trust is complete; no anonymity, full accountability. We may have to adopt a minute democratic form of capital allocation. Limited exchange seats, collusive stock extortion, dilutive underwriting terms, manipulative accounting may become a thing of the past. As the US national federal government is increasingly defaulting on governing responsibilities, losing the faith of its governed, as the mandate of heaven frowns and clouds over, and as "no confidence" becomes manifest throughout the land–we must revert to our schisms, fractions, splinters. WE must align ourselves in groups where government is more muscular, more immediate, much more honest and swiftly enforced. We may have to revert to ordered enclaves of self-selecting societies. These wherein our means of exchange can again be reordered, made hard and certain, where our gain and growth are established on true and tangible creation. We may have to scuttle the leprotic leviathan which is failing in its primary duty: its carriage of our hopes, potentials, ideals, comforts.The duty of a patriot, poet, procurer is to prick the soul of tyrants. They must be reminded of their great duties and THE onerous yoke of freedom. We must rail until their long hibernating consciences breathe keen again. If we fail, if they fail, we revert to small societies and a thousand tiny wars. If we succeed in uniting and remembering our better selfs and selflessness, we can restore liberty and prosperity. But first to smash the idols, destroy edifice on unsound foundation, harrow out the graft, purge the iniquity. Make bone and sinew hard, mind and heart enduring and spectacular in submitting to the phase of suffering required. To enter into a new phase of humanity, where we have learned that minor concessions grow into large and demand impossible interest. That allowances of weaknesses disguised mercy subverts all justice eventually…and undercuts of lives and substance.
@ Nouriel Roubini: “That raises the questions: Is America ready for (true) foreign ownership of major financial institutions? And do we have a choice?"As Patrick Henry so eloquently put it in 1787: I smell a rat.Government did not make us rich. Nor can it keep us that way. There is no “choice” for me between liberty and an economic tyranny ruled by a consolidated state of bureaucrats and international bankers. I will not beg for scraps at their tables.If, as you say, “this nation under God” is faced with the necessity of a takeover by economic despots and tyrants, then let Henry’s words ring for me!“Let it come. I repeat, Sir, Let it come…Is life so dear or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!"
When I think about what is coming at us – it is at times overwhelming. But it is not usually long before I begin to think about what this place looks like after. It becomes simpler. What if more families stayed together; raised their own children instead of utilizing day care; took other family members into their homes; made do with what they had instead of living on credit? Would that really be so bad? To not be held hostage by the banks and lenders and forced to work 2 or more jobs, taking time away from family and friends just to buy and have stuff?Idealistic, I know. But what if we did change the way we look at life and developed an appreciation for what we have instead of what we want? Would we not be better served if we worked less, made less, bought less and had more time to pay attention?It’s a continuation of the way I have been feeling about the oil companies. I have come to despise them and have made decisions to make me much less dependent on them. I no longer feel like I am a hostage. I walk to work and my wife bikes. We heat with wood pellets (a natural resource in our area) and solar. Sure we drive less than we used to, but we also have made a fundamental change in our daily lives – we spend more time together now doing all the things we should, but didn’t always do. We have dinner at home 99% of the time. We take our kid to the playground because it’s close and free. I took my daughter fishing and we had a ball.Please forgive the rambling, but the outcome of a disaster can have some positives. Look, I have seen many people born and many more die. No one, while dying, has ever told me they wished they had more money in the bank or had spent another few hours at the office. When faced with imminent death, all people want is family around them and to try and remember "the good times". It’s never about the money folks.This whole disaster may be the best opportunity this country has to find its way back to being a decent society where people can be proud to live and work. Where people think as much about others as they do themselves. Where principles and ideals are taught in the home; and where families and communities become where we want to be again.There was something utopian about LB’s vision of the future in the last thread; not about government or leadership or business. But about the thought that communities will matter more and personal responsibility and accountability won’t just be words we throw around. They will be a means of survival.
Re: Previous thread discussion on ARMs and deflationMany lenders offer a choice of ARM index of either LIBOR or US Prime rate. I took out a very good adjustable rate mortgage last year and indexed it to Prime on the understanding that the prime rate moves with the Fed Funds rate. My interest rate is at prime minus 1.25%.So before the credit crisis prime was 8.25% and my interest rate was 7%. Now Prime is 5% and my interest rate is 3.25%. Thanks Benny Boy.Of course, if the FED decides to put their money where their mouth is I will begin to sweat a little bit. But I still think the next rate move is more likely to be down rather than up.
London Banker, I thoroughly applaud your post on the previous thread about our economic future being organized around social networks. I think you hit the bullseye. It is a likely outcome due to peak energy, and also because once this whole thing is over no one is going to trust "the system" again.Keep up the good work.JLC
I would like Dr. Roubini to tell us how big his yacht is.
@ Medic: Thanks@ JLC: You are making the assumption that it is the Fed who fixes and dictates rates. I am not personally certain about this
One common factor I think most business models have in the current system based on is “risk and cost transfer”. And that does not involve investment banks only but almost all other industries: Slice & Dice, outsourcing, delocalization … The success of this system may be attributed to two factors: (a) cheap transaction costs (including but not limited to cheap credit, transportation, labor …) and (b) mispricing of risk (similar to the idea presented by Fama-French model which tried to explain that the reason why small-caps outperform big-caps on a risk-adjusted basis was because risk was mispriced and miscalculated and should account for additional risk origin (size)). The combination of low transaction costs and risk mispricing (usually underestimation) lead to the proliferation of Risk/Cost transfer business models. The cheap transaction costs benefited from generational downward pushing forces that can be summarized in the availability of production capital: cheap and abundant labor, energy, credit … On the other hand, risk mispricing was a product of the illusion that the break down of an income-generating asset to several others reduced the total risk. ABS and MBS’s seemed to present better return with a perceived lower risk than the original mortgage contract and the outsourcing/ delocalization of production/manufacturing process into several independent centers/regions seemed to be much less risky/costly than an integrated stream-to-stream organization. The mispricing of risks comes from the underestimation of future related costs (especially due to flawed risk assessment matrices) and also from abnormally low transaction costs. The problem with this kind of business model is that as long as we do not have a universal theory/approach, we cannot just apply relativity theory to mechanics … err … we cannot apply macro theories (comparative advantage, specialization …) at the micro level. I mean that specialization and comparative advantage work, in my opinion, only for an integrated organization/entity/asset: integrated means it has a full income generating, decision making, common goal setting process. If we apply risk transfer to parts of an entity (household income/ consumption, R&D outsourcing, production offshoring …) instead of the entity as a whole (industry, sector, business cycle …), the total risks of individual parts is higher than the risk of the entity if it is integrated (This also joins the classic investment theory states that diversification reduces portfolio’s overall risk)This model is not bad per se. However, when an idea gets institutionalized, it suddenly becomes ideology. This is one of the disadvantages of the capitalist economy: when a business model is proven to be more productive/ profitable more resources and more competition follows to constitute an industry. If the competition/industry lives long enough it creates high barriers to exit, huge sunk costs and rigid legacy systems. The adaptation to a new business model becomes almost impractical, even if the new model is theoretically better, because the cost to shift from the old to the new is probably higher than the willingness of market participants to change. Cheap transaction costs also leads to overproduction, while risk underestimation leads to more (involuntary) risk taking, both resulting in lack of (arbitrage) investment discipline and excessive production. The excess in turn causes waste which ultimately leads to higher future prices (since current resources are limited). So to go back to what the future may hold. I think future capital formation and innovations should focus on either or both these areas: “Material” decrease of transaction costs and/or reduction of risk through risk/costs integration and assumption. I say Material ideas/models to create a significant decrease in transaction costs. The mitigation of risks through risk integration (not transfer) forces investment discipline: that consists of aligning risks for a common objective, the weighting of investment decisions (with resource constraints) permits choosing the best alternative. More specifically, material reduction in transaction costs and Risk integration and assumption involve the mitigation of overall risk by risk weighting and can take many forms. This includes what LB, Alessandro and Outerbeltway already proposed: personal investments, internet, forums … But not only. You can take any type of transaction cost and try to find ways to reduce it: e.g. for energy, we may think of either cheaper alternative energy development and/or more local commerce that significantly cuts on transportation costs, for credit, it may be time to see more venture capitalists and more business angels who provide “cheaper” capital …back to streamlined companies, not Holdings like but rather the disappearance of frontiers between what we call now cost centers.This may also hold true for banks. Once their current business model is broken, they may need to be more involved in new venture financing and take more (but fully priced) business risks …
U.S. House to vote on rescue legislation for the GSEs tomorrow. Looks like Senate leadership has approved the draft, too.SWK
SWK,hahahahhaha oil 200 per barrel by the end of the yearhahahahahaUSD to the dumpsterMiss Americe, your latest prediction is fast coming trueSnP 1000 Dow 8000HERE WE COME
Bond market will be decimated
The banking system is heading into insolvency and collapse because of trillions of dollars of leverage outside of housing markets, in other firms, in other countries – it’s a mega-catastrophe ready to blow. “No oversight” allowed the shadow banking system to venture into this incredible endangerment.That’s the reason for Paulson’s performance; he’s going for police power, co-opting officials such as Cox – to cover up the depths of the chaos. I see the catastrophic power these financial currents carry. But attempting to put this incredible burden on the shoulders of the American people is transferring that bankruptcy to the people, nationalizing poverty. It’s time for someone to find a better route back to America’s financial stability, one that bypasses the old route of “U.S. financial giants like JPMorgan, Citigroup, and Bank of America dealing with internal issues.” As far as foreign ownership of America’s major financial institutions, you do not understand Americans. There is no way this could get through Congress. People already are smarting over the fact that they are going to have to help out other people with their bad mortgages. They are grousing over the bailout of Fannie and Freddie.I believe you are mistaken on where this crisis is going to lead. You are correct that its depths are great and that the banks are tied in with Fannie and Freddie where’ve they put their junk stuff. That’s why Paulson is pressing so hard for “unlimited authority.” But the minute Congress smells the depth of this financial mess it is going to freeze up. It’s an election year: Ultimately, Congress will let the banks collapse.
sorry mkt will go 8000after they frickin rallied when / if the bill is ratifiedsshheesshh
@Medic on 2008-07-22 22:19:49,No more ‘idealistic’ than the reestablishing of community which for decades now has been progressively financialized and gadgetized into a war of ‘all against all’.
WTF,why the hell is USD strenghtening???This is mother of all bomb shell for USDhttp://www.bloomberg.com/apps/news?pid=20601068&sid=aCy_Dl.5rdv0&refer=economyHouse Lawmakers to Vote on Fannie-Freddie Rescue Plan Today July 23 (Bloomberg) — The House of Representatives is set to vote today on a rescue plan for Fannie Mae and Freddie Mac after U.S. lawmakers reached a deal on legislation aimed at alleviating the worst housing recession in a quarter century. “The package we have got is fully acceptable” to the Treasury, Representative Barney Frank, a Massachusetts Democrat who chairs the House Financial Services Committee, said late yesterday. Legislators crafted the agreement nine days after Treasury Secretary Henry Paulson asked for powers to inject capital into Fannie Mae and Freddie Mac. The agreement increases the likelihood Paulson will get the authority this week, after he lobbied lawmakers to overcome concerns about taxpayer liability. The Treasury chief argued that the backstop for the beleaguered mortgage companies was critical to help safeguard U.S. financial market stability.
with this kind of news Oil is down,man, im batteredhttp://news.yahoo.com/s/ap/20080723/ap_on_re_us/tropical_weatherIn the Gulf of Mexico, Shell Oil evacuated workers from oil rigs, but said it didn’t expect production to be affected. It also secured wells and shut down production in the Rio Grande Valley, where it primarily deals in natural gas. Mexico’s state-run oil company, Petroleos Mexicanos, said it had evacuated 66 workers from an oil platform off the coast of the port city of Tampico. Pemex said in a statement that it had readied a team and the resources needed in case of damage to oil installations in the region. Residents of northern Mexico were taking the impending storm in stride. Blas Garica, a 62-year-old builder in Reynosa, was taping up his windows and putting sandbags in front of his porch to prepare. "I’m not afraid because we flood frequently around here," he said. "If my house floods, we’ll just run to the roof."
"Please forgive the rambling, but the outcome of a disaster can have some positives. Look, I have seen many people born and many more die. No one, while dying, has ever told me they wished they had more money in the bank or had spent another few hours at the office. When faced with imminent death, all people want is family around them and to try and remember "the good times". It’s never about the money folks." MedicDear Medic,I too have been privileged to be at the bedside of the dying. I have not heard anyone wish for more money. But then I haven’t been at the bedside of people dying in poverty, leaving family members in dire circumstances. For the dying whose lives have been really tough, I would imagine that they would wish to have more money, not for themselves, but for loved ones so that they might for instance, be able to go to a doctor’s office to obtain preventive treatment to avoid illness and disease, instead of visiting an emergency room for exigent treatment. So that they might have a "room of one’s own" to have some degree of control over their environment. In short, to live a life with some autonomy, which I equate with dignity. How much dignity is afforded to those living in cars or with relatives? To those who cannot afford to go to the dentist, or to buy fresh produce or fresh milk. To those who are too exhausted from working two or three jobs to treat family members with respect. To those without a job who come to disrespect themselves, as well as others.In the near future, many will die with financial regrets, expressed or not, knowing that remaining family members are destined for lives of discomfort, suffering and toil, a hardscrabble existence.Remember Maslow’s hierarchy? It’s survival needs at the bottomn; food, water, shelter. It is only after the lowest rung needs are fulfilled that people can begin to think about safety and security, sex, belonging and other higher level needs. Many, many people are going to be stuck at the lowest rung of Maslow’s ladder. And they will I think, have many regrets for family members who they will leave clinging to that first rung, with little hope of ascent.I know you have the best intentions, but we must be very careful not to ascribe our own relatively comfortable and secure circumstances to others. Best regards,
@ MedicYou are an inspiration. We could all do with focusing on those around us. Time spent building relationships is always a safe investment.@ AllPaul Farrell on Marketwatch has a great list up: 11 Reasons America is a new socialist economy. It rips the Friedman free-marketers for destroying the basis of American prosperity and democracy.http://www.marketwatch.com/news/story/eleven-reasons-america-new-top/story.aspx?guid=%7bD23E1901-728E-4A3C-99D1-7E80F74C3AE3%7d&dist=TNMostRead&print=true&dist=printMidSection
Why no depression? Those clowns in Washington are making the same mistakes all over again as they did during the 1930-1933 period. Nobody seems to have read the book by Rothbard. :s Strange.
imagine all the angst and anger of the people when they finally realized they have been mere serf/peon/pawnhow the heck can we make money when they change the rules all the time, this isnt unfair anymorethis is idiocynow my son is a slave with a debt sign marked on his forehead
"Those clowns in Washington are making the same mistakes all over again …"There not mistakes. They know exactly what they are after. If you don’t like it, blame the FED, Congress, the Supreme Court and YOURSELVES. You allowed IT to happen. You allow IT to continue. So did your parents. Sit in the saddle or be cattle. Moo…
Gotta love the spin. CNBC: "WaMu Posts Big Loss But Says Capital Is Sufficient"So WaMu says they "have no plan to raise additional capital" and everybody assume capital is sufficient.But what if you actually read the fine prints? Mish did it for us:http://globaleconomicanalysis.blogspot.com/2008/07/death-spiral-financing-at-wamu-merrill.html
I went massively short (to the tune of 2X my total NW) and the market has rallied from this week start.My PUT options are getting eroded in value quickly. Do I have any hope ? Is there a market fall that is imminent ?
Video Man – IMHO market likely to top out around 1305 on S&P within the next week, then we are likely in for a capitulation selloff to likely around 1080 on S%P according to technical analysis (probability based), into the end of September and October…beginning to selloff around 1-4 Aug
Anyone seen Capone? I heard he was tapping his HELOC so he could start shorting WMT.
@Guest on 2008-07-23 06:43:04on August the 1st the BLS should publish the revised employment statistics for 2007, hopefully (but I would not bet the farm on it) reversing the absurd birth/death model contributions of the tune of 100.000 jobs per months. That could be the perfect trigger for widespread panic.
It’s odd that Japan is often mentioned as some super-bad example, when they in fact have multiple automobile manufacturers and other corporations in a lot better health than those in the US of A. And they do not even have as many homeless…That article linked to in Nouriels article (in the sentence about "prolonged Japan-like economic malaise") mentions that a key structural weakness of the Japanese system was "an unwillingness to give an honest accounting". Interesting. I guess the US has nothing to worry, then, as accounting in that country is reliably honest…(cough, cough)
@ Flanders 02:27:01>Why no depression? This is the question I continue to ask Dr. Roubini. He seems to feel very strongly that nasty though the recession may yet become, it will end around the second quarter of next year. He consistently rejects the notion that the current troubles will rise to the level of a Great Depression, a Japanese-style "lost decade," or an "Armageddon." He expects the stock market will fall around 40% from its peak of 9 October 2007, which would be slightly less than the total drop in the 1970s following the oil shock. I am inclined to believe him, if only because of his track record of thorough analysis of economic circumstances and general accuracy in predicting the present crisis. I would, however, be interested in hearing from him as to the particulars that continue to lead him to this conclusion. There are a plethora of "doom and gloom" folks who regularly post here, and they’ve occasionally made some poignant observations about our state of affairs that would tend to support the view that things potentially could get worse than even Dr. Roubini anticipates. As Dr. Roubini has stuck to his guns on this question, however, in my quest for a balanced understanding of what’s transpiring, I’d surely like to hear some details from him as to the empirical data and circumstances that militate against concluding that the Armageddon scenario is nigh. Even a simple stream-of-consciousness list would be helpful. Still, this is his show, so I’ll respect his decision to address this question in his own good time, should he elect to address it at all.SWK
Japanese and German manufacturers booming due to focus on engineering, niche markets, high quality, even though their labor rates are higher than MBA-parachutted-led American manufacturers so it is not about simply labor costs…
@ Guest 07:36:27>That article linked to in Nouriels article (in the sentence about "prolonged Japan-like economic malaise") mentions that a key structural weakness of the Japanese system was "an unwillingness to give an honest accounting". Interesting. I guess the US has nothing to worry, then, as accounting in that country is reliably honest…(cough, cough)Now, that is exactly the sort of "poignant observation" I referenced in my immediately preceding post. While I assume a widespread lack of transparency won’t, ipso facto, lead the U.S. into a Japanese-style "lost decade," it surely would be nice the hear from Dr. Roubini as to an empirical basis for concluding that this economic mess we’re in will at least start to be resolved by the end of the second quarter of 2009.SWK
Revealing video of President Bush, who asked that the cameras be turned off, admitting that it’s Wall Thief’s problem. Nevertheless, while officially on camera, it’s the taxpayers problem!http://www.youtube.com/watch?v=eXj4-PFuMLc
guys:I’m beginning to have my doubts about this market crashing. TPTB have shown they will do ANYTHING with our money to keep the market from crashing. BKX is up 45% in 1 week! F&F brought back from the brink by Paulsen. All of us know the banks are just trying to buy time with their little ($2-5B) writeoffs every quarter! They move more and more assets to Level 3 so they can hide their true balance sheet. I’ve got an MBA from a top 25 school and even I don’t quite understand how they stay in business. I’m getting depressed……………….:
An actual crash, á la 1987, has always struck me as unlikely, despite a panic here and there. I suspect the market will continue to trend down over the next year in a volatile succession of bear rallies and drops.SWK
SWK on 2008-07-23 07:39:23 & Flanders 02:27:01 – Why NR says no depression?The impression I get is that NR sees economic events as somewhat independent from one another such as liquidity, solvency, supply shock, demand shock, oil shock, and inflation. So if one were to compartmentalize what is going on today, put relative numbers on each compartment, then, yes I could see how one could call a U-shaped hard landing.But for better or worse, I see a swirling interplay of influences, some of which seem to be impossible to quantify. Moreover, the magnitude of these influences are incalculable. For example who really can understand the influence of $1 quadrillion worth of credit derivatives on the word economy. And to invoke John Williams again, it depends on how the Fed and Treasury will play their hand through the bank crisis. If the past predicts the future (no deflation regardless of the cost), then they will inflate until the bitter end — and that is when the depression begins. I guess this scenario is too bleak even for the uber bear.
