The summation at the end is the biggest reason why this administration is failing."What we've been focused on is implementing the financial rescue package and the efforts of the Fed to restore growth, to free up credit so that the economy can return to more normal practices and get healthy again. And that's the most important thing we can do right now."
Freeing up credit does nothing when there is de-leveraging and the appetite for borrowing is dropping. Furthermore job losses are accelerating and bank losses are mounting. A complete lack of economic understanding is occurring. Dumping money into the economy does not necessarily stimulate growth although it can stimulate inflation if overdone. Real economic contraction occurs through a drop in goods and services produced. The effect of decreasing money supply is a result of that fact. Increasing money supply without a corresponding decrease in assets leads down a inflationary recession not out of a recession.
Stopping the flow of layoffs, increasing demand our of more efficient production/lower prices, increasing demand for new products with new technology (computers, Internet, biotech, medical advancements, etc.), and creating stability through assurances your economic future is safe is a way to revitalize the economy. It is not by having a bank lottery every week, bailout the bad company quarterly givaway, and promoting instability through an erratic Fed and Treasury policy.
Although direct infusions of assets into banks gives you more bang for your buck, when Paulson sold TARP to the public he essentially lied. If you are a little more forgiving you could say he didn't keep his word. Either way, they are promoting erratic behavior and contributing to instability. They are the contributing to the cause of a collapse not really helping.
Anyway, since it's the festive season, let's hope for a better 2009 since we are getting a lump of coal this year.
I have a theory, mind you take it with a grain of salt. I think the market participants have come to realize we are in a downward sku environment. Unlike an upward sku environment when the market is favored to rise gradually with a smaller percentage chance for sharper declines, the reverse is true.
That would tend to imply that a lower volatility implies that the market should continue a slow unwinding and that the odds for a sharp high percentage rally is conversely fading (after the unteenth time we have gtot sharp rallies and then regressed back down to the low 8,000s in the Dow).
The more conventional thinking is that we are in a trading range between 7,500 and 9,000 which I ascribe to as well until funamentals markedly change. Being the holiday, I hope fundamentals change for the better next year, but hope is just that... hope. Not bad for the holiday season.
In Trying to Prevent Another Depression, Government Gets it Wrong [View article]
Steven Hansen: Very well thought out article. Sorry for reading it late.
The recession of 2008 may also be equally ponderous in the future. Although historians will cite the housing bubble, how many will recall the ill laid plans by bankers to hedge themselves out of losses by making a $50 trillion