Surprise! The President has dropped his opposition to the House GSE bailout legislation…SWK
@ ptm 08:22:07Yep, a quadrillion is a heap big number! It’s a bleak scenario, all right…SWK
@kilgores on 2008-07-23 07:39:23In order to understand what’s going on in the markets, one should consider whether the situation in the market offer any arbitrage or not. That is, is there any trading strategy such that it will provide an investor riskless gain? If there is none, then one calls the pricing from such an idea no-arbitrage pricing.If one truly believes that the markets will go down, then he/she should short the market to gain from it since today’s prices may not reflect the reality. However, if it does given the last rally, despite bad news, then one may believe that things are going to work in right direction and thus buy. However, the problem behind no arbitrage is that it may not include all trading strategies that will lead to no arbitrage pricing. This means, that some investors with larger resources may distort the prices of some assets from their fundamental value (true price) and cause them to be over- or undervalued. Thus, if a small investor short an asset it might end up loosing all its investment at the end of the day if there is some large investor who has the resources to distort the prices at the expense of the small investor. This situation might also be interpreted as the market incompleteness; since markets were complete such situation would not appear to be the case.Since the crisis started we have seen weird rallies in the market. I assume that they were part of active manipulation. The fact that such rallies still continue to be so with large increases for a very long time suggest that government might be involved in this game. It requires huge resources to keep things going on in this way. Especially, the short banning of the financials increase the suspicion even more.The problem with the banks today is that their capital is highly dependent on the value of the marked-to-market and marked-to-model assets. What is going on in the US market is the capital erosion (asset price depreciation) of the system. This value of these assets is highly dependent on the ability of US consumer to pay its debt back since US consumer increased its quality of lifestyle based on borrowing power rather than earning power for the last decade. Eventually, the credit boom ended and now caused the US financial system to become subprime. The end in credit boom might be related to internal as well as international factors (i.e. liquidity decrease from China given higher inflation there. One should remember the increase in required reserve ratios in China) or both. Given that the US financial system became subprime, several financial institution went bust, some other started to manipulate figures in their balance sheets and borrowed money (or swapped assets with) from the FED which is the lender of last resort. Now the entire system almost became dependent on the liquidity provided by the government (public sector) rather than the private sector. The system is too big to fail if one thinks about the total net risk exposure of banks to credit markets. It is 9 trillion US dollars. The capital of the all banking system is around 2 trillion US dollars. This is only for the credit market. We should also think about other markets to understand how serious this crisis is. I think this is an already enough argument for doom and gloom people. However, the expected crash still did not happen. This is where the manipulation theory (and possible government manipulation theory) goes in. Further, it would also be interesting to check on possible trading strategies between equities and oil since some hedge funds might have found a trading strategy to make profits.
@AfA Re: “More specifically, material reduction in transaction costs and Risk integration and assumption involve the mitigation of overall risk by risk weighting and can take many forms. This includes what LB, Alessandro and Outerbeltway already proposed: personal investments, internet, forums … But not only.I was about to argue that the weakness of LB’s social networks financing was that his rich uncle would be unable to satisfactorily manage his risks to fund investments in start up (innovation) enterprises. I feel like that requires large pools of capital and there will still be a requirement for capital markets. The problem is (has been) the short-term horizon of that funding and I think a reluctance to even try to analyze the risk. Maybe pools can be formed that look to investors more like annuities. Anyway, innovation clearly needs to begin in the capital markets.
9:56 a.m.[FNM] Paulson refuses to estimate cost of Fannie, Freddie help
tsunami of bailouts are coming. system is not allowed to fail. dump bond and long stock. actually dump USA asset and long international asset.
Randy-Mish has exposed the real reason for the SEC hand selecting banks and brokers to cause a massive short covering rally. See http://globaleconomicanalysis.blogspot.com/2008/07/death-spiral-financing-at-wamu-merrill.htmlThanks to Allesandro for the link.
10:07 a.m.Malaysia’s inflation soars to 26-year high in June
US stocks taking off! You see, everything is now ok-get long, be happy, spend all you rmoney cause the US govt will save you!
invisible PPT will not let anything to fall.
WOOOOHOOOOOOOO! A new bull market is underway!
A glimpse at a hyper-inflation economy…A cup of coffee at a government-owned five-star hotel was 130 billion Zimbabwe dollars, or US$5.30 this week. A waitress at the hotel said she earns 100 billion Zimbabwe dollars, US$4 a month.Dereck Nhamo, who manages a warehouse, says he wants to join the teeming ranks of unemployed because he can’t afford to work any longer. Nhamo earns less than his bus fare to the warehouse in Harare but adds to his monthly income by selling firewood collected on weekends in outlying woodlands. "It doesn’t make sense to go to work any more," Nhamo said.One Internet provider has invited customers to pay their fees in gasoline coupons that hold their value.http://www.aol.com.au/news/story/Zimbabweans-battle-money-shortages-as-collectors-buy-hundred-billion-dollar-notes-on-eBay/756291/index.html
…brokers protected if rules are missing words?JACQUIE MCNISH Globe and Mail UpdateJuly 22, 2008 at 9:54 PM EDTIn a decision that has quickened the hearts of white-collar defence lawyers across the nation, a split panel of three judges on the Divisional Court of Ontario ruled last week that Mr. Brush was right. There is no specific language in the Securities Act of Ontario, the judges ruled, that entitles IIROC to regulate former members.The offending passage in Ontario’s Securities Act is a small, four-line paragraph known as Section 21.1 (3), which Mr. Brush can almost recite by heart. The clause recognizes the rights of self-regulating organizations such as IIROC to “regulate the operations and the standards of practice and business conduct of its members.”What the passage does not say is “former.” The absence of that lone word, the divisional court ruled, meant the province’s Securities Act “cannot be stretched to include the discipline of former members without doing violence to the meaning of the statute.”http://www.reportonbusiness.com/servlet/story/RTGAM.20080722.wlawcolumn23/BNStory/robLawPage/home
It’s a buying frenzy!!!!!!!!!!!!!!
"WOOOOHOOOOOOOO! A new bull market is underway!"that mean FED is starting new pumping bull market. tsunami of bailouts are coming. forget deflation. try hyperinflation first. watch currency die. WOOOHOOOOO hyperinflation bull market is underway!!!!
@AfA, FreeTibetGood works, both. More rejoinder:AfA says, paraphrased, "Need to wring out transaction costs", FreeTibet says "Need to syndicate risk, too much for Rich Uncle". Yes, and yes. Wring out transaction costs by dis-intermediation (get rid of middle guys that don’t add any value), or replace interior-of-supply-chain players that do add value with automatic players that add the same value at a tiny fraction of the cost.That’s what my proposed "credit registry" is intended to do. The challenge of assessing risk is an information problem. The question of "is the person, himself, creditworthy" can be answered by the registry – if it shows, accurately, the credit history of the individual. The question of the project’s risk-reward equation can only be evaluated by a practiced eye, and believe me, the big venture capitalists have no claim to the franchise here. Remember dot-bomb? A whole lotta "smart people" got slammed. The recent debacle of the debt-fueled economy is a "big player" phenomena. This could never have occurred if the loan holders were local instead of remote from the nature of the credit risk. LB is right when he stresses the need for locality of risk assessment & risk exposure.Continuing with the narrative, we ask the question "how do you syndicate risk locally?" Why couldn’t a local investor be the syndicator? Why is that some "can only happen on wall street" business function? That’s bunk. The market will evolve a syndicator, that takes a skim on the deal, and throws off some risk to other players. Those "other players" are "local" to the syndicator – he/she knows them, has worked with them, is joined at the hip to them via prior txns, etc.There’s one more piece here we haven’t addressed, and that’s the allocation to sector issue. In addition to the greed and herd mentality screwups at the top echelons, we also have an economic policy screwup at the senior government level (e.g. steering all available capital into either defense or housing, neither of which is particularly productive, especially when both sets of investements become are virtually obsolete the day they’re built (using current designs and architectures). So, the other aspect of this question of bottom-up finance is "how does our culture direct investment toward those sectors of the economy which offer society at large, and the planet, the best return on scarce intellectual and financial capital?"I’ll leave that to the fertile imaginations to work out. So far, I have heard no requirement set out that the bottom-up solution couldn’t deliver upon, and do it cheaper, better, faster…etc. Alessandro said it well: the open-source model offers a great example of the quality and functionality that can be delivered reliably and consistently from a bottom-up model.As always, out-of-band dialogue is welcome at email@example.com
Hey! More bullish news!! GO Stocks GO!10:49 a.m.Moody’s:Deteriorating U.S. household finances threat to econ
Bankrate now has the 30 year fixed mortgage at 6.50%. Usually this increase would be bad for housing, but in this demented market shouldn’t I go all in long housing stocks?
10 and 30 yrs yield are set to go up. FED loss credibility with cheap short-term rate and cheap money. bond market taking matter in its own hand. it is a long way, expect 10 yrs go above 6% or at least to 7%. hyperinflation era is here. die bond and dollar.
stock market need double bottom to go up. higher lower will be best.
That is why this market is loaded with rocket fuel and ready to explode higher! EVERYONE is expecting a re-test of the lows before they commit money. The PPT can use this to their advantage by helping stocks higher and higher. Eventually, folks will think they are missing the train and pile on. VWALLAH! Stocks go up verticle throughthe summer, thus inflating the leading indicators, thus making people think the economy is fine.
Ahhh yes, the dreaded "Junk" rating but hey, all is well there, remember, they told us and the stock was up huge on their horrible numbers…11:35 a.m.[WM] S&P cuts Washington Mutual to ‘BBB-/A-3′
Listen to Martin Feldstein.http://www.paperdinero.com/BNN.aspx
Sorry for the repost of my Star Wars Parody… …but there is relevance since I am replying to a couple of posters. (plus I hate it when I work on a post, and then the Prof goes and changes to a new blog shortly thereafter)A long time ago, in a stock market far far away…It is a period of Financial War. Rebel hedge funds, striking from unregulated markets, have won their first victory against the TPTB. During the battle, Rebel PE’s managed to steal secret plans to the TPTB’s ultimate weapon, the Death Stock, an armored financial institution with enough power to destroy an entire financial system. Pursued by the TPTB’s sinister agents, Miss America races home aboard her LIRR, custodian of the stolen plans that can save her people and restore freedom to the Stock Market…. There is a disturbance in the force. The Sith Lord Greenspan, has dispatched his stock troopers throughout the trading world. Darth Paulson and Darth Bernake have waived their RightSabers, and dispatched Rightwing fighters at anyone attempting to take back their wealth and power. (Jar Jar Bush has unknowingly enabled the Sith Lord Greenspan to take control of the Market)With the help of London Skybanker, Aless-Solo, Chewboctovio, Lando Capone, Gloom3PO and R2PTM … we will once again bring balance to the force. …but not before a 10-15% drop that is following this sucker rally! Time to buckle up folks… cause it’s not far off. We’re about to go into WARP drive! Punch it Chewie!Help us Nori-Wan Roubini, you’re our only hope. May the force be with you. (or as P1AQL wrote: May the USD be with you) –nice alteration …but I would’ve gone with Hoth-flation instead of Defl-othRich H – Yoda “do, or do not, there is no try”Written by Miss America on 2008-07-22 16:29:09@ Alessandro – What really started the Star Wars parody was that I’ve been referring to Paulson & Bernake as “Darth Paulson” & “Darth Bernake” for the past couple of months in my office. (I was trying to find a way to use it on the RGE)…as for my RGE rep??? I’ve been a little off lately:“Short term, I have a hard time seeing us back above 13,000” – from 2008-04-12 02:40:09 We did break 13,000. (but in my defense BoA and Chev were added to the DOW, so if you take Marketwatch’s 6 month DOW and compare against the S&P, you’d see there was a slight disconnect on the high side that brought the DOW over 13,000.)Likewise, on my call for Oil:“I truly believe oil will make a rapid decent to the $96-110 range! (a 20-30% drop from peak) …and in the event of a flare up, I don’t picture oil breaking $145.” – from 2008-06-10 11:01:40Well, Oil did break $145, but in my defense again, its highest close was $145.29 on July 3rd.So to answer your question Allesandro: (“so you basically hold on your first target around SP 1100. Control is not lost in your opinion”.) …I’ll use my post from – 2008-07-11 16:16:59“As far as the whole Market view goes… not much has changed. I still see a notch down from here. I believe the S&P could still make a bump (as far as 1,270-1,320 “sucker rally” (+3%-7%), but I wouldn’t bet the farm on the rebound even getting that far before the next push down.) If control is lost, we’re talking 900!!! (the way I calculate… 897 to be exact)”I still believe control is not lost! If FNMA & FMAC went down, control would’ve been lost!!! …and I would likely have needed to revise my numbers down even further.@ LB, Don’t worry. The force is strong in me! This little princess is watching BobaFed and Goldman the Hut very closely. @ Gloomy, with regards to: (When we get to severe recession/depression how can you expect energy prices to keep rising in the face of plummeting global demand?) Prices will drop. Yes. But their profits have been reinvested in the next wave. The need for energy will only increase. EVERY YEAR! That is where the storm will be best weathered. – IMOMiss America
I can’t tell you how amusing it is to sit here and watch all of you extremenly intelligent people moan and groan about the "PPT" everytime the market exhibits a move that is counter to your preconceived notion of how things should be. Sometime today try removing the foil from your enlarged head, walk up the stairs that lead you out of your mother’s basement, give her a kiss and tell her you love her then walk outside and enjoy the globally cooled sunshine. Maybe this will help clear your thinking.
"how does our culture direct investment toward those sectors of the economy which offer society at large, and the planet, the best return on scarce intellectual and financial capital?"look for the word, conciencious "being applied " the end of "i needed it yesterday" attitude.when the fear side loses it’s adrenaline and all heart attacks are accounted for.
@MA, AfaThanks for your answers. I think you are likely correct about commodities in the long run. I’ve been a believer for years in commodities and had maintained half of my portfolio had in commodities since 2003. Last December I sold everything, obviously I wish I had waited . But I remain unconvinced that in the teeth of the coming depression demand will not drop enough to tank commodities. After a few years though, yep, I agree, up up and away.
More socialism…WASHINGTON — Congress is considering a second economic stimulus package that could include $15 billion in infrastructure spending, a senior member of the House told Reuters on Tuesday.Rep. James Oberstar, a Minnesota Democrat who chairs the Transportation and Infrastructure Committee, said a stimulus package could include "accelerating" payouts of $9.5 billion from the federal trust fund assigned to road construction and maintenance."You can have 700,000 people working in three months. We should have done it this spring," Oberstar told Reuters in an interview.If approved, the funding would go to more than 2,600 projects, he said. States would receive full federal funding and then have a few years to pay back any matching funds.Oberstar gave a list of spending possibilities to House Speaker Nancy Pelosi last week, who "likes the idea."Democrats are considering supporting another economic stimulus measure to revive the economy after Congress approved a $152 billion measure in February, which taxpayers received in the form of checks during the spring and early summer.The timing of a second stimulus bill remains up in the air.President Bush has said he wants to see how effective the first stimulus package is before lending his support to another one.
WASHINGTON MUTUALWow, after reading Mish’s latest post I bought some puts on WM (funny thing, no shares were available to be shorted, now imagine that!). Read Mish’s blog. There are no sure things in life, but WM going down is about as good as it gets. And don’t forget, it is your patriotic duty to short corrupt financial corporations in order to rid society of them as soon as possible!!
You want an EYE OPENER, look at this for California.The graph IS scaled correctly, but I do not think it adjusted for population.http://bubbletracking.blogspot.com/2008/07/tracking-california-foreclosure.html
Nouriel, I must respectfully disagree with your statement that "It’s not armageddon". Sovereign wealth funds are not going to come to the rescue. They have sustained huge losses, averaging about 50% on their bank bailouts so far. It will not be politically possible for them to provide large scale bailouts to banks going forward. As a result there are IMO only two possible outcomes:1. Most banks don’t get bailed out. This will lead to systemic financial meltdown on the scale of the Great Depression.2. Most banks get bailed out by the Federal government. Massive increases in the Federal debt will lead to a meltdown of the dollar, skyrocketing interest rates and hyperinflation.In either case, IMO it’s armageddon.
NR ENTERTAINS THE POSSIBILITY OF A JAPAN LIKE SITUATION AND AN L SHAPED RECESSIONAt the very end of the first segment he says "if the situation doesn’t get fixed" the recession may look like an L and may be Japan like. IMO it ain’t going to be fixed.
Is there any actual analysis on this website or it’s just a collection of highly speculative gloomy statements? How do we come up with the $2 trillion loss figure? How much is borne by the US banking system? How much by financial insituions outside the US? How much by holders of asset backed securities? How does it compare to the losses already taken by these various constituencies? These figures are meaningless without that context.
What if the banks are able to get away with recategorizing certain assets to Tier 3 that don’t get marked to market long enough to rebuild their balance sheets and become solvent again? How long can the dancers dance?Is it fair to assume that the quarterly results are subject to more "daring" financial maneuvering that will be unwound at year end due to Sarbox?
WITH APOLOGIES TO JEFF FOXWORTHYYou Know The Banking System Is Unsound When…. http://globaleconomicanalysis.blogspot.com/2008/07/you-know-banking-system-is-unsound-when.html
"long enough": Ten, twenty years?!
Miss America, You are on fire! Jar-jar Bush! ROFLMAO!So, who is the Emperor in this story, the dark lord who is secretly driving the Republic to ruin?
the think tanks of the late nineties were printing papers that the poor are just lazy and don’t know how to cook nutrious meals = dumb now the think tanks are printing that it is the seniors that are dumb and need financial literacy along with the poor children from the lazy poor who need financial literacy… "the newspapers printed with such favourable columns that said lower taxes are needed to encourage job creation and productive investment. minimum wages should be kept low and labour markets deregulated. unemployment and welfare cuts "ensure that the balance of self interest lies in working in preference to collecting state cash." The paper goes on the praise the united states for its low unemployment rates. the paper failed to mentilon that year after year the us has the highest poverty rate among all the developed nations in the world."…"the behavioural roots of poverty and behavioural dysfunction among the poorthe supply side approach to poverty and that would improve "parenting skill of poor parents and the the ultimate wisdom:"arguably the biggest obstacle to break throughs in social policy is manners. It is almost always bad manners to go to the root of things. "Part seven – war on the poor 208-226pay the rent or feed the kids 1999the tragedy and disgrace of poverty in canadamel hurtigWhy is it when the poor cry foul it is dismissed as illiteracy and now when the smart are becoming poor they cry foul and please fix it. since they are smart already which school should they be sent to?
About 2 years ago I claimed even Prof Roubini will be proven too optimistic at a time our dear Prof was being ridiculed by many. The reason of my pessimism is that I spent most of my life in a crisis prone developing country and saw many times once trust in the system is lost financial unravelling and its shockwaves to the real economy are devastating. At no single instance of history the emerging markets were even close to the current US level of indebtedness. We are approaching to the inflection point very fast.The convolution of forces in coming years will prove to be a tsunami. These forces are overall debt levels, hydrocarbon resource depletion, retirement waves of boomers and worst of all total lack of experince of really hard times for the current US population.
Go to Bloomberg and watch Marc Faber’s video.
30 billion barrels of oil equivalent to be found in North America’s Arctic: reportThe Canadian PressJuly 23, 2008 – 11:53 a.m.A new study suggests the equivalent of 30 billion barrels of oil lie undiscovered underneath the sea ice and frigid waters of North American’s Arctic.The report by the United States Geological Service has for the first time put some hard numbers behind the energy potential of the North and could add new urgency to the debate over control of those resources.Most of the oil and gas lies in waters Canada shares with the United States and Denmark and which are subject to boundary disputes.Most of it also lies offshore, presenting energy companies with tough challenges in bringing it to market.The survey suggests there is the equivalent of 412 billion barrels of oil throughout the Arctic, most of it off the coast of Russia.That’s more than twice the 173 billion barrels of oil thought to lie in Alberta’s oilsands. http://canadianbusiness.com/markets/headline_news/article.jsp?content=b0723118A
@ kaan 13:11:32I suppose, then , that it would be fair to say you fall squarely within the "gloom and doom" camp? SWK
"The convolution of forces in coming years will prove to be a tsunami. These forces are overall debt levels, hydrocarbon resource depletion, retirement waves of boomers and worst of all total lack of experince of really hard times for the current US population."Written by kaan on 2008-07-23 13:11:32I completely agree- our lack of experience with real hard times, will IMO cause the chaos to ensue all the more. We live in the instant generation, though I appreciate Medic’s earlier sentiment, I must admit even for myself that without the comforts of life that I have grown accustomed to- life will be very hard. Rationed electricity, gas, food, internet access, freedom of movement. You cannot turn back the clock on a society that is used to instant gratification, food, entertainment, money, access. I new a man who lived through the depression as a young man- it was hard- but most people had the skills to survive. They knew how to save, store, get along with each other, grow their own food etc.. This generation will be helpless for the most part. We buy water in bottles to consume- how pathetic have we become. These skills will be learned the hard way and through much difficulty for many. We have grown accustomed to being selfish, picky and spoiled. Tell me the truth- who here really wants to live with their in-laws and their other siblings and their families? I’m sorry Medic- I don’t mean to dump on your sentiment- but you need to wipe that rose colored tint from your glasses. Americans will not see the joy of returning to our great grandparents world. Out of necessity we may indeed return there- but I have a suspicion that most won’t see it like you do.
Novice,No apologies needed. I think my earlier post was hopeful, not definite. Trust me when I tell you I see all kinds of people everyday: rich, poor, intellectual, and those I deem "differently gifted". I know lots of people though who have already accepted that their lives are going to be changing soon – and not likely for the better. People can and will do what they need to survive – or they won’t. It’s really that simple. If what’s left standing at the end are those who adapt, are resourceful and have communities around (family and friends) to help, then perhaps we will be better off.As for the rose colored glasses, well….I assure you my life’s experience has been too full of reality to succumb to delusional thought. The only "rosie" around me is my Jackson Browne cd.
The collective market mind has a very weak short memory. The July 15th bottom in the DOW looks very similar to the one on January 18 and March all with lower lows and lower highs. What is common among all these bottoms is the "news" triggering the subsequent rally (Bear Sterns in trouble; week-end takeover by JPM. F&F in trouble; bailout (prospect) by the treasury). The PPT has not ability to stop the slide, it could only hope manage it. And I hope the above make some kind of pattern: short the rallies until a big news comes then cover, buy, rally, short the rally…So lighten up guys, nothing have changes, if not to the worse – read JPM, BoA, WM, C, AmEx … Q2 reports. Banks have no ability to raise more money in the credit & equity markets. Both unemployment and CPI had historical jumps last month or so and headed to show more pain …@ SWK & ptm: "The impression I get is that NR sees economic events as somewhat independent from one another such as liquidity, solvency, supply shock, demand shock, oil shock, and inflation."I tend to agree. Professor does not seem to integrate many other "variables" in his analysis but he is more focused on the credit crunch crisis and its repercussions. Taken separately, I also see no reason why this crisis would start to bottom in a year or so. However, the impact on dollar, BWII system collapse, increasing public debt, energy, derivatives … are largely not taken and are difficult to take into consideration.Now if you excuse me, I just finished drinking myself with a liter of milk in my basement room, and I am going upstairs give a kiss to my daddy.
UNACCOUNTED FOR FEEDBACK LOOPSIMO one of the biggest factors that has not been accounted for by most economists is the effect of negative feed back loops. Take housing, the epicenter of the current crisis. Housing prices are down 20% so far and NR forecasts they will drop by 30% by the time everything settles out. However, IMO if the economy deteriorates no further we would get to a 30% decline, because housing inventories are still mammoth and supply and demand alone would lead to such a drop. But such calculations fail to take into account that the recession is just gaining steam and will be much worse in the coming months. Recessions in and of themselves cause housing declines, and deep recessions have a marked effect on housing. So this feedback loop, housing bust causes recession causes worsening housing bust, will cause, IMO declines of more like 50%. And as the feedback loops keep cycling as the collapsing housing market will keep worsening the recession which will keep worsening the housing collapse the result will necessarily be DEPRESSION.
Anybody else pick up WAMU puts today? Stock is down 17% today .
Better watch out Gloomy. The SEC is probably putting you on their "investigation" list.
Guest on 2008-07-23 15:17:03 Just doing my patriotic duty to help clean up America!!
Politically speaking, if I am right about the banking monopoly* breaking down, it would look like this. This has the look of the endIt is good news that Congress is giving Hank Paulson, Goldman Sachs cum U.S. Treasury, everything! As this economic storm wreaks havoc, he will be in for an incredible amount of criticism and complaining, all showing exactly where he and the investment bankers have landed us. Just as Bear Stearns was a reprehensible move by the Fed, this unprecedented move by the U.S. Congress to hand a self-dealing investment banker a blank check to the treasury, with no limits, will crack the public’s faith in the system. The grasping reach of these bankers into America’s monetary store had to be broken. And it could not be broken until it was exposed. Roubini points out in stark terms where we are. But it took an addled, lame duck Congress to take us where we’re going. This is part of the breakup.I believe Freddie and Fannie will go down later this month. No purse is big enough to sustain these behemoths. Freddie and Fannie are a cavernous monetary drain, the same as the raided Social Security System. The treasury can’t handle one let alone two: there isn’t enough money.Real economic growth is not sustained by paper. Only sound money and limited government can do that.*A monopoly run by a cartel of bankers using government for cover and connected to the currency that everyone has to use.
@ Alessandro on 2008-07-22 10:21:09& Guest on 2008-07-22 12:23:26Sorry, catching up. Alessandro, I didn’t specify a global currency. I was just speculating on currency games that may occur, including, possibly the end of the present dollar. Maybe the changes will be less overt, i.e. BWIII. Maybe we will get a currency based on a hard asset…energy seems reasonable, maybe those gas coupons? And, Guest, I don’t expect that it would help pay the U.S. deficit. As noted previously the drop in the dollar is already a virtual default on our debt.I used to be baffled by the large chunk of the U.S. budget devoted to military spending. Now it looks like our military is the only thing really backing the dollar. Maybe it was our industry and resources once upon a time. Weapons are our biggest export IIRC. Isn’t it interesting that in the midst of this financial crisis Bush starts talking about a timetable to get out of Iraq, and then, spit spot, Obama has a verbal agreement to get out by 2010. Isn’t the CW that wars stimulate growth? Yes, some troops will be moved to Afghanistan. Maybe some will be stationed with Iran in mind. Either way we will no longer be mired in dual occupations which is bound to help.The UAE (Bush’s Saudi friends, yes?) have announced that they are dropping the dollar peg. There have been many comments here re:ware the end of the Beijing Olympics and re:ware an attack on Iran. It seems like anything is possible.Oh, and about U.S. assets being bought up by foreign companies? My husband’s company (a military contractor) is being bought by a French company.
You Know The Banking System Is Unsound When….http://globaleconomicanalysis.blogspot.com/2008/07/you-know-banking-system-is-unsound-when.htmlWritten by Gloomy on 2008-07-23 12:53:43Thanks Gloomy. This looks like a great one to share with people you know who just don’t get it.
From Foreign Policy interview with William Poole:FP: NYU economist Nouriel Roubini, who has been sounding the alarm for quite a while, told Bloomberg News that we’re seeing the worst U.S. financial crisis since the Great Depression. WP: I think that’s right, but let’s go back and revisit the Great Depression for a moment. In 1932, the economy was spiraling down and there were large numbers of bank failures. Eventually, in early 1933, various states started to declare banking holidays. They closed the banks and allowed them to continue to exist, but the depositors were not permitted to take any money out. They shut the doors. When Franklin Roosevelt took office, he declared a national banking holiday. All the banks were closed, including the Federal Reserve banks. There was a total and complete collapse of the banking system, and the economy that had functioned on credit and deposits was suddenly left to function on hand-to-hand currency. We aren’t anywhere close to that and we won’t get close to that because of ample Federal Reserve resources and also intellectual understanding that would not permit that to happen. FP: How bad will it get, then? WP: We are going to have failures of large numbers of firms, financial firms in particular. A traditional important piece of business for community banks and regional banks are loans to real estate developers and builders. And now that some of those are going into default, it’s leading to failures of smaller commercial banks, and the ones that were the most heavily involved in real estate are the ones at the greatest risk. The longer these things go, the greater the depletion of capital. In time, the losses accumulate and exhaust capital and the firm fails, so the [Federal Deposit Insurance Corporation] shuts it down. It looks like there’s more of that to come, because there is no sign of a revival in home-building. FP: Meanwhile, consumer prices are rising at their fastest rate in 17 years. Does that mean the Fed is running out of tools to keep growth going? WP: All the financial turmoil that we’ve just been talking about—the tightening of credit, the fact that so many banks have impaired capital—that’s putting downward pressure on the economy, and the big increase in fuel prices is also putting downward pressure on real activity. You see that in transportation, the airlines, the auto industry—anything that has a big fuel cost. There is a growing amount of unemployment in those sectors, and the Federal Reserve is trying to support economic activity by holding the federal funds rate—the interest rate—at its current level. If the downturn in employment becomes much more severe, the Fed might even cut rates. Now, to me, the inflation problem is actually part of what is depressing economic activity, because the generalized inflation that I think we have underway—although it’s not showing up in core inflation and wages just yet—is showing up in the depreciating dollar, and the depreciating dollar directly feeds through to increased energy prices and food prices. So, the depreciation itself is leading to depressed economic activity. Moreover, if the inflation really starts to go into wages and into the core—the non-energy, non-food part—of the price indices, it will probably develop a fair amount of momentum and the Federal Reserve is not going to be able to reverse it even with a tighter monetary policy for probably a year or two, maybe even three. If the policy is too expansionary too long and we end up with a real inflation problem, all we’re doing is trading a bigger recession later for a smaller recession now. William Poole is the recently retired president of the Federal Reserve Bank of St. Louis.http://www.foreignpolicy.com/story/cms.php?story_id=4395
I think Prof Roubini is wise in not predicting Armageddon. The current situation certainly indicates a prolonged global recession not a crash. For the stock market to fall the same way the Japanese stock market fell in the 90′s (ie. as much as 80%), foreign investor psychology would have to change dramatically. This means that foreign investors (as a herd!) would deem that they could get better profits consistently elsewhere. Something – I believe over the very long term this will be very difficult, given the US’s competitive advantage as a knowledge and information based economy, and its open society that is uniquely able to attract investment and talent. The fact that anyone can emigrate to the US and become an American, is unique… this is not possible in China for example.
@Guest on 2008-07-23 17:38:26"We aren’t anywhere close to that and we won’t get close to that because of ample Federal Reserve resources and also intellectual understanding that would not permit that to happen." Give it a little time, we’ll get there.After all, we’ve already used up half of the Fed’s balance sheet. And we wil ESPECIALLY get there with the marvelous "intellectual understanding" present at the Fed. The same intellect that declared the subprime mess wouldn’t spread, that we weren’t going to have a recession, and that inflation was contained.
@ K in Texas Re: Alessandro: "I was just speculating on currency games that may occur …"That is exactly what I had in mind too when I said we may not be far from a "big event".
We are officially screwed. The Fed’s and the Treasury’s balance sheets are now Wall Street’s. Unlimited.What’s left?
The housing bill has been approved by the House, Bush drops veto, and should expect the Senate to approve it too. So everyone got what he wanted, Bush got his "unlimited" bailout of FF and Democrats got their #300 billion bailout. Isn’t democracy wonderful?From Marketwatch: Major elements of housing bill• A backstop plan for Fannie Mae and Freddie Mac that extends an unlimited line of credit and gives the government the authority to buy the companies’ stock. • Funds to insure up to $300 billion in refinanced mortgages.• A tax break of up to $7,500 for first-time homebuyers.• A new regulator for Fannie and Freddie.An affordable housing trust fund financed by Fannie Mae and Freddie Mac.• $4 billion in emergency assistance to communities to buy and rehabilitate foreclosed homes.
A TRAGIC DAY IN THE HISTORY OF OUR NATION@AfAIMO the nationalization of Fannie and Freddie will be remembered as one of the great mistakes in the history of our nation. After over 1 trillion dollars (my guestimate, upper end of S&P’s estimate) is flushed down the toilet on this debacle, people will wonder about all of the wonderful good uses that money could have been put toward, rather than bailing out foreign governments and banks which will eventually go belly up anyway.
Below is my take on today’s Bloomberg video, “Marc Faber Says Fannie, Freddie Should Split Up, Not Get Aid.” It says it all – you’d better take 16 minutes to watch it before it’s gone. Remember, these are just my notes and it was only a once-over.http://www.bloomberg.com/index.html?Intro=intro3Faber says the world is in recession already and that people on the street realize it. He added that Wall Street also is in recession. For the median household, he said, things are very tough at the present time.Even with some earnings reports looking stronger, Faber says a lot of earnings will start to decelerate in the next quarter or two. Oil prices are weaker, he said, because demand is down in the U.S. and Western Europe. Demand also is down for steel and other industrial commodities. Going forward, you have to be careful when looking at the market, he said. He considers the technology sector to be vulnerable because its two major supports are consumers and financials, both snuffed.Regarding the “credit crisis,” Faber said the government should close down Freddie and Fannie or split them into 6 to 10 different companies, and let them run as private companies – the same as was done a while back with Standard Oil of New Jersey and AT&T. One of the problems, he said, is that they are government sponsored entities that can borrow money at more favorable terms than others and they expanded their balance sheets 1:65 Who, he asks, would want to run a business sheet with that kind of risk? Freddie and Fannie should not get federal aid, Faber said, but should issue additional shares to boost capital — it would still be insufficient but would be a step in the right direction.Basically, he said, the government is bailing out people who have made bad investments on Wall Street with taxpayers’ money.Faber believes we are in a water torture bear market where one sector after another will get hit. Markets in the U.S. have become extremely oversold, he said. He said the S&P could hit 1350, but that the big bull is over for a long time to come. Faber noted that we can be in a trading range if Bernanke keeps the fed funds rate at 2% ,which will support equity valuation to some extent but at the same time, will cause inflation and interest rates to go up from market pressures. Mortgage rates already are higher now than when the Fed cut, he said.Faber believes the Fed is totally ineffective – lacking an understanding of simple economics. The difference between the Great Depression and today, he said, is that commodity prices had peaked in 1921. Today, he said, three billion people have joined the global economy creating an inflationary environment. If Bernanke doesn’t understand this, he said, he shouldn’t be in the Fed.In the long run, Faber says, the oil market will remain tight and geopolitical problems can cause blows, but he’s looking for a lower market in commodities in the second half and says people should do some preventive selling.If global demand is as weak as I think it is, he said, prices will come down. Credit expansion was growing since 2007 at 12%, then slowed to 4%, he said. “I have never seen such a gross credit deceleration in my life!” It had a very negative effect on the market, he said.Sovereign funds, he said, want takes in large companies and want to do joint ventures. He warned the Western World that if it doesn’t allow China to buy into its resource companies, China will take resources by force for its economic well being. The resource sector is attractive from the Asian point of view, he said. They are poor in iron ore and copper, and China is the world’s second consumer of oil.When asked to predict the global and US economy in the next 6 to 8 months, Faber said the global synchronized boom was unprecedented, and the global synchronized bust will be unprecedented.. The boom was fueled by an expansion in monetary growth, he said, and it can go into a vicious cycle on the down side. To illustrate, Faber said, go to the Middle East and see what a boomtown looks like after a bust.Asked for his worse case scenario, Faber said: A colossal bust, with inflation, in a bad economic environment brought on by the money printing institutions around the world that we call central banks.(Faber has just completed two trips around the world.)
@ kaanAnd the fact that the US$ is the world’s reserve currency means what? I’ve read some about the Asian financial crisis of ’97 (Roubini & others) and Argentina. When the IMF demanded of Argentina that which they couldn’t do (their very democracy was at risk) they pulled out saying in effect, “OK, do what you want and suffer. There will be no contagion.” They were right. No contagion. But think about the world’s reserve currency. Pretty much assures contagion. Don’t you think? What does the world look like in the aftermath?
Professor, thanks again for providing me the opportunity to follow and sometimes even to contribute to this discourse. At times, I feel like a kid under an olive tree learning from the masters. @ OuterBeltway:I’m not sure I know where you’re going with this, but I think I see it differently. The problem I see is a matter of capital. Not debt. The credit registry you speak of – there already are those things – is of benefit only in identifying credit worthiness. And I would agree with you, and LB, that that’s done better locally. And I’m sure too that you can find a way to improve the registries. And I’m more sure still that any of that “data” should be kept in context and not used in a mechanical fashion as the ultimate arbitrator of who gets a loan and who doesn’t. But banks have been very willing, IMO, to loan against almost any collateral. And there are corporate bonds & junk bonds. I don’t know what all that money is used for. Perhaps some of it finds its way toward innovation. So, maybe a bottom up approach, removing intermediaries, etc., can shave a couple of points off the cost of credit. But the debt markets look OK to me.The real barrier to innovation that I see is the lack of capital. Sometimes human capital. As R&D is “outsourced” or under-funded due to competitive pressures and innovation has to come from “start-ups”, there is an enormous diversity of skills that need to be brought to bear on any given project in order to bring a good idea to fruition. Just the patent process is expensive, time consuming, and requires specialized (legal) skills that have nothing to do with technical innovation. And so many entrepreneurs wouldn’t have any idea how to find the right lawyer. I wouldn’t myself. It is so tough for start up companies to manage that complexity. And nobody wants in at that early level. Well, it is after all high risk. But therein is the failure of the financial system. To be able to finance that risk. Once the details are worked out, and there is a business plan to look at, a “sound” business plan, everybody wants in. But once you’ve gone that far any fool can contract out the production. Who needs it then? It’s the creative part that’s hard. The failure is in Rich Uncle’s inability and/or unwillingness to seek out and identify those early opportunities himself and nurse them along. I agree with you completely in that risk-reward can only be evaluated by a practiced eye. That is a rare skill. It is so much easier to trade securities. Or in the case of the modern CEO to trade a portfolio of entire companies. There may be efficiency at the margins – usually not, I think – but very little innovation or value added. Let me ask. What is created by InBev’s purchase of Budweiser? Is that innovation? Hardly. But the markets are set up, almost exclusively, to handle that kind of transaction.You are absolutely right that it doesn’t have to be a wall street function. But I just don’t see it. How do you open source capital? How do you open source the specialized skills? Actually, conceptually that’s easier, isn’t it? But we don’t have that infrastructure today. Maybe there is another way, but, I think the solution to the capital problem is probably top down.
Better watch out Gloomy. The SEC is probably putting you on their "investigation" list.Written by Guest on 2008-07-23 15:17:03http://www.google.com/search?sourceid=navclient&ie=UTF-8&rls=GGIC,GGIC:2006-46,GGIC:en&q=rex+84
@AfA ”So everyone got what he wanted, Bush got his "unlimited" bailout of FF and Democrats got their #300 billion bailout. Isn’t democracy wonderful?”No, not everyone. Nouriel Roubini said he “believes a nationalization of the 50% of mortgages not owned or guaranteed by Fannie and Freddie will be necessary, and the Frank-Dodd Bill is a small step down that road.” So as Roubini sees it, this is just the beginning.All we get is the tax bill.
@FreeTibetThe top players have a dearth of capital, that’s why all the banks are going bust, the hedge funds are delevering (selling off assets to make debt payments). They are not real good sources of capital right now – in fact, the ones everyone turns to now are the SWF’s and, more specifically, the people that "saved" (income > expense) while we "spent" (income Any household or business that has savings, or retained earnings has capital. There are many, many individuals, households and businesses that have savings or capital that could be productively allocated toward a new venture. It’s out there, and a lot of it is stuck in things like…financial equities, and GSE bonds and the like. In a word, mis-allocated. It needs to get re-allocated, and re-allocated where it’ll do the most good. That’s small business.There are two key problems with early-stage investing, and you touched on one: it’s multidisciplinary. As an entrepreneur, you must be either really good at a lot of things, or you must be a great team-builder. You also have to be a little crazy to try to beat the odds, which are really not in your favor.The other problem is the mirror image of the entrepreneur: the entrepreneur-that-made-it now turned investor. As an early-stage investor, you must have broad and deep enough experience across the business model as to be able to accurately and quickly assess the viability of not just the idea, but the team behind the idea. The rest of the stuff (tactics) is pretty mechanical. There are hundreds of thousands of successful small-to-medium (There is a corollary problem of syndication at the local level – one angel can’t carry the load. It takes a team. This, again, is an information problem. How do you find the team? In a directory, of course. Where is it? Good question. It isn’t, in any systematic, publicly-available, quality-controlled sort of way.I won’t go on, as this isn’t the right place to fully develop these ideas, but I’m quite confident that if a billion dollars was spent to build these tools and promote them, it would result in a sonic boom of innovation and entrepreneurship. It would be a vastly better ROI than dumping another trillion dollars down the Wall Street rathole.Look at the investment alternatives for these successful entrepreneurs: invest in dead-end businesses like GM and ExxonMobil and BankOfAmerica, or invest in the next FirstSolar. Where would you rather be? Why aren’t we giving these people a viable channel to direct their capital to where it’ll do some good?Great question. Someday somebody like Bill Gates (next Generation) is going to step up and answer it, and then the U.S. is going to come out the other end of this dark economic tunnel we’re in.You out there, Bill?
…oops. Hold the press! The blog service doesn’t like the less-than symbol, hence the drop-outs above. Sorry for not doing the preview-before-post thing. it should read…’while we "spent" (income less than expenses)’ and below…There are hundreds of thousands of successful small-to-medium ( less than $100MM) business owners out there, many recently retired or cashed out, that are in perfect position to help the next crop of entrepreneurs. The main thing separating the entrepreneurs from their advisor/investor (angels) is information. There is no dating service to hook you up. This has been an endemic problem for decades, and one really has to wonder what rock these "economic policy" public officials hide their brains under.There is a corollary problem …. (rest of text is OK, more or less).Also, feel free to send detailed rebuttal or better yet, more advanced ideas to me offline @firstname.lastname@example.org .
no depression?? its under wayand you know what? J6Pak is waking up…theyre in snooze mode now, its cominno work, house devalued, beer/oil is expensive, kids cant get college financing,tax increasing…http://www.registerguard.com/csp/cms/sites/dt.cms.support.viewStory.cls?cid=124946&sid=1&fid=1Hynix shutting Eugene factory Hynix is closing its Eugene plant and will lay off its 1,113 employees over the next two months, the company announced Wedneday afternoon after meeting with top Oregon officials.The Hynix chairman, Jong-Kap Kim, told officials that the decision was based on the semiconductor industry’s move away from the dimension of silicon wafers used at the Eugene plant to make computer and consumer-product chips.The cost of retooling the plant would have been $4 billion, Hynix told the state.The layoffs would be phased in during August and September.Kim and Hynix officials planned to provide more detailed information about what would happen to employees during the meeting planned for Thursday.The layoffs amount to the largest job cuts by a single company in a single blow in Lane County in decades, perhaps ever.Hynix is one of the county’s biggest employers, and its demise will likely send economic waves throughout the county.The company has an annual payroll of $62 million, and pays about $4.5 million in property taxes annually.The facility opened in Eugene in 1998, following lengthy controversy about the filling in of wetlands for the factory’s construction, and the wisdom of waiving property taxes in order the lure the company here.
For London Banker:A few months back, you very kindly and patiently directed me to information about Irving Fisher and his theory of debt deflation as a cause of the severity and depth of the economic downturn we know as the Great Depression. I’d be interested in hearing your opinion regarding the following article:http://www.nakedcapitalism.com/2008/07/does-m1-and-m2-contraction-signal-debt.htmlIn your view, is an outbreak of severe debt deflation probable now, and would it likely lead to economic dislocation on the order of the Great Depression of the 1930s? Would you say you’re in the "gloom and doom" camp, or do you share Dr. Roubini’s "optimistic" view that the recession will be over by the end of the second quarter of next year?SWK
Point of greatest danger…http://www.nakedcapitalism.com/search/label/Doomsday%20scenarios
USD to the dumpster,PTB are prepping us allFannie & Freddie will be savedUSD to the dumpster..who will next de-peg USDhttp://sg.news.yahoo.com/afp/20080724/tts-forex-us-asia-972e412.htmlNew study says US dollar still overvalued against Asian currenciesWASHINGTON (AFP) – - Export-driven Asian economies are concerned about losing competitiveness as their currencies strengthen against a depressed US dollar but a new study says the greenback is still significantly overvalued against the regional units.ADVERTISEMENTThe Chinese yuan needs to rise by about 30 percent against the dollar and the Japanese yen should strengthen by about 20 percent, said the study by the respected Washington-based Peterson Institute for International Economics.It said that a number of other Asian currencies also needed to appreciate substantially so that desired increases of the yuan and yen amount to much less on a trade-weighted average basis — under 20 percent for the Chinese currency and only about five percent for the Japanese unit."The Asian currencies that should appreciate most are the Singapore dollar, the Chinese renminbi (yuan), the Malaysian ringgit, the New Taiwan dollar, and the Japanese yen," said the report by the institute’s experts William Cline and John Williamson.Cline was a former US Treasury official and ex-chief economist at the Institute of International Finance while Williamson was formerly with the World Bank and International Monetary Fund.
recession is expected for 2 years in this blog.Just keep waiting guys…
More red meat from Bob Chapman. If only it wasn’t far closer to the truth than the quarterly reporting we’ve seen from the banks of late.http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Super_Losses_Super_Layoffs_Super_Bailouts
We have the Fed to make sure that there is enough money in the markets.Why you still think there’s recession??Are you serious in thinking?
yes Mr Ben, i expect no recession toojust 10 dollar gas… thanks Mr Ben
@yes Mr Ben, i expect no recession toojust 10 dollar gas… thanks Mr BenWritten by Guest on 2008-07-24 01:40:4510 dollar gas is nothing wrong.No worry, the Asian guys die before us. They are still happy to put money into our markets. Strong US currency is able to make us healthy.
well done! Heliben.son of the paul
WOW! "strong", "US" and "currency" in the same sentence!I thought "Darth Paulson" was the last man on the planet who could keep them so close!
@Rich H, P1AQL? P1AQL!! It’s an honor and privilege from you to get a new name. What a great SW unit name! I’ll take it. P1AQL it shall be!@Free Tibet on 2008-07-23 19:57:44 and other social underwriting fans,Checkout microcredit models like Kivahttp://en.wikipedia.org/wiki/MicrocreditProblem is that scalability is difficult. For Community based underwriting (joint and several) to work, individual members have to be willing to engage in collections activity. Bangladeshi women culturally form neighborhood groups that make any defaulter a social outcast thus insuring that collections and recovery are highly successful making for very low NPAs.Only Wall Street style investment banks can liquify illiquid long-term investments through risk arbitrage. and allow a Dell or Google to scale. Google did try a dutch auction rather than book building thinking that bankers, their CEO friends and institutions are out to make a quick buck through the one day pop. Morgan Stanley fell all over itself to get the Google mandate while Goldman walked out. Look what happened. The stock IPO’ed at $85 and Google short-changed itself.AND the one-day pop still happened …http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B00D4FA7B-543F-4BD7-B433-297E4779AF61%7D&siteid=google&dist=googleTalk about unintended consequences and cutting off your own nose. It’s not a perfect system but its the best we have. worth saving. Print First Ask Questions Later aka Prt1stAskQLater aka P1AQL!!!
I know not what course others may take; but as for me, give me liberty or give me death!"Written by Guest on 2008-07-22 22:15:55I feel these are prophetic words. The US Financial system is about to be looted or should I say ; attempted to be looted. The US will be forced to decide on whether to nationalize chronicly underfunded banking instituations of sell them off to those who have the resources and are willing to commit them.Those fronting the cash will be the present holders of all that confetti US paper. Deny them the opportunity to redeem their promisory notes and watch them convert them into other things- like oil and foods?Assuage them and the US sells out its financial future and soul to foreignors, forever hostage to their whims.The path leading to this situation was paved by greedy traitors and I am astounded that the US people could be so stupid as to allow it to get this bad. But, I suspect, for not so much longer. The end game is approaching.
I guess Nouriel knows more than he says on his blog?Namely that in the end we get fully nationalized mortgages in the U.S., whether ‘de facto’ or officially admitted to be so. The end result being the same in that the government will own the mortgages. What further developments that may lead to, time will show. We have an interesting few years ahead of us.
Perhaps the most important development of this crisis is not the feared ‘collapse of the dollar value’, or stagflation, or hyperinflation, or a change in world reserve currency…but that US housing ends up being nationalized.Since at least 9-11, the current administration has been en-route to more and more excutive power and to minimize the rights-of-the-individual. A nationalized housing will provide the government a tool to even more influence, if they choose to use it. Peculiarly all of this comes from a government that for years have claimed to support "less government" (obviously they always meant less cash payments to individuals, not less control over the lives of the individual).
"WOW! "strong", "US" and "currency" in the same sentence!I thought "Darth Paulson" was the last man on the planet who could keep them so close!Written by Alessandro on 2008-07-24 02:43:30"with the Asian guys stand behind, how can a recession happen in the USA.If a recession is found here, the sky is falling down in Asia…God always bless the USA.
@ OuterBeltway on 2008-07-23 20:51:53I absolutely agree with all of that. It’s the thing that caught my attention in your earlier post.I will add that although the top players are not real good sources of capital right now there is lots of money in the world (including SWF & domestic saved income you refer to) ready to re-capitalize those institutions when the time is right. But the part that has been miss-allocated is already gone and won’t be seen again. (Most of it. There might be more going that way.) But I would expect new SWF money not to go into preferred shares. There will be votes on the Boards. The domestic saved part of that re-capitalization portfolio will never have that influence. So, the better question is whether or not the WS business models will change. I frankly doubt it. New capital is not enough. Need also different skills. So, the real problem, as we seem to agree, is that there is no alternative infrastructure. And I have no idea how to change that.@ P1AQLI’ve read about those micro-credit programs. And like you, I’m afraid they’re not scaleable to the $2MM – $100MM level. I had forgotten about that dutch auction.
@GSM"Assuage them and the US sells out its financial future and soul to foreignors, forever hostage to their whims."I do believe what goes around comes around. The US is not the center of the universe. On a world scale it has abrogated its responsibility for sound money management with lots of help from other countries. Foreign management of the banking system is not the end of the world – maybe the end of prolifrigate spending. Maybe not. Time will tell.crgordon
@OuterBeltway on 2008-07-23 20:51:53 wrote: In a word, mis-allocated. It needs to get re-allocated, and re-allocated where it’ll do the most good. That’s small business.Why should it be our moral duty to allocate capital to small business? We’ve been on the moral path before. See http://www.mises.org/books/bubbleworld.pdf , a link presented Lyle a while ago.In much of our lending to Europe, particularly as it ran to Germany, there was a sense of gesture. American credit was the rich prodigal returning in a grand wayfrom a far country to dazzle and reward the indigent ancestor….In buying the German bonds the bank is lending creditto the Free City of Bremen, perhaps, or to Cologne. Whatdoes the Free City of Bremen do with it? She may use itto widen the fairway of her harbor and build some newpiers. The same credit might have been used to makeship channels and piers in the Hackensack Meadows ofNew Jersey. And what does Cologne do with it? She mayuse it to build a stadium or a great bathing pavilion forthe happiness and comfort of her people. How strange!Mind you, the Europeans are still trying to sell their over-investments in "Vorsprung durch Technik" ( http://en.wikipedia.org/wiki/Vorsprung_durch_Technik ) since then. Entrepreneurs need to allocate their own capital with VERY high cost of equity (Ke) in the initial stages. This makes sure that they are indeed reinvesting in their passion with their backs to the wall or nose just above water, if you will, and that they are building a track record of earnings to generate a viable DCF model. If venture capitalists manage and take that risk that’s fine. But why, I ask, should it be our moral duty?Enjoy your own ride!P1AQL.
The term "systemic" + collapse referring to the global economic system, as utilized by Professor Roubini: To me ‘systemic’ means a systematic collapse which involves internal integrity. Think WTO 911 – this was a systemic collapse(s) – the structural integrity failed and the organization built upon that structure crashed around it – it all collapsed.If ‘policy’ takes ~2years to take effect, then how long does it take to rebuild the system? The structure? The integrity? The trust?It may be that Hank and Ben want the Casino to remain open for business at all cost but,the economy is the labour of the peoples; energies expended – allow this to collapse, i.e. perception, then arrives depression. It then takes far more than 12 months to reverse that perception, due to the fact that relationships must be rebuilt where trust has been betrayed. And trust has been betrayed.If you consider the perception of the SEX’s of the World as the global economy, then, there is a longer way to go. "Armageddon" is just an emotional word without much real meaning. It has no meaning.Ho humPeterJB
@ OuterBeltwayAre you familiar with a SBA program – I’m sure they have a name for it – in which business executives volunteer their time to consult with and mentor other business owners?Just thinking out loud… “open-source consultancy”.
the program is called SCORE…..Service Corps of Retired Executives.
Written by P1AQL on 2008-07-24 06:38:49“Entrepreneurs need to allocate their own capital with VERY high cost of equity (Ke) in the initial stages. This makes sure that they are indeed reinvesting in their passion with their backs to the wall or nose just above water, if you will, and that they are building a track record of earnings to generate a viable DCF model.”Well, you’re right. Moral duty has nothing to do with it. The problem is that entrepreneurs do have their backs to the wall. Venture capital comes in late after the risks are known and they and everybody but the entrepreneur is able to manage/arbitrage that risk. New US bankruptcy law makes it even worse. If an enterprise is to fail, the entrepreneur will likely not only lose everything he put into the venture, but also everything he will ever have – except possibly his house.
Thank you, Randy.
@P1AQL:I’m not advocating allocation to small business because it’s "your moral duty". I’m advocating it because "its where the money is".Small business is where the job growth and new products and new industries come from. MicroSoft, Dell and Apple and HP were all started in dorm rooms or garages. Small. All four benefited from fortuitous access to early angel-investor capital (which made the investors fantastically wealthy, BTW). Name me a new industry that was hatched from a DJ-list company. I can’t think of a one. It just seems like they come bottom-up. Bolt, Barenek and Newman was the small consulting company that got the contract from DoD (ARPA) to design the internet. Small. Small. Small.The only systemic exception I can make is Bell Labs. Transistor came from there, changed the world. There is no Bell Labs today.If you make it easy for entrepreneurs to find capital, and make it easy for investors to find entrepreneurs, the bottom-up process works better and faster.You advocate "leaving a working system working". If it was working, I would love to focus elsewhere, but the facts don’t support your conclusion. Wall Street just steered about $2Trillion of U.S. capital into the gutter. To recover this "working system" we have to allocate another half-to-one Trillion to bail them out. That’s the equivalent of two full Iraq wars worth of national effort they just wasted. I don’t call that a "working" system. Next, you said "it won’t scale". It will, but it doesn’t have to. [If you want the "why" it'll scale, I'll provide it next post]. The same investors that do early-stage are not the ones that finance latter-stages. That’s one of the ways the early-stage investors cash out. The company can be bought by a larger one, it can do a regional private placement, it can do a regional public offering, etc. There are many, many mechanisms for raising mid-to-late stage capital that doesn’t involve the grand-slam WS syndications. BTW, if the grand-slam was what WS was doing these days, I’d be OK with that. But it’s not. When was the last big IPO? (Visa, right? Hah!) And why is that? Because there are not enough strong business models making it in from the "farm team" to make a great "world series" team. And why, O why is that?Because the farm team system is broken. The flow at the bottom has slowed a lot. Where is tomorrow’s middle-class income stream going to come from? It’s not coming from Walmart jobs, not GM/Ford/Chrysler, not from IBM, not from Oracle, either. "Moral duty" indeed. Think "survival duty". You do want to survive, don’t you?—————Free Tibet: Service Corps of Retired Executives (SCORE) is what you’re thinking of. I’ve used them before, and they’re terrific. Another great, but underutilized resource.Commentary and flames: aim at email@example.com
Free Tibet:Thanks for bringing up SCORE. Those guys volunteer their time, about a day a week. Just think how it would change the equation if they negotiated for a piece of the pie? Commitment, volume, intensity…instant acceleration.What if the nascent entrepreneur had a directory of execs, with thousands of names in it, with bios (skills, experience, industry contacts, etc.) in it to choose from. And the advisor/investors had the same type of directory that the entrepreneurs could register into. What if there was a set of downloadable, vetted agreements covering each of the key relationships I need to build, if there was state-based liability-limits for businesses under the program’s umbrella (graduate out after certain revenue level reached). There are so many ways to expedite, simplify, accelerate this process, and it’s…vital. More than any other factor, the key to our nation’s wealth in the past 40 years has been our innovation flow.We should act now to accelerate the flow.
“Stock ownership remains concentrated among the wealthiest households. The wealthiest 20% of households own over 90% of all stock value. For the top 1%, the average value of stock holdings was $3.3 million in 2004, down from $3.8 million in 2001.The average value of stock holdings for the middle 20% was $7,500 in 2004, down from $12,000 in 2001.“’The typical American family relies on home ownership and home equity for their financial security, not the stock market,’ said Economic Policy Institute economist Sylvia Allegretto." (August 29, 2006)Thus, the United States Congress just handed the keys to the rest of Americans’ wealth — their homes — to Goldman Sachs via Hank Paulson. Let’s see if we have anything left when the boys are through usurping our wealth to pay off their debts.http://www.epi.org/newsroom/releases/2006/08/SWApr-wealth-200608-final.pdf
scums (Fed, Paulson, and politician that is both democrats and republican) will not allow anything to fall and bailout everyone. inflation can only rally to sun. tax can only rally to sun under coming democratic rule.
"All we get is the tax bill."under coming democratic regime, we will get alots of tax bill.
Gross’ latest commentary is out:http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2008/Investment+Outlook+Bill+Gross+Mooooooo+August+2008.htmLots of "egg on his face" look at chart #2: Yield on GSE mortgages. He was saying GSE paper was the greatest nuy on earth earlier in the year!:-)I have not done so well with my holding of PTTRX managed by him. Doing my own driving would have been better:-)
and foreigner will get alot more worthless dollar, treasury, and FNM and FRE debts. personally, i will not touch these toxic waste. those stupid foreigner, go wonder.
Did anyone notice this on Bloomberg today? There was an article discussing the decline in home sales in June. According to the article, there is currently more than an 11 + month backlog of homes on the market. It goes on to say: "More Americans are walking away from their homes as property values slump and borrowing costs on adjustable-rate mortgages reset higher. Bank seizures increased a record 171 percent in June from a year ago and foreclosure filings rose 53 percent, RealtyTrac Inc., a seller of default data, reported this month.Home prices nationwide have fallen 18 percent on average from their July 2006 peak, according to the S&P/Case-Shiller index of 20 metropolitan areas. The drop in values may be giving those buyers still able to get financing reason to hesitate. "Yeah. It’s the bottom. I’m sure it only gets better from here. And thank goodness Wachovia came up to the plate and bit the bullet on a large loss. The losses from here will be much smaller I am sure. And as your next Secretary of the Treasury I intend…………
The "foreigners" are fully aware of their position. All background chatter about the Gulf states de-pegging from the dollar are warning signals to the U.S. leadership. When the Gulf states de-peg, the fat lady has sung her song.This latest stunt – the bail-out of the GSEs – is (obviously!) perceived as a desperation move – and it’s made worse by the fact that there was no alternative save hard retrenchment. The lack of successor revenue generators in the U.S. portfolio is going to ultimately play the decisive role in whether the satellites stay within the Empire or not. For those that accurately suggest that the threat of military force is what’s keeping the dollar afloat, you’re right. But you can’t run a world-wide deployment of a huge military without a strong economy, or without spoils of war. The oil spoils are apparently politically out of reach. Maybe the Israel drumbeat will provide the rubric for a last grab, but it’ll be exceedingly expensive, politically. They probably won’t be able to stay on top of the beast during the backlash.There aren’t a lot of moves left for the "capitalists". I wish they truly were capitalists, as that would imply a basic comprehension of how to allocate capital.These are sobering days on WS, in London, and in Midland, TX. Couldn’t happen to a more deserving bunch of fools.Sorry, LB, but your guys played a big role in this, too. The sun may finally be setting, this time for good, on the British Empire.
Listening to the CFTC regarding Oil manipulation,.hmmm what about the manipulation of the Silver and Gold markets? Somehow I do not think any exposure of manipulation of these markets will ever see the light of day.
WASINGTON MUTUAL IS ON ITS DEATHBEDDown almost 20% again today. I predict it will be the next domino to fall, and will shake up the market when it does.
Prof,sorry to abuse your blog, but after the financial star wars, let me give my contribution for a little fun. It’s about the Italian version of TPTB and latest trick they implemented to avoid eventual criminal prosecutions, for the moment limited to 4 highest ranking public officials, the head of state, of the government and the heads of the two houses of parliament. It’s a damn serious subject, but let’s laugh with the writing of Beppe Severgnini. This is the link to the original version, in Italian. http://www.corriere.it/solferino/severgnini/This is my bad English translation.BTW: the law just approved that protects them (more equal among equals) is called ‘lodo Alfano’ (from Alfano, the minister signing the law).Beppe writes:"Implementation of ‘lodo Alfano’, the law that grants immunity to the highest public officials, is causing outrage in the whole country. Several interest groups are active as they think they should be allowed similar privileges…. These are the main probable extentions:Lodo Brick: Mr. Brick, home builder and developer, has employeed for years illegal workers … He pays them 50 euro/day, but charges customers 25 euro/hour. To avoid lenghty discussions with the IRS and Social Security, Mr. Brick asks for a law that grants immunity for developers that employed illegal workers for construction of buildings with some public utility. As he once built a kinder garden, everything should be OK.Lodo Californication: the name is from a pub on the Adriatic Riviera (inspired by a song from Red Hot Chili Pepper). This allows to sum the age of the teen-agers to whom he serves alchool illegally. This is how it works: if two 15 years old drink vodka or whiskey etc, the owner cannot be prosecuted as 15 + 15 = 30 and at thirty years you damn know what you are doing.Lodo Esposito: From the name of a policeman that, after 15 years of service, earns 1050 euro/month. Lodo Esposito reads:" Arrest is invalid if monthly earning of the the cop arresting is less than 20% of the illegal income of the suspect". To jail a politician accused of receiving 1.5 millions euro in bribes, at least 286 cops will be necessary. It’s not necessary though that all of them are named EspositoLodo Schumacher (formula one champion): the law allows extension of speed limits on Italian highways, to allow impunity to driver of sport cars. This is how it works: for every car, the speed limit in km/h is the same as the engine horse power. examples: Fiat Punto, 77 km/h, Ford Focus 125 km/h, Mercedes ML 270 km/h, Lamborghini Gallardo 560 km/h. "Finally a liberal law", that was the comment of Comm. Beast, aka, "lead foot", before crashing his sport car on the line in front of the toll booth……".Miss Italy
Audio//Videos Reports http://www.bloomberg.com/tvradio/tv/schedule_us.htmlGlobal Insight’s Bethune Calls U.S. Economy `Very Weak’ July 24 (Bloomberg) — Brian Bethune, chief U.S. financial economist at Global Insight Inc., and Todd Colvin, vice president of MF Global Inc., talk with Bloomberg’s Betty Liu about U.S. initial jobless claims for the week ended July 19 reported today by the Labor Department and the outlook for the economy. Initial jobless claims increased by 34,000 to 406,000, the highest in almost four months.
Turning and turning in the widening gyre The falcon cannot hear the falconer; Things fall apart; the center cannot hold; Mere anarchy is loosed upon the world, The blood-dimmed tide is loosed, and everywhere The ceremony of innocence is drowned; The best lack all conviction, while the worst Are full of passionate intensity. Surely some revelation is at hand; Surely the Second Coming is at hand. The Second Coming! Hardly are those words out When a vast image out of Spiritus Mundi Troubles my sight: somewhere in sands of the desert A shape with lion body and the head of a man, A gaze blank and pitiless as the sun, Is moving its slow thighs, while all about it Reel shadows of the indignant desert birds. The darkness drops again; but now I know That twenty centuries of stony sleep Were vexed to nightmare by a rocking cradle, And what rough beast, its hour come round at last, Slouches towards Bethlehem to be born?
Think WAMU is bad, look at these:Bank City State “Texas-ratio”Colorado Federal Savings BankGreenwood Village CO 244.8Eastern Savings Bank, FSB Hunt Valley MD 222.7Integrity Bank Alpharetta GA 191.6Ameribank, Inc. Welch WV 153.7First Priority Bank Bradenton FL 122.6First Security National Bank Norcross GA 112.1Magnet Bank Salt Lake City UT 110.4Security Pacific Bank Los Angeles CA 102.8First National Bank of BrookfieldBrookfield IL 102.1The State Bank of Lebo Lebo KS 100.6Source: Research Associates of AmericaWhile the Federal Deposit Insurance Corporation (FDIC) is keeping secret its official list of 90 troubled banks, ABC News has obtained other lists prepared by several research groups and financial analysts. The lists use versions of the so-called "Texas ratio" which compare a bank’s assets and reserves to its non-performing loans, based on financial data made public by the FDIC in March. Analysts say banks with a ratio over 100 per cent would be the most likely to fail, based on what happened to Texas savings and loans during the 1980′s.
WALKING AWAY@MedicInteresting info substantiating the trend.I have been a little skeptical about how serious the walking away trend would become, but am beginning to be a believer. One of the things NR says in his interview is that many of the walk aways will be vacation homes and investment properties. Walking away from these will be much easier than walking away from primary residences- and there are a huge number of these properties out there.
I am going to save WAMU that will go up by 205 at 3:45pm.
Someone pointed me to this humorous take on the weak dollar:Lewis Black on "The End of Empire Sale" – a red, white and blue light special!http://rawstory.com//news/2008/Lewis_Black_Weak_dollar_makes_America_0723.html
anyone else get this email? Dear User-You are currently on an internal list that will be terminated at the end of this week. If you are interested in learning more about our product, RGE Monitor, please respond to this email
I found this site linked on tickerforum.net, it tracks the TOMO and TAF credit outstanding every day, I find it very useful. Today’s highlights: a monster $185bn of collateral submitted and only $33,5bn accepted, credit outstanding grew $5bn after several day of contraction ($14bn if including TIO, but I don’t know what it is).http://www.gmtfo.com/RepoReader/OMOps.aspxAccording to Wall Street Examiner when the FED lends money the stock market goes up. Bear beware.
@Jason B: Yes I received a notice of termination of my free trial subscription also today. To end at end of week. It’s been nice knowing you all, and many thanks to RGE Monitor, Dr. Roubini and all my fav. posters! Sorry not to be able to say bye to OR.
SUMMARY OF TODAY’S MARKET ACTION: REALITY REARS ITS UGLY HEADWall Street: "Pesky reality!! It keeps interrupting our fantasy world and just won’t go away."
All right people, listen up We will be closely watching WAMU. Its puking right now but we are keeping a close eye.More later …..
Navy cancels $20b purchase of destroyersCancellation of the 14,000-ton, Zumwalt-class destroyer, called the DDG-1000, after just two ships were funded, was made public by Maine’s two Republican senators, Olympia J. Snowe and Susan M. Collins, and US Representative Thomas H. Allen, a Democrat whose district includes the Bath shipyard. The lawmakers said they were informed by top Navy officials that with costs rising 50 percent, to $3 bil lion per ship, the program has become too expensive and would make it impossible for the Navy to meet its overall goal of a 313-ship fleet. The service currently has about 280 ships.The lawmakers said they were also told that the Navy had concluded the destroyer’s design was not well suited to combating the evolving threat of long-range missiles.Just when you think the Washington money-fountain has an infinite reservoir, this happens. Proof that inflation will bite the hand that feeds it.http://www.boston.com/news/local/maine/articles/2008/07/24/navy_cancels_20b_purchase_of_destroyers/?p1=Well_MostPop_Emailed5
Navy cancels $20b purchase of destroyersCancellation of the 14,000-ton, Zumwalt-class destroyer, called the DDG-1000, after just two ships were funded, was made public by Maine’s two Republican senators, Olympia J. Snowe and Susan M. Collins, and US Representative Thomas H. Allen, a Democrat whose district includes the Bath shipyard. The lawmakers said they were informed by top Navy officials that with costs rising 50 percent, to $3 bil lion per ship, the program has become too expensive and would make it impossible for the Navy to meet its overall goal of a 313-ship fleet. The service currently has about 280 ships.The lawmakers said they were also told that the Navy had concluded the destroyer’s design was not well suited to combating the evolving threat of long-range missiles.Just when you think the Washington money-fountain has an infinite reservoir, this happens. Proof that inflation will bite the hand that feeds it.http://www.boston.com/news/local/maine/articles/2008/07/24/navy_cancels_20b_purchase_of_destroyers/?p1=Well_MostPop_Emailed5
THE GREAT CHINESE ECONOMIC MIRACLE IS GOING TO END BADLY"Jamil goes on to quote Yi Xianrong, at the China Academy of Social Sciences, as making the very sensible observation that “If financial institutions of Freddie Mac and Fannie Mae’s calibre could get into such a bad situation, then what does that mean for Chinese financial institutions? The only reason we haven’t seen similar problems here is because property prices have continued to rise rapidly.”Needless to say I think Mr. Yi is absolutely correct, and I expect that he will have proven to be when and if ( and I really just mean “when”) we see a serious monetary or economic contraction. He elaborates: “Anyone can get a mortgage loan in China, no matter who they are. There is also a huge amount of speculation in the market and insider dealing when it comes to bank officers granting loans.”In that context I heard from a normally plugged-in friend of mine that the authorities are planning to reshuffle the top positions in the big banks after the Olympics. My friend tells me that the new leaders are likely to be more sympathetic to industrial and provincial leaders’ beliefs that slowing growth is a bigger worry than rising inflation. If true, I think we can expect to see deterioration in the credit quality of bank portfolios, even as they take on more market risk."http://www.rgemonitor.com/emergingmarkets-monitor/253092
Mu investment tips for all of you. Watch for these consolidations in 2008. 1.) Hale Business Systems, Mary Kay Cosmetics, Fuller Brush, and W. R. Grace Co. will merge and become: Hale, Mary, Fuller, Grace. 2.) PolyGram Records, Warner Bros., and Zesta Crackers join forces and become: Poly, Warner Cracker. 3.) 3M will merge with Goodyear and become: MMMGood. 4. Zippo Manufacturing, Audi Motors, Dofasco, and Dakota Mining wil l merge and become: ZipAudiDoDa . 5. FedEx is expected to join its competitor, UPS, and become: FedUP. 6. Fairchild Electronics and Honeywell Computers will become: Fairwell Honeychild. 7. Grey Poupon and Docker Pants are expected to become: PouponPants. 8. Knotts Berry Farm and the National Organization of Women will become: Knott NOW! And finally . 9. Victoria ‘s Secret and Smith &Wesson will merge under the new name: TittyTittyBang Bang
Ron Paul on the Bailout bill. One especially important note is an item buried with in it.It comes with the requirement that ALL Credit Card Transactions will be reported to the IRS http://mrmortgage.ml-implode.com/
The Broken See-SawIn the simplest terms I can put, that a kindergartener could probably understand, the market is an enormous See-Saw. For every seller, there has to be a buyer. For every winner, there has to be a loser. In its purest and simplest terms… that’s how it has to be! Take a heavy kid, and a thin kid, and put them on each end of a See-Saw… the heavy kid will be firmly planted on the ground …unless the heavy kid moves up enough, or the thin kid can somehow move back further. Or, the heavy kid can just keep launching off the ground. (this works for a while… but after a while, the heavy kid gets tired and gravity wins!) Eventually, if the kids want to keep playing, they need to figure out what needs to be done, to manipulate the See-Saw so that it will be the fun balancing act again.Just the same, as adults, we live in this See-Saw economy that has to live by these rules……but eventually, the adults will figure out what needs to be done, to manipulate the See-Saw. In the case of the economic See-Saw, money creation and destruction is at the heart of the manipulation. You have 3 scenarios that in turn affect the See-Saw.1. Money Creation above the equilibrium of growth2. Money Creation/Destruction on par with the equilibrium of growth3. Money Destruction below the equilibrium of growthFor scenario 1, Money Creation above the equilibrium of growth, you can be left with a scenario of an overall net Win/Win. It breaks the concept of for every winner there is a loser. We saw this happen in the last five years when both the Real Estate market grew in synch with the Financial Market. Traditionally, money would flow from 1 to the other… but in this case, with additional money creation, money was allowed to flow to both. For scenario 2 Money Creation/Destruction on par with the equilibrium of growth… In a perfect world, this would always be the case. For scenario 3, Money Destruction below the equilibrium of growth, you can be left with a scenario of an overall net Lose/Lose. We see this scenario now, as both Real Estate and the Financial Market have moved in synch with one another in the past year. …but once again, we broke the See-Saw. Within the Financial markets, there are various See-Saws. Equities, Fixed Income, Commodities all flow together in this balance act. So now, while we’re in the stage of Scenario 3 where Money Destruction is below the equilibrium of growth, we had another anomaly that came to be. (this is one my many silly ebb and flows that I follow to help me decipher where I believe the market will go. It’s part of my concept of “follow the money”.) The anomaly occurred in March-April between Commodities and the financial markets. In a time where the net/net loss should be occurring (through lack of growth coupled with credit destruction) we saw both the commodity market and the financial market rise at the same time. For example, what I do is take a look at the 1 year chart on oil. Then throw up the comparison to the S&P. If you take a moment to try this, I’ll walk you throw where I see a cash flow anomaly. I look a two things here. I do a comparison based on: A. Market psyche – which compares the Oil/Commodities to the Financial Markets from a cash flow perspective based on equal dates.B. Market Affects – compares the Oil/Commodities to the Financial Markets with a 3 month lag on Financial Markets, to show the effect on the Financial Markets that the Oil/Commodity run has caused.A. Market Psyche – You can see with the plain eye, that from last August, through March 2008, the 2 markets (Equity & Commodities) were pretty much in synch with the See-Saw. As cash left one, it entered the other. Within the losing sector of Financials, this internal See-Saw from Equities to Commodities was working well within an acceptable deviation. …but then, in the middle of March, you can see that the Commodity Market ramped up completely out of synch with the Equity market… …because the Equity market grew at the same time!?!?! Without overall market growth to counter this, the money had to come from somewhere? A net “Win/Win” can’t be happening in a time where a net lose/lose should be happening. There needs to be offset! This is an anomaly.B. Market Affects – For this, I invert the oil chart, and move it 3 months ahead of the S&P. (I also cut Oil down % wise to a comparative level) The 3 month lag allows me to see beyond the cash flow (and market euphoria), and instead take a look on the price pressure that is caused. Once again, the lines do not diverge too much over the course of 2007 through March of 2008. Then, in late-March/early-April, the lines diverge again. By June, the divergence is violent! This once again leaves me scratching my head. Like the little fat boy on the See-Saw, who wants his turn in the air, he will eventually get tired. Gravity Wins. (like I said: There is a disturbance in the force!) OK… I’m done babbling.Miss Americap.s. Do any of you remember when Bobby and Cindy Brady tried to break the Guinness Book Record for See-Sawing??? Come on… Admit it… did you and you best friend or sibling run out and try to do the same??? Damn I love pop-culture too much!p.p.s. Nouriel, I just received an email alert from you reading:“You are currently on an internal list that will be terminated at the end of this week. If you are interested in learning more about our product, RGE Monitor, please respond to this email. (**If you are currently a subscriber, please disregard this email as your account will not be effected**)”Does this mean I will lose access to this blog? I don’t believe I am a “subscriber”??? Actually, I have no idea what my status is? Nouriel, can you please expand upon this?
Don’t worry kids- you see, in 1 houra nd twenty minutes, stocks will be on the path to closing green for the day…buy the dips.
"That’s why I’ve also proposed a second stimulus of at least $50 billion with energy rebates for families struggling with high gas prices, relief for states facing budget cuts, and additional measures to protect homeowners from foreclosure," Obama said. End of Story"expect alots of bailouts and social welfare from Obama. USA has become socialist country. rob from middle-class and give to rich and poor. sucks to be American.
I missed a couple of words above:Like the little fat boy on the See-Saw, who wants his turn in the air, he will eventually get tired "of launching himself. (the manipulation) Eventually" Gravity Wins.MA
We’re all getting terminated from the blog at the end of this week apparently. It’s the end of the free trial subscription, it seems. I guess all good things must come to an end.@Martin – please update on WaMu if any news – many thanx!
I have recieved no termination notification. Maybe Nouriel figures it is unecessary because the SEC will take me away in handcuffs soon for promoting short selling.
In order to check the subscription status of your RGE account click on the ‘Manage My Account’ on the upper right corner, then look on the bottom of the page. In my case I have:Subscription Status:Registrant with Blog Accessand I have not received any email (yet)
THIS IS GETTING SCARY-BIG BROTHER IS WATCHINGThe FDIC plans to pay closer attention to the blogosphere in the future."We’re very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it," Bair said. "The misinformation that came out over the weekend fed a lot of depositors’ fears." http://globaleconomicanalysis.blogspot.com/2008/07/fdic-chairman-shelia-bair-is-out-of.html
WAMU DEATH WATCH… Gimme Credit LLC said unsecured creditors were “pulling funds” from the biggest U.S. savings and loan….“We won’t use the phrase `run on the bank,’ but we would be remiss if we did not observe that many creditors have quietly been pulling funds,” wrote [Gimme Credit analyst Kathleen Shanley], based in Chicago. Their actions are “presenting an increasing funding challenge,” she wrote.http://calculatedrisk.blogspot.com/2008/07/report-wamu-unsecured-creditors-pulling.html
In the event this blog becomes subscription only, I’ll hang out on London Banker blog. See you there (if need be).
I have not got one either.
“Time to Get Political Folks…Massive Bailouts Front and Center”July 23, 2008 — ”They are on the move guys. I have always kept my political affiliations and actions a private matter but what is going on with the Fannie/Freddie, housing, mortgage, Treasury, Fed, Wall St, Washington, rich investor and foreign Gov’t bailout plan could turn out to be nothing short of the largest fraud ever perpetrated on the taxpayers, at least in my lifetime. I feel compelled to use whatever soapbox I have here to get this message out there to as many as I can.Paulson, Frank and even Dodd are about to get their money and it will come at a great expense to you, me, our children and perhaps our grandchildren decades down the road. A retroactive bailout of Fannie Mae, Freddie Mac, Wall St, Banks, Investment Bank, Foreign Govt’s and many more by the tax payer is being voted on as early as today, the negative repercussions of which cannot be known… http://mrmortgage.ml-implode.com/My question is: Where do we go to get “political”?
German Bonds 1920′s-1930. Huge debtor nation. Largest creditor? USA. When it collapsed how did things turn out?Children and grandchildren won’t be saddled with the debt payments. They will be saddled with unbelievable political and military turmoil. Globalism will be deader than dead. Foreign trade? Bwahahahaha! Nuclear core is now melting through the concrete containment, when it hit ground water is when the action really starts.
let the withcing hour begin….
Here comes the pump!!
Been fun everybody. They’re shutting down ever’thin’ now. Even our little petty indulgence of RGEmonitor will be gone soon. I’ve posted often with the manifold aliases, probably been naught but a blatherskite anyway. My garble was of little contribution in truth. But I will miss the comaraderie and poignant posts. Off to the occasional CR and Bear’s Lair. Ultimately, though, we’re fully armed with the knowledge we now have to carry through to the bitter end of this. Just variations on themes now…WATCH FOR POLICE STATE.
3 o’clock buyers right on schedule? With WAMU on its last breath? I’m speechless.
I likes the Yeats. I likes the seesaw (though presently hurting from a hard fall when the fat kid launched). But mostly I likes more cowbell…far better than DJIA opening and closing, anyway. http://youtube.com/watch?v=EVbAuMr5eac
I have set up a blog at londonbanker.blogspot.com in case anyone here gets denied access under the new arrangements. Feel free to wander over. I would hate to lose contact with any more members of this community. I will post everything I post Fridays here on the other site, and will probably blog a bit more informally in the interim as the spirit moves me.Please, spread the word to those who may be affected by the changing terms of access.Also, feel free to e-mail me at londonbanker (at) btinternet.com or londonbanker (at) googlemail.com
London Banker,your blog on RGE is free access, also for posting comments. For now.
someone please give me a list of the blogs people are using. I don’t want to get left out in the cold…….>
It has been a great day for everyone who shorted yesterday. I wish I had not covered my WaMU shorts yesterday.
"Please, spread the word to those who may be affected by the changing terms of access."What are the changing terms of access? I have rec’d no email notice.
My personal blog list:Mish – http://globaleconomicanalysis.blogspot.com/CalculatedRisk – http://calculatedrisk.blogspot.com/Hellasious: Sudden Debt – http://suddendebt.blogspot.com/Brad Setser: Follow the Money – http://blogs.cfr.org/setser/Steve Randy Waldman: interfluidity – http://www.interfluidity.com/
I doubt Nouriel is cutting us off. The people who run this website periodically bungle things a bit. I wouldn’t worry about it too much.
THE WORLD IS A VAMPIRE DOOOOO DOOOOOOOOO DOOOOOOOOOOOO SECRET DESIRE LAAAAAAAAA LAAAAAAAAAA LAAAAAAAAAAAA LAAAAAAAAAAA WHAT ARE THIS MADNESS, DESPITE OR MY RAGE WASHINGTON MUTUAL IS STILL IN BUSINESS. WASHINGTON MUTUAL YOU HAVE TO GO WASHINGTON MUTUAL YOU HAVE TO GOOOOOOOO.DESPITE ALL MY RAGE, YOU ARE STILL IN BUSINESS.LETS ALL SING TOGETHER FOR DEMISE OF WASHINGTON MUTUAL
SENATOR JIM BUNNING IS THROWING STRIKESFannie, Freddie Rescue Plan May Cost $1 Trillion, Bunning Says July 23 (Bloomberg) — A government rescue of Fannie Mae and Freddie Mac would require taxpayers to pay “way” more than the $25 billion estimated by the Congressional Budget Office, potentially as much as $1 trillion, Senator Jim Bunning said. http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ_PxvWbq4z0
OOOPPPPSSSS!4:08 p.m. Crocs late traded shares halted last trade at $8.98
@Gloomberg: SENATOR JIM BUNNING IS THROWING STRIKESThese two quotes at top of SF Chronicles Biz Page today:The bill [“Home Package”] is a "multibillion-dollar bailout for scam artists and speculative lenders at the expense of American taxpayers" –House Minority Leader John Boehner, R-Ohio“This is the most important piece of housing legislation in a generation.” –Senate Banking Committee Chairman Chris Dodd, D-Conn.
BTW, since we are talking of other blogs, I’ve started my little blog where I comment about the current financial and economic crisis in Italian language. I mainly comment on US news and US blog posts trying to bring some info on what’s going on to the many Italians that cannot get decent coverage due to the language barrier.As a last resource you can find me there, I wont mind receiving English comments .http://castellidicarte.blogspot.com/"Castelli di carte" stands for "houses of cards".
4:35 p.m. Crox late shares resume trade plunge 44% to $4.75
Professor Roubini…Instead of receiving “Subscription Termination email” from you, shouldn’t I be getting a job offer?Do you actually have someone on staff that is calling the market turns more precisely then myself?Do you actually have someone on staff that is TIMING the market more precisely then myself?You appear on TV, radio, internet, etc speaking of what’s to come, and bringing to light the accuracy of your prior predictions. I assume, you want the respect of your piers. Likewise my resume on this sight should warrant equal acknowledgement.The next time you’re looking to hire someone… Keep me in mind. (Consider my time here a 2 year interview. I believe I’ve proven myself.)Rich H – aka Miss America
I will offer a blog and book recommendation.The blog: Russ Winter http://wallstreetexaminer.com/blogs/winter/The Book: The Shock Doctrine – The Rise of Disaster Capitalism by Naomi KleinThe book outlines the standard blueprint that the global money intersts have used for systemic looting operations conducted, under the auspices of the IMF and World Bank, in various countries including Chile, Bolivia, South Africa, Russia, etc. The end result in most of these cases has been brutal repression and the elimination of the middle class. Each society subsequently stratified into the few very rich and the many extremely poor.The basic theme is that TPTB uses a destabilizing event like a natural or economic disaster, or war or terrorist attack, to force "shock therapy" of unpopular social and economic refoms onto the populace while they are disoriented and unable to resist. These reforms almost always run counter to constitutional law and usually require the imposition of martial law and things like secret police, torture, and "disappearings" in order to be implemented.I mention this today because in reading the book I have been struck by the various parallels to our present situation. I believe it should be read as a blueprint for what is going on behind the scenes, and indeed what we in America have been experiencing in slow motion for the past thirty years.The gathering economic crisis will be used as a pretext to radically transform the United States into something far different than we have seen. Plan accordingly.
Alessandro,I cannot agree more with you about availability of good financial info in Italian. I did my little contribution when, in the last few months, 3 mails of mine got published on the web site of Corriere (Italians); it’s not a blog, only 10 out of 200+ e-mails received daily are selected for interesting subjects. I explained mechanisms and events learned in this blog from Roubini and the bloggers. Good luck with your blog and I hope I can fruitfully contribute sometime.Castelli di carte is the most appropriate name.Miss Italy
pREVIOUS iTEM: "The FDIC plans to pay closer attention to the blogosphere in the future."We’re very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it," Bair said. "The misinformation that came out over the weekend fed a lot of depositors’ fears." If the FDIC wants to issue corrections, or clarify policies, then I say – good for them! All depositors would like to have a clear idea of where they stand, if their bank is affected by these problems. However, a substantial number of "rumors" that are being discussed have come from recent articles in the media about specific problems that people have faced after their bank went under. The FDIC could combat this issue simply by handling the problems better – incl. better communication with the customers.PeteCA
Several people have commented that they might be dropping out – because on an e-mail from the RGE Monitor. I’m not sure that the folks at RGE intend for that message to discourage regular, free users of this blog. So I would suggest that you hold on, and keep signing in – to see what happens. Perhaps Prof. Roubini will clarify his policies soon.PeteCA
@Guest > “He [Marc Faber] warned the Western World that if it doesn’t allow China to buy into its resource companies, China will take resources by force for its economic well being.”The traitorous three – Banks/Corps/Congress – offshored America’s industrial heart and, now, she’s at military risk should there be physical resource war – onshore. The BCC sold out America’s intact physical plant capability for mass production of goods and excess capital and for what? –Esau’s porridge, mega billions of paper dollars for a few bankers/CEOs with a life span of but three score and ten to stuff into their pockets. As usual, the prostitutes in Congress sold themselves cheap, for a Frank Dodd marcelled hairdo and a ride to work in a limousine.At no time after 1945 was the United States capable of destroying Russia or her allies without taking on totally unacceptable risks herself,” wrote Stephen E. Ambrose in “Rise to Globalism” (seventh revised edition 1993), “at no time was the United States able to establish an imperial dominion.”And now – war with Iraq, war with Afghanistan, threatened war with Iran, and “The Coalition of the Willing” all gone home.
Rich H – aka Miss America, Randy and other guests.You have been randomly selected to join the ISLAND. Congratulations! The others will be waiting their turns.FDIC & SEC
@Miss ItalyI’m trying my best as well to disseminate decent information. I speak to anybody willing to listen: co-workers, relatives and friends. I even gave a public talk a few days ago, the people there were extremely interested and they kept asking relevant questions until the very end of my three hours (!!) seminar. I was surprised how fast people got up to speed with financial problems if explained correctly. And the word spread fast to friends too.The FDIC and Wall Street have a very real problem with blogs. Information is spreading.
My apologies for coming out of the woods above without a proper preamble. We left Morrocoy National Park Yesterday and have stopped in Caracas until Saturday when we head for the Margarita Island Ferry out of Puerto la Cruz. I visited the island last in 1985 so I am looking forward to our one-week visit. Margarita Island is supposed to be a hot destination and a great opportunity to see Venezuelan female beauty af its best (we won the pageant again recently). I was very tempted to take my fishing gear, even haul my motorboat along, but Margarita is now more of a partying place than the fishing village it used to be when I first visited in 1977. Thus, following Darwin’s advice, we decided to adjust to the environment and settled for a week of partying instead of a week of fishing, of which we have had plenty in Morrocoy.Now back to economics and investing. It has been an amazing two weeks. At Morrocoy, I only have access to Bloomberg TV, and access to my investment accounts via toll free access numbers. Early last week (July 15), I was ecstatic to see that despite no trading at all since the BSC bailout last March, my YTD return was at 6.4%. Yesterday, just six trading days later, I stand at a YTD return of just 2.4%! This is indeed frustrating. Despite a portfolio daily volatility that very seldom exceeds 0.5%/day; in the last week of trading, I saw daily declines close to 1%. My only consolation is that I am still beating all equity indices and most investing pros, including wise-ass Bill Gross; whose PTTRX (which accounts for close to 30% of my portfolio) has returned 0.75% YTD, despite a 3.25% decline in FED funds YTD. When you see even the smartest risk-averse guys at PIMCO sweating blood, you know that, investment-wise, things out there aren’t easy.A few weeks back, in my previous out of the woods journey I assessed the environment and concluded that the US economy/financial train-wreck was moving ahead full steam. Could things have really changed so drastically in just two weeks?I am still reading, including the Professor’s latest post, and it appears it is all smoke and mirrors which includes a short-lived attempt to make the shorts run scare:http://www.investorsinsight.com:80/blogs/john_mauldins_outside_the_box/archive/2008/07/21/a-short-covering-rally.aspx Thus, I will maintain the positioning I established in mid-march. BTW, Paul Mc Culley’s latest is out. Lots of black eyes at PIMCO. They keep one begging for a bailout of the GSEs.http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2008/GCBF+July+2008.htmGreetings to all the regulars including Martin above. Martin: you Da’ man!
@ JLCIn fact I usually "try" to read events according to Naomi Klein’s "theory". It helps keep focused on what is going on. Case in hand today is the line inserted into the housing bailout bill: All credit card transactions should be reported to the IRS. What the heck is this clause doing in a housing bill?
I wish there was someone out there that could speak for those of us that have lost everything as a result of this crisis. No voice and few options for the downtrodden.*******************************************************************************************July 24: A woman in Taunton, Mass., kills herself after faxing a letter to the mortgage company saying that she would be dead by the time they foreclosed on her home. WHDH-TV’s Steve Cooper reports.http://www.msnbc.msn.com/id/21134540/vp/25831409#25831409
Wachovia Announces Tom Wurtz Stepping Dn As CFO; Co To Conduct Immediate Search For Replacement >WBJuly 24, 2008 17:31 ET OR, It’s good to hear from you, I trust you are enjoying yourself immensely.I had my worst day in the market ever last week. It was so bad it made me re-think my concentrated and leveraged short strategy in financials and commercial real estate / REITS. But after taking about 40% off the table to get out of the way, I am now back in essentially the same positions! I am getting a little better at avoiding the rallies, but when things move that much, that fast, it is impossible to avoid all of it. I won’t say how far I fell (you would think I must be crazy or a liar for sure), but the decline was twice as great as any annual gain I ever had in the market – to say it was painful is a gross understatement. The rally in financials was just like a crash for shorts, which I am sure many others here also experienced. On the 15th I was in hog heaven with the highest portfolio market value I had ever attained, by Friday I knew how crashes can cause some people to commit suicide. Maybe I am crazy for holding such high risk positions, but I really don’t think we have seen the bottom yet, and, IMO, financials and real estate still appear to be the best places to be, short that it. I have nothing on the long side as I can’t bring myself to even hold energy or commodity stocks in a bear market – it causes me too much cognitive dissonance.Happy trails and good luck to you and everyone here.
About the FDIC blaming the blogs for the collapse of IndyMac: "War is Peace; Freedom is Slavery; Ignorance is Strength."As Gloomy says, let’s keep our eyes on the ball, bank runs happen due to the duration mismatch between assets and liabilities on a financial institution balance sheet. Those in the business of borrowing short to lend long are systematically at risk of a bank run. The very existence of the FDIC is a band-aid on the cardiopathic patient that is the US banking system.No amount of reserves can protect a bank from a really rough patch, but keeping reserves well below 10% means that the world banking systems are designed to fail under stress, under the implicit assumption that the losses will be socialized.What service to the society does the duration mismatch? None.What problems it causes? Risk of bank runs.Why exactly should we as a society allow a practice that has no social benefit and introduces a dangerous instability? I don’t see any reason.So if you don’t want no bank run, the solution is: outlaw duration mismatch for financial institutions, outlaw fractional reserve lending for banks, close the FDIC and leave the blogs alone.
>>>> About the FDIC blaming the blogs for the collapse of IndyMac: “War is Peace; Freedom is Slavery; Ignorance is Strength." Bravo, Alessandro. Bravo!!
"bill [“Home Package”] is a "multibillion-dollar bailout for scam artists and speculative lenders at the expense of American taxpayers" –House Minority Leader John Boehner, R-Ohio"May be the only intelligent thing to come out of his mouth–ever.I would also add Bob Chapman’s International Forecaster (.com) twice weekly summaries of his subscription newsletter. Terrific rants and frighteningly real.@JLC I agree "Shock Doctrine" is a must read-very chilling. They are finally implementing it on us, here at home.
I SURE HOPE WE CAN BAILOUT ALL THE BANKS QUICK AND MAKE SOME ROOM FOR THE AUTOMAKERSDEARBORN, Mich. (AP) — Bleeding cash and with its very survival uncertain, Ford Motor Co., an icon of American automaking, will try to import some of its success from across the Atlantic.http://biz.yahoo.com/ap/080724/ford_s_future.htmlDoes anyone for a moment doubt that GM and Ford will be bailed out?
Octavio, I’ve been waiting for you.Capone wrote on 07-18: “@all, with much humility, i have to make the following request: does anyone know of a legitimate company who consolidates debt – not looking to file or "get out" just consolidate at one rate preferably lower than what i am currently paying ? thanks”As no one here had any suggestions for Capone, I thot you might. There are a lot of ins and outs to this rocky biz, and hopefully you might know of the best way to get the best deal? Haven’t heard from Capone since, so I don’t know if he has found a better rate… but there are lots of sharks in loan waters… Capone’s helped me out a lot on this blog so I thot I’d put in a little plug. Hope he doesn’t mind. sue
Guest on 2008-07-24 16:46:45“I wish there was someone out there that could speak for those of us that have lost everything as a result of this crisis. No voice and few options for the downtrodden.July 24: A woman in Taunton, Mass., kills herself after faxing a letter to the mortgage company saying that she would be dead by the time they foreclosed on her home. WHDH-TV’s Steve Cooper reports.”Yes, this is truly a tragedy. It reminds me of the suffering caused by the government in the ‘70s and early ‘80s. Those were tough times for farmers, and many were losing money year after year. So the government helped them by giving them guaranteed loans every year to purchase seed, fertilizer, equipment, additional land – everything they needed to continue farming. The problem was the farmers became so debt laden that eventually, after several years of loan after loan after loan, they could no longer service their debt, even after loan reschedulings with amortization of the accrued interest in arrears. As a result, some, I don’t know how many, committed suicide. These farmers were people who grew up on the GD or shortly thereafter, and they were mostly country people who lived with a code of honesty, hard work, avoiding debt as much as possible, and paying back those debts they could not avoid. So when they couldn’t pay their debts, it became a terrible emotional and psychological burden that brought them much guilt and shame that led to suicide for some of them in order to stop the pain of it all. In my mind it was another example of the inherent problems of the social programs of the Great Society. Although the government’s intentions were good, the help actually ended up hurting many people in the long run – it prolonged the agony for many who ended up leaving farming eventually anyway, which is what they should have done when they first got into financial trouble.The difference now, with housing, is that the loans were made to people not out of good intentions to help them, but merely for profit; they were made without compassion or concern for the negative impact the debt might have on the person if they couldn’t keep up the payments.Thus the “socialists” (Democrats) an the free-marketeers (Republicans) both end up hurting people. The difference is the free-marketeers do it with callous disregard for the suffering it may cause families, while the socialists do it because they do not take the time to consider what really is the wisest way to help people. In other words, they don’t stop to consider if putting people further and further into debt is actually helping them or hurting them, and to consider other alternatives that might help them more, even if those alternatives themselves cause some pain – think “tough-love”.Real help for some people, hopefully, will come with the implementation of the new housing bill. Further, and probably more significantly, more help will be provided directly to people after Obama is elected president and the Democrats control both the executive and the legislative branches of government. Whether it will be wise or harmful help, a la the farmers, I don’t know; but I hope we, as a country, learned something from the failed welfare and farm lending programs of the 60’s and 70’s and will not repeat those mistakes.
For those who have not yet seen this item, apparently Indymac was not on the FDIC list of threatened banks prior to its denoument (sp?) http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/07/24/BU9A11TUKC.DTL
@ GLOOMY on 2008-07-24 17:30:46Why wouldn’t we expect Ford and GM to get bailed out. Chrysler was bailed out years ago.
@ KJ Foehr on 2008-07-24 17:42:16How can we realistically expect anything good to come from a "housing" bill that has a clause stating that all credit card transactions will be reported to the IRS". Welcome to the new Amerika!
stupid guests on kudlow. if oil goes down, then it is good? my god, if oil start to trend down, then we have global recession in the card. i will watch $110, if that is taken out, then kiss of death to bull market.
Special greetings to KJF and sue. Will try to post some pics when I get to broadband which may not be until October. AnonV: " ‘all credit card transactions will be reported to the IRS’. Welcome to the new Amerika! "Actually, if this goes through it would be the end of Amerika:-)
Hey RH, Miss America!If only I had blindly committed my entire net worth and leveraged it twice to your market calls and spot-on turns, I’d buy myself an island and a yacht free and clear! And not a hulking metal-can destroyer that needs work like LB either. Yeah, I’d be living the good life, polynesian ladies, hammocks, pig roasts and lazy afternoons. Instead, I hearkened but a bit and can barbeque with beans and franks at abandon now. Still something much better than nothing. You shouldn’t be asking for employ from the Doctor, you should be endowing his foundation with a bil+ from your market killings! You da man.
Brazil raised the Selic today to 13%…read a report stating that Brazil and Australia have the highest real interest rates…
Octavio Richetta on 2008-07-24 18:56:10AnonV:" ‘all credit card transactions will be reported to the IRS’.Welcome to the new Amerika! "Actually, if this goes through it would be the end of Amerika:-)What do you mean? It looks like it has already been passed. See e.g. this article:http://www.campaignforliberty.com/blog/?p=235
GLOOMY on 2008-07-24 17:30:46I SURE HOPE WE CAN BAILOUT ALL THE BANKS QUICK AND MAKE SOME ROOM FOR THE AUTOMAKERSAnd after the automakers they can bail out the airlines.
who can bailout the US curency?
Folks, you do not have to "subscribe" to post to the blogs. I am not a subscriber and I can access all the blogs and have limited access to other content such as spotlight articles. Contact the sales department to find out how. I shudder to think this forum would lose major contributors to this blog due to some technical glitch. Check it out.
Folks, you do not have to "subscribe" to post to the blogs. I am not a subscriber and I can access all the blogs and have limited access to other content such as spotlight articles. Contact the sales department to find out how. I shudder to think this forum would lose major contributors to this blog due to some technical glitch. Check it out.
@Rich H (Aka Miss America)I have been on this site for about a year and was at first skeptical about yourcalls. But you nailed them, especially when Gold topped out. I wished I investedin your calls. I hope you stay on this blog and/or LB’s and keep calling them asyou see them. Take care. FF
@OR on 2008-07-24 18:56:10I stand corrected. We are currently in Amerika, but I agree, this will surely be the demise of Amerika, but not in the way we would want it to be.@Guest on 2008-07-24 20:28:31Yes, this passed the house. Our only hope is to stop it at the senate.People, we must act and not let this get thru.
@Incognito on 2008-07-23 08:35:26Your thoughtful insight is greatly appreciated. Looking forward to more of your thinking.Many thanks…
Guest on 2008-07-24 05:45:14Perhaps the most important development of this crisis is not the feared ‘collapse of the dollar value’, or stagflation, or hyperinflation, or a change in world reserve currency…but that US housing ends up being nationalized.Perhaps the most important development is not specifically the nationalization of housing but all the removal of privacy that is excused on the situation (similar to 9/11). Like the requirement on the housing bill, that all mortgage brokers are being fingerprinted. What is the point of that? That when the government owns the mortgage market (after it has been nationalized), they want more control over it?By the way, on this housing bill the Treasury’s previously limited $2.5 billion line of credit to Fannie Mae / Freddie Mac has been increased to unlimited. The Treasury can now buy an unlimited amount of Fannie / Freddie housing securities and stock. (source: http://www.campaignforliberty.com/blog/?p=235)
90%!!!!!excerpt;The bank’s A$1.2 billion portfolio of collateralized debt obligations is now 90 percent provisioned,LOL….. and shares are only down 28 %!!!how about US banks?? it wouldnt happen here.. LOLNational Australia Bank’s CDO Provisions Reach A$1 Billion http://www.bloomberg.com/apps/news?pid=20601087&sid=apsK1AfalRTo&refer=homeJuly 25 (Bloomberg) — National Australia Bank Ltd., the country’s biggest by assets, increased provisions for collateralized debt obligations by A$830 million ($795 million) after the value of the investments dropped. The provision is in addition to the A$181 million it posted in March, the Melbourne-based bank said in a statement today. The bank’s A$1.2 billion portfolio of collateralized debt obligations is now 90 percent provisioned, it said.
Ron Paul makes FRONT PAGE OF DIGGhttp://digg.com/world_news/YOU_JUST_GOT_SCREWED_and_Nobody_Will_tell_you_URGENT“URGENT!” Video Housing Bill: “Today as an American you got shafted. Unlimited printed money to bail out Freddie and Fannie. Raise the National debt by $800,000,000,000. Finger printing of all MORTGAGE people, and now ALL credit card purchases over the NET reported to the IRS. All in one VOTE…IT PASSED!!”From Lew Rockwell Podcast:“While this bill is often referred to in the news as a “$25 billion” plan, the final amount will likely be much, much higher. The Treasury’s previously limited $2.5 billion line of credit to Fannie Mae / Freddie Mac…has instead been increased to unlimited. The Treasury [i.e. Paulson} can now buy an unlimited amount of Fannie / Freddie housing securities and stock… Once upon a time, our national currency was backed by gold. More recently, it has been backed by US Treasury securities. Now it will be backed – at least in part – by Fannie Mae / Freddie Mac housing securities – securities that are collapsing on the open market because no one else wants them.”There goes the $800,000,000,000 – Paulson’s spending money.
@ Gloomy: "The FDIC plans to pay closer attention to the blogosphere in the future. ‘We’re very mindful of the media coverage and blogs in controlling misinformation…’"What are bloggers talking about? Money. Is it the FDIC’s money? The bankers’ money? Noooo, it’s the bloggers’ money. So what is the FDIC doing in the announcement business attacking bloggers? This seems to me to be a little extracurricular. Isn’t the FDIC’s job to watch the banks? If one goes astray, close it down and pay off the depositors?A corporation a while back turned on bloggers for sniping. Turns out that’s the worse thing you can do if you’re a corporation — attack bloggers. Seems they turn around and hit you, just that much harder.
!!!!!!!!!!!!!!Congressmen (RON PAUL) make emergency landinghttp://abclocal.go.com/ktrk/story?section=news/local&id=6280419HOUSTON — A Continental Airlines flight carrying former presidential candidate Ron Paul and six other members of Congress to Washington, D.C., made an emergency landing in New Orleans on Tuesday after a loss in cabin pressure. The seven congressmen, all from Texas, were trying to get back in time for a Tuesday night vote on an aviation safety bill when the flight landed without incident, a spokesman for one of the representatives said. No injuries were reported among the 128 crew and passengers. FAA spokeswoman Lynn Tierney said Flight 458 from Houston initiated a rapid descent to bring the plane to an altitude below where adding oxygen was necessary and was given priority to land at Louis Armstrong New Orleans International Airport. Trevor Kincaid, a spokesman for passenger and Rep. Nick Lampson, said his boss told him "there was absolutely no panic on the plane." Lampson told Kincaid the plane’s oxygen masks dropped down
Totally irrelevant but…I met and spoke with Anderson Cooper this evening. He was a good guy. (not every celebrity will sit there and talk with a crazy guy that introduces himself.) Miss America
@ Miss America 23:02:27Perhaps he found the cut of your jib intriguing…SWK
Pimco’s Bill Gross: Financial Firms Will Write Down $1 Trillion by Yves Smithhttp://www.nakedcapitalism.com/2008/07/pimcos-bill-gross-financial-firms-will.htmlBond maven Bill Gross has raised his estimate of losses from the credit crunch to $1 trillion. One has to note that his firm is a large holder of Freddie and Fannie debt and he issued this pronouncement the day after the GSE rescue bill passed the House and looks certain to become law.Note also that this is far from the gloomiest view on record. Well respected analyst Frank Venerose now predicts $2 trillion in credit related losses; Hedge fund Bridgewater, whose research is read by central banks, expects $1.6 trillion in markdowns; hedge fund manager John Paulson, who bet aggressively and successfully on the subprime debt debacle, anticipates $1.3 billion.From Gross’ August newsletter:“The deflating U.S./global asset markets are much like Churchill’s Russia: a riddle wrapped in a mystery, inside an enigma. “Who is driving delevering?” asks the Financial Times, and the answer comes back, “all of us;” yet it is hard to see it except in the headlines or to fix it, given a lineup of 6.8 billion suspects….”Yves here. This is a tad disingenuous. The "who" question implies the deleveraging may not be warranted. As Veneroso stresses, it is necessary, inevitable, and long overdue. US debt totals nearly $50 trillion. GDP is a tad over $14 trillion. That gives a debt to GDP ratio of 350%. That is vastly in excess of anything this economy has seen, excluding the parabolic rise to this level. The previous peak was around 260% of GDP during the Depression, when Roaring Twenties debt reached unprecedented levels and then (in relation to GDP) spiked higher as GDP fell dramatically but the loans were slower to be written off…
@ptmLast week we discussed my purchase of "junk" US 90% silver quarters from Bulliondesk.com. I told you that there were 2 quarters missing and 3 Canadian quarters slipped into my order. I brought it to their attention and after about a week I received 5 replacement silver quarters as requested.I’m willing to give them the benefit of the doubt and chalk it up to an honest mistake, which they resolved quickly. I will probably buy from them again in the future.
Nickels are worth 8 cents. I buy two rolls every day.
Its been a while since I saw a post on scary fed charts anywhere. Here are two that should make your jaw drop. They’ve definitely worsened in the past few months.http://research.stlouisfed.org/fred2/series/BOGNONBRhttp://research.stlouisfed.org/fred2/series/BORROWLook at the time scales – this is historic. Its obvious that without the Fed’s alphabet soup, the banking system would’ve crashed months ago.
JLC-lolim laughing, i shoudnt be, but im laughingtis’s crazee..
@GLOOMY on 2008-07-24 12:31:40 wrote: new leaders are likely to be more sympathetic to industrial and provincial leaders’ beliefs that slowing growth is a bigger worry than rising inflationAs I’ve said before, this is an economic show-down. China will maintain the peg at any cost while the US will try to kill the peg at any cost. Europe will get killed in the cross-fire. China will increasing behave like a merchantilist ‘deprived’ of her ‘rightful’ share of end user markets (much like Germany felt before the WWI). Confusionism reigns high. Confused Asians like to sacrifice for the motherland. Koreans handed over their gold after the Asian financial crisis. Likewise, the Chinese will ‘hand over’ their real-estate, stock price gains and empty bellies to inflation for higher growth. China worries about slowing growth leading to rising unemployment leading to "idle mind is devil’s workshop" leading to revolution.That leaves Hank to ‘fisc’ at will.—————————————–@Boomerang Blitzkrieg on 2008-07-24 13:56:28 wrote: Bwahahahaha!Dr HB, The Germans lost the first world war. Having already experienced humiliation after ‘defaulting’ and walking away with raised hands in the war, walking away from their debts was much easier. That’s why I say that defaulting is like a tiger tasting human blood for the first time. Once a maneater always a maneater. Once a defaulter, always a defaulter. No double jeopardy there!That is the difference! —————————————–@Guest on 2008-07-24 21:57:18 wrote: 90%!!!!!Perhaps, ratings agencies forgot to put the ’90 proof’ label along with the AAA ‘soft as silk’ label. That kind of Schnapps can burn a whole in the gullet real bad real fast leading to bloody diarrhea. Guess even NAB is asking a lot of questions for its own greed. —————————————–@JLC on 2008-07-25 00:21:34 wrote: obvious that without the Fed’s alphabet soup, the banking system would’ve crashed months ago.JLC, Guess you finally get it. We’re staring at the abyss and we can only look to Ben and Hank to pull us back. RIGHT NOW.Try NOT to cut off your own nose collectively as Paul McCulley at PIMCO might say.Best,P1AQL.
looks like EU PPT’s is working early today
New Friday LB post up: What’s up with the covered bonds push?http://www.rgemonitor.com/financemarkets-monitor/253105/whats_up_with_the_covered_bond_pushand cross-posted over at londonbanker.blogspot.com where I’m happy to see so many of the kool kids in the komments.
JLC on 2008-07-25 00:03:32 – I’m willing to give Bulliondesk.com the benefit of the doubt and chalk it up to an honest mistake.Still waiting for my bag. Northwest Mint (http://bullion.nwtmint.com/) at first said it would be a month; now it will be at least two months…
U.S. banks primary borrowings from Fed biggest everThu Jul 24, 2008 5:17pm EDT http://www.reuters.com/article/ousiv/idUSN2461462320080724
@KJFI too have watched my portfolio swing wildly up and down with the market. I’ve held a lot of IVV shorts and watched it three times triple (i didn’t sell) and then go back to where I bought it. If I could have timed it, I’d have made a mint but we all know timing the markets is impossible. I still believe we will see another big down day, this time I plan to sell all IVV shorts and wait for it to go back up, then buy again. Good luck to all.
Recession??? What recession???9:58 a.m. U.S. July UMich consumer sentiment 61.29:58 a.m. U.S. July UMich consumer sentiment above 56 expected9:15 a.m. Durable goods stage upside surprise in June
Recession???? Where????10:00 a.m.U.S May new-home sales revised to 533K pace vs 512K prev est10:00 a.m.U.S June new-home sales above 513K cycle-low set in March10:00 a.m.U.S. June new-home sales stronger than 501,000 pace expected
staycationing : movies/festivals/music in the your local park are now the driveins of yesteryear. Donations to the your local food bank are welcomed. Oh! kids, bring your chalk to help decorate the sidewalks with your creative genius.
JLC on 2008-07-25 00:21:34 – http://research.stlouisfed.org/fred2/series/BOGNONBRhttp://research.stlouisfed.org/fred2/series/BORROWThanks for reminding me to look at those figures again. I think it was only a -50 billion the last time I looked. Now it’s -150 billion. As you know, these figures do not include loans to investment banks or primary dealers, and others that add up to almost $500 billion.So the downward spikes on those graphs need to be lengthened by a factor of three to show todays true debt! Moreover, this does not include future debt incurred through the Fannie May or Freddie Mac obligations.So the real message of these graphs is the historical magnitude of debt and what this will do to our future economy! My bet is on inflation, lots of it too.
In this week’s cartoon, “Pickles,” Earl reads in the newspaper that it costs the government almost two cents to make a one cent penny. “So,” he says, “the old phrase ‘a penny saved is a penny earned’ is a crock, because if you have a penny, you’re costing everyone else two!”Imagine what Earl could have said if instead of paper dollars each dollar was in coin. And Wall Street would be telling savers, “How dare you keep a stack of those without spending them. You’re costing us plenty.” Fortunately, Chairman Bernanke doesn’t have to slave away at the mint everyday; a telephone call and a few taps of the zero key on the electronic keyboard, and voila! he’s got it!
looks like today’s market will be a non-event unless we get some real news to move the markets. I guess everyone is waiting until the Senate votes on the F&F bailout this Saturday. I’ve already contacted my senators and told them to vote NO. I doubt this will help but I need, for my conscious sake, to do it. check-out market-ticker.denninger.net. This guy really has some good things to say, allbeit a little over the top.
@ Guest on 2008-07-25 09:01:33I think you should have a closer look at the data.From Reuters/University of Michigan Surveys of Consumers :“Dead Cat Bounce” in Confidence. “Even after the small July gain, the overall levelof consumer confidence is dismal and still points toward declines in the pace of spending in late 2008 and early 2009,”according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers“It is more likely that the gains in confidence reflect a“dead cat bounce,” a phenomena has been repeatedly observed over the past fifty years: following a steep decline inconfidence a small gain is recorded before confidence resumes its downward slide,” Curtin explained.From US Census Bureau: "This (i.e new house sales) is 0.6 percent (±11.3%)* below the revised May rate."The interpretation is that the change could be anywhere between a decrease of 11.7 % to an an increase of 10.7%. It is difficult to draw any meaningful conclusions from such imprecise data.
Should be a decrease of 11.9%. There confidence level is rather liberal, namely 90%.
democratic scum politician will make sure housing bill is passed to bailout speculator and lenders. wait until democrats again power in election, tsunami of bailouts will come. USA become socialists country.
Recession talk is a scam to enable cheap money pumping, lower interest rate, and execuses to do tsunami of free rebate checks and bailouts to lazy people
"Why Bush’s Impeachment Is Necessary"by Ed Ciaccio"On Friday, July 25, 2008, the House Judiciary committee will finally hold a hearing about George W. Bush’s excessive abuses and unconstitutional expansion of his executive powers. But Judiciary Committee Chairman John Conyers, a Democrat heeding the proclamation of Speaker Nancy Pelosi that impeachment is "off the table," has already declared that this hearing will not lead to impeachment. Conyers, Pelosi, and all members of Congress who oppose the impeachment of George W. Bush are betraying the oath they all swore when they took office and should be condemned for this betrayal. Here is why the impeachment of George W. Bush is necessary.We now know that, in January 2001, soon after taking office, but eight months before the 9/11 terrorist attacks, Dick Cheney’s energy task force, consisting of representatives of the oil and natural gas industries, but excluding environmentalists, held meetings using maps of Iraq’s oil fields. As even Alan Greenspan finally admitted recently, the war was "about oil."We also now know that representatives of Afghanistan’s Taliban government were in the U.S. attempting to negotiate a deal with Unocal, with Bush Administration help, to build oil and natural gas pipelines from the Caspian Sea through Afghanistan to Pakistan, negotiations that failed in July 2001. That, two months prior to the 9/11 attacks, is when the Bush Administration decided to attack Afghanistan to remove the Taliban government by November 2001. The 9/11 attacks then moved up the Afghanistan attack by one month, to October.The recently-released Phase II of the Senate Intelligence Committee Report on the lead-up to the Iraq invasion makes clear that Bush, Cheney, Rumsfeld, Rice, and Wolfowitz, among many others in the Bush Administration, in lying about the threat allegedly posed by Iraq’s non-existent weapons of mass destruction, links to al-Qaeda, and connections to the 9/11/01 terrorist attacks, perpetrated fraud on the American people, which resulted in the unnecessary, avoidable deaths of over 4,100 U.S. soldiers and the maiming of tens of thousands more. From the National Intelligence Estimate (NIE) of early October 2002, the Bush Administration knew the case against Iraq was weak and circumstantial, at best. Yet they continued to beat the drums for war with exaggerated threats ("a mushroom cloud") to mislead the U.S. into war. Such deliberate fraud resulting in unnecessary, avoidable deaths and suffering to U.S. citizens is a felony capital crime punishable by life imprisonment or the death penalty. Deliberately causing the unnecessary deaths of U.S. military personnel also constitutes treason against the United States.The post-World War II Nuremberg Trials declared waging a preventive war of aggression to be "the supreme international crime." Bush’s unnecessary bombing and invasion of Iraq was such a preventive war of aggression. In its wake, U.S. forces have tortured; kidnapped for torture (extraordinary rendition); used napalm (Mark-77 firebombs), depleted uranium, white phosphorous, cluster bombs, and many other indiscriminate weapons of mass destruction that killed and maimed hundreds of thousands of Iraqi civilians; and caused over four million Iraqi refugees (ethnic cleansing). All of these are war crimes punishable by death.Kofi Annan, while Secretary General of the United Nations, declared that the U.S. attack on Iraq was a violation of the UN Charter. U.S. forces’ mistreatment and torture of prisoners is a violation of the Geneva Conventions. These violations of international law are also violations of Article VI, Clause 2 of the U.S. Constitution, the Supremacy Clause.In December 2005, Bush admitted he violated FISA many times, which is a felony punishable by five years’ imprisonment, and a violation of the Fourth Amendment of our Constitution, which all members of our government swore to uphold, protect, and defend, "against all enemies, foreign and domestic."All these clear violations of international laws and the U.S. Constitution are egregious offenses that more than constitute the "high crimes and misdemeanors" called for by our Constitution as being necessary to merit impeachment.Much more serious than Bill Clinton’s lies under oath about his extramarital consensual sexual affair with Monica Lewinsky that caused his impeachment, these lethal crimes must be punished by impeachment so that the perpetrators are held legally accountable and so that no future president ever dares to commit such crimes again.Members of Congress who oppose this necessary impeachment of George W. Bush, required by our Constitution for committing so many serious criminal offenses, are not only betraying their oath of office, but also their responsibility to the citizens of the United States.Knowing that many of them would, themselves, be exposed as complicit in contributing to and/or condoning these serious crimes, these anti-impeachment, anti-Constitution Democratic and Republican members of Congress have blocked the one prescribed remedy for the Bush Administration’s years of criminal behavior. They have clearly chosen their own reputations and political careers over what is necessary to serve, and, indeed, save, our democratic republic from even further deterioration into an authoritarian state with an excessively powerful chief executive and weakened legislative and judicial branches.In doing so, these selfish members of Congress have shamed themselves, earned condemnation from us, and endangered our future. Voting to re-elect any of these traitors to our Constitution, our country, and us, is voting against our best interests and, as such, a colossal act of folly. We must all keep this in mind come Election Day. It is the strongest argument for the dismantling of the corrupt two-party system that has led us so far from our hard-won civil liberties, our principles, and our values."http://www.buzzflash.com/articles/contributors/1700
@ The SwedeThanks for reminding everyone of what scam statistics is used by Census Bureau. If they were still in School I guess they would have failed miserably in their Introductory Course to Statistics. What a scam, 11.7% should be called unconfidence factor. And even with that crappy statistics, the total months of supply (new + existing) would be somewhere around 2 years (excluding shadow REO inventory)As of the consumer sentiment, check this out:http://research.stlouisfed.org/fred2/series/UMCSENT/
@AfA on 2008-07-25 10:49:56I use such data as examples or questions in exams for my students here in Sweden in courses in Introductory Statistics.The Swedish official data is by the way not much better.
housing price will reach some bottom after housing bill is passed. buy stock now!!! gov bailouts with unlimited dollar. long stock now!!
@ptm & P1AQLThe default or print fork in the road is fast approaching. Those Fed charts, combined with all the shenanigans in the housing bailout bill and talk of a 2nd stimulus, send a strong signal that we will indeed try to print our way out of this mess. The politicians just don’t want to face the music, and hope that if they keep throwing money at the problem it will go away without J6P even knowing about it. How inconvenient for a recession to pop up in an election year!It has worked several times in the past, but never with a problem of this magnitude. And our economic system is much more unstable now than it was then, with record deficits & debt and almost no savings.It ain’t gonna be pretty.
Also,New orders of manufactured durable goods increased by 0.8%. Excluding defense, they increased by 0.1%. Where are the rebate checks? Or that means the checks are spent on guns and al.?Most of demand is driven by exports. If we only had a real manufacturing base!
THE FINANCIAL SECTOR IS NOW A WARD OF THE STATE-GEE I WISH I’D SAID THATFrom link by Guest on 2008-07-25 08:36:18"On the day of July 23, banks’ primary credit borrowings rose to $17.68 billion, the highest borrowing since September 12th 2001 when banks borrowed $45.5 billion in a single day."Who else is going to lend to them?" said Howard Simons, strategist with Bianco Research in Chicago."The financial sector, everyone whose business is essentially lending money is now a ward of the state. They could lend to each other but they don’t trust each other. They can’t raise money in the equity market. There is nowhere else to turn," Simons said."http://www.reuters.com/article/ousiv/idUSN2461462320080724
IS IT AN FDIC FRIDAY?It seems like Friday would be the best day for FDIC to take over a large bank (see IndyMac), as it gives them the weekend to get organized. I wonder if today will be WAMU’s day.NEW YORK, July 25 (Reuters) – Credit protection costs on Washington Mutual Inc rose sharply on Friday, a day after an analyst said some creditors reduced their exposure to the largest U.S. savings and loan.
HELP WANTED WITH BAILOUT LIST The question is: To what extent, outside of the financial sector, will our "capitalist" economy become socialized? I was trying to come up with a list of companies, other than those in the financial sector, that will likely be bailed out. I would start with Ford and GM, and somebody mentioned the airlines (anybody want to guess at some specific companies?). Any other candidates?
Nouriel, Is it time to revise your estimates downward concerning housing price declines?Fitch Ratings said Thursday that it had enhanced its U.S. residential mortgage loss mode … Fitch’s revisions suggest … a very bearish take on housing prices over the next five years: Fitch said in its report that it is expecting home prices to decline by an average of 25 percent in real terms [inflation adjusted] at the national level over the next five years, starting from the second quarter of 2008.And that’s the base case scenario.http://calculatedrisk.blogspot.com/
1:49 p.m.S&P may lower Freddie, Fannie by ‘one to two notches’
I couldn’t think of a more appropriate place to post this oped from today’s edition of the WSJ.Oh and by the way, if you consider putting panties on someone’s head torture, come by and see me some time!!!http://online.wsj.com/article/SB121694272101982825.html?mod=opinion_main_commentariesBy DAVID RANSONJuly 25, 2008; Page A15Many newspaper readers, recalling what they read at the beginning of this year, must be rubbing their eyes. How can the economy still be functioning despite the perfect storm of recession and housing collapse that was supposed to engulf it?Although markets are volatile and segments of the country are having a hard time, the national output is up, not down, this year. How has the economy pulled this off? Is there something the pessimists were missing?The answer is yes, and here’s why. People tend to anthropomorphize the world around them, and not just in economics. We look at the outside world and assume that it is governed in the same way as our own lives. For example, we’re mystified by Mother Nature’s apparent heartlessness and large-scale disregard for what we cherish: order, justice and the sanctity of life. We still resist the notion that we can’t dictate the course of the Mississippi, control the way the planet evolves, or equalize the distribution of income.The same parochial streak in human nature is rife in economic commentary. In the context of a household or a business, debt is a burden and can become a threat. But for society as a whole, debt finance is a prime means of capitalizing production and growth.It’s extraordinary, then, that in national debate the narrow view drowns out the broad. Aggregate private debt and trade deficits are widely regarded with equal suspicion and fear — even by "experts." Instead of celebrating the role that private debt has played in creating prosperity, many blame "excessive" debt when things go wrong, and cite it as a basis for pessimism.At the micro level, the failure of an institution is often a disaster to those with a personal stake. But from an overall perspective, when one institution becomes insolvent, another can be relied on to pick up its functions.Again, it’s the localized human costs that exercise the political imagination. The benefits of systemic adaptability are taken for granted. Government responds to constituencies and takes great pains to preserve the existing institutional structure, sometimes guaranteeing or bailing out failing firms. It’s widely assumed that a large enough wave of bankruptcies will bring the economy down. Little or no credit is given to the ability of the economic system to heal itself and find its way back to vitality.What’s excessive now is fear, not debt: Fears of insolvency and private-sector indebtedness are misplaced and harmful. They place obstacles in the way of ill-used capital that seeks to move toward safer and more profitable employment. They plunge the stock market into turbulence. They push government into hasty actions that intrude more aggressively into private choices and decisions. They undercut the market-price system, without which the economy cannot allocate resources productively. Last but not least, these fears trigger the proverbial false alarm in a crowded theater, sending everyone stampeding for the exits.Economists have a professional duty to transmit the more broad-minded vision of the world that their discipline reveals. But economists are parochial too.There’s an old saying that if your neighbors are losing their jobs it’s a recession; if you are losing yours it’s a depression. It’s therefore unfortunate that such a large fraction of prominent forecasters hails from the financial community. Their views are colored by the turmoil suffered in their industry. In an earlier generation, many of the best-known forecasters ran economics departments in nonfinancial companies. Today these are a dying breed, thanks to the past decades of corporate cost-cutting.We are not a nation of whiners, but we do have a lot of alarmists. It is becoming politically incorrect to suggest that the economy is basically sound.We shouldn’t expect forecasters to shrug off the depressing effects of what’s happening in their own back yards. This is human nature. We just need to keep things in perspective when we listen to them. A more objective diagnosis is especially needed during an election year, in which many unfounded fears are broadcast and amplified by the media.A natural system has built-in redundancy. It manages and heals itself. The economic system is no exception. On this page about 10 years ago, Penny Russell and I argued against the idea that the economy is a "house of cards," susceptible to collapse as soon as a few cards are dislodged. We suggested that it’s more like a beehive. The future of the hive does not depend on full employment for all the worker bees. In fact, an accident can put many bees out of action without compromising the hive as a whole.Metaphors are important. If they are off the mark, they can deceive. But good metaphors can help maintain perspective amid chaos. The community of banks, for example, can be likened to players in a game of musical chairs. As the music stops, some comfortable backsides are thrown out to be replaced with fresh ones. When the music resumes, wealth has been redistributed, and livelihoods have been turned upside down, but the game goes on.Most businesses and workers hurt by this financial chaos are as innocent as those whose farms were flooded by torrential rains in Iowa. In nature’s rough justice, short-sighted decisions by some can cause much hardship for others. Yet despite the human tragedies at the local level, the system as a whole muddles through.Failure to recognize this endangers the mental health of our society. We create a far bigger tragedy when we lose heart, change the rules of the game, or act recklessly with quick fixes.Mr. Ranson is head of research at H.C. Wainwright Economics.
1:50 p.m. S&P: Both Freddie Mac, Fannie Mae face weak earnings
Today is NO EVENT Friday!Bill Poole just said on Bloomberg that Fannie and Freedie should be privatized and compete just like everyone else without the backing of the US government. I agree.It’ll never happen in my lifetime! It may get nationalized completetly because the US Government will not allow China et al to lose $$ on their F&F investments because they might stop financing the USA!Just my thoughts! Have a great weekend!
"Nickels are worth 8 cents. I buy two rolls every day.Written by aleister perdurabo on 2008-07-25 00:15:34"According to coinflation.com, $0.0535044 is the melt value for the 1946-2008 nickel on July 25, 2008.http://www.coinflation.com/coins/1946-2007-Jefferson-Nickel-Value.html
MUSICAL CHAIRS@ Big Carbon on 2008-07-25 12:57:29"Metaphors are important. If they are off the mark, they can deceive. But good metaphors can help maintain perspective amid chaos. The community of banks, for example, can be likened to players in a game of musical chairs. As the music stops, some comfortable backsides are thrown out to be replaced with fresh ones. When the music resumes, wealth has been redistributed, and livelihoods have been turned upside down, but the game goes on."It’s musical chairs all right. Unfortunately the US taxpayer is going to be left without a chair. And concerning "When the music resumes, wealth has been redistributed, and livelihoods have been turned upside down, but the game goes on.", never has it said so well.
Reuters reported yesterday, that SEC chairman Chris Coxhad reassured Congress that implementation of the changes for accounting off balance sheet QSPE (qualified special purpose entities)to include them on the balance sheets of Financial Institutions would take years. How can he say what the FASB is going to do? How can the alleged TRANSPARENCY OF OUR SYSTEM survive a delay in showing the true accounting? Are we going to have gradual incremental bailouts while simultaneously understating the Zombie state of the Financial Institutions? The in depth discussion of this subject has dissapeared. I hope the Professor can enlighten us as to how this Pivotal Problem is going to be ignored. The accounting is false and the reporters are not reporting!!! Is it going to be Socialize the Risk and Hide the Books? Is this a CYAstrategy for Congress, so they can downplay the total bill of the bailout?
NAR PUBLICATIONS AND PREPUBLICATIONS"Yes, as NAR President Richard Gaylord wisely advises, home buyers should take a "long-term view" to building wealth. As opposed to the apparently shorter-term views written by (then-NAR chief economist) David Lereah: February, 2005: Why the Real Estate Boom Will Not Bust – And How You Can Profit From ItApril, 2007: All Real Estate Is Local: What You Need to Know to Profit in Real Estate – in a Buyer’s and a Seller’s MarketOther forthcoming titles in this series:2009: "Why the Phrase "Real Estate Boom" is Often Misunderstood to Mean Higher Prices and How You Can Pray for Them." 2010: "Why the Real Estate Boom Will Soon Bounce Back and How to Eventually Profit From It."2011: "Why Did I Have to Write "The Real Estate Boom Will Not Bust Through the End of the Decade" and How Did I Not Realize How Long A Decade Really Is?"2012: "Oh, Dear God, Please, Please Let the Real Estate Boom Bounce Back… and How You Can Profit From It."2013: "Please, Please, Just Let the Real Estate Boom Come Back This One Time for This One House and How You Can Break Even From It."2014: "Why I Am Willing to Accept a Small Loss of 35% On the Real Estate Boom and No Longer Care About How to Profit From It."2015: "Can I Maybe Borrow a Couple Dollars Off You Until the Real Estate Bust is Over?"http://www.minyanville.com/articles/wm-wfc-boom-depression-summer-bust/index/a/18191
‘Stealth’ Housing Bailout: It’s Bigger Than You ThinkWith Congress on the eve of passing a historic bill that would give the Treasury a blank check to lend money to Fannie Mae and Freddie Mac, it’s worth looking at how much money the government has already pumped into the system during the housing crisis. The numbers are staggering and likely to get much larger. What we have here is, through a variety of programs, a stealth bailout where more than a trillion dollars of taxpayer guarantees have been extended to the housing market, both to keep it going and to clean up the mess from the past. I looked at the changes over the past year to the balance sheets of four governmental and quasi-governmental agencies—the Federal Reserve, the Federal Home Loan Banks, the Federal Housing Administration and Fannie Mae and Freddie Mac. The objective was to see how much additional financing they have provided to the housing market. The total: $1.43 trillionhttp://www.cnbc.com/id/25851253
Save number 2 on the market today…gotta finish green and positive before the big vote to rape the us taxpayer relentlessly…
Let the banks die.1. As for the money they owe us (deposits), we’ll have to print that anyway. Print it and let the FDIC pay it out.2. As for the money we owe them (bank loans, mortgages, etc.) you’re supposed to have a Jubilee every 50 years, it’s time.
What is the financial "system"? In the minds of our "leaders", it is identically the big banks, especially the international broker/dealers and international money-center banks.So what is a "systemic crisis"? Something that could hurt those banks.I wouldn’t mind a systemic crisis. As I say above, let the banks die.
@ Outerbeltway et al, Re: Capital formation & InnovationI think I have been misunderstood. My point was that real innovation has been destroyed or at least distorted by credit and leverage. Both cheap credit and leverage create investment laxity. In this week’s edition (hat tip OR), Bill Gross says “Credit and debt finance is, in fact, the mother’s milk of capitalism: without it, entrepreneurs may transact, but economic progress would be most difficult with seashells or gold bars for mediums of exchange.”And in the WSJ Op-Ed posted above by Big Carbon “But for society as a whole, debt finance is a prime means of capitalizing production and growth.” This is, according to me, a big heresy. What keeps free-markets going and capitalism alive is CAPITAL not credit (this is why it is called capitalism).As an investor/creditor, even if you undertake underwriting/due diligence on the borrower, you are not motivated to “dig” very deep as you are interested only in whether the borrower can pay his interests (not principal) or at least the corresponding fees. As an entrepreneur when you have two projects one good and other less good, you don’t need to choose only one, you can pursue both. The decision to follow two projects instead of only one pushes you to underestimate the risk involved and to outsource. The mispricing of risk pushes others to offer you services cheaper than they can otherwise afford (this is an emerging issue for example in the PPP – public-private partnership) I think I didn’t make myself clear the first time so I give an example:Imagine you are an entrepreneur with an innovative widget. You need capital. You go to a business angel for equity and then a loan from a bank (it was very hard at the beginning but you succeeded). Now you are a medium sized company. Thanks to the efforts of your R&D, you have the prototype of Widget 2.0 which is the same as the first one but comes in different colors. Your bank offers you a credit line before you ask for one at low interests and with no collaterals (why? Because they trust you and for other unspoken reasons – their profit comes from fees and because of low short term rates …) In order to mitigate your credit risk, you decide to go public. A big investment bank underwrites your equity offering (using borrowed money) and sells your stocks in the secondary market to investors and brokers/dealers who are mostly levered and buying on margin (using credit). You get even bigger and you issue AAA-rated bonds that are bought by Chinese banks. Then you receive an offer from a Private Equity company which is itself financed by Arab SWFs. Both Chinese bank and Arab SWF, because of the peg of their currency to the dollar, have been indirectly leveraged using increasing reserves by their respective central banks. Thanks to all this financing, you are able to produce a huge quantity of widgets which you sell all over the world at cheap prices. Others see you are making good money and they decide to join the market to compete against you driving prices even lower. Thanks to cheap labor, transportation costs you decide to offshore your production, then you decided to outsource your accounting and IT and you only focus on R&D. All economic players, almost without exception, lose all interest in managing business risk and start managing credit risk, playing on the upward sloping yield curve, borrowing long and lending short.So here nobody see the risks because nobody cares about them up until all unsystematic risk becomes systematic while nobody is paying attention: Equity is financed through debt, debt is leveraged, diversification kills differentiation, specialization destroys integration and leads to commoditization– creating a rigid but fragile system. Rigid because it is enable to quickly adapt without major pain and losses and is inclined to perpetuate the status-quo only to avoid sunk cost loss (I guess the only reason keeping the Chinese from dumping dollars and US treasuries). And fragile because of the fact that transportation or labor costs (in China) will increase in the future (an inevitable result because of the big competition you draw to the market, huge excess production, resulting in cheap prices, which leads to more consumption waste by end-users, resulting in more supply, which results in more demand for raw materials, labor in outsourcing countries, transportation … all of which are limited in quantity) will squeeze your profits making you and your competitors inclined to raise prices (consumers will dump your products because they realize they don’t actually need them), putting more pressure and chain reaction on your lenders. All that because nobody wanted to assume the original business risk. Make no mistake, none of these is bad, it is their mass practice that is dangerous: the combination of free markets and cheap money. As I said earlier, it is the willingness to institutionalize an idea (free markets, capitalism, housing IS the American dream …) by politicians that ends up destroying the system. This is because most, if not all, ideas and strategies are self-defeating; they work only when they are narrowly practiced.Capital financing (e.g. equity) means assuming business risk. And as an investor, if you put all your saved capital (without any leverage or credit) to invest in a company, you are much more inclined to undertake full and deep due diligence (I think it is a problem of willingness rather than ability to do that that makes bank financing even more risky and creates risk underestimation). Capital through equity through saving creates a strict discipline on investments. In this week’s edition of Business Week, there is an article about “The Best Global Design of 2008” in which are featured, as examples, an ugly camcorder with a built-in USB key, an anti-bacteria earphone, a garbage can, and fire-fighter truck especially designed for airports. This is ridiculous and pathetic! Who would have put their savings, efforts, time to design products like these unless there was plenty of cheap credit? I am not advocating that debt should be abolished or that all investment has to be made debt-free, but leverage should never be allowed to exceed 1 (Debt=Equity) and that goes for the whole system and for all enterprises. I do not have exact solutions like those that have been proposed here and I don’t think that local-financing … are long-term solutions or generalizable, and even if they were, it won’t be long before we see their problems. Again, it is the institutionalization of an idea that makes it ideology and in this situation, all ideas are self-defeating.So to sum it up: ABOLISH THE TIME VALUE OF MONEY
"Let the banks die."That will not happen with helicopter Ben as head of FED. He will pump alots of dollar into economy. That is he and his mate Paulson, they will pump tons of dollar into global economy.
4990281 beers on the wall.
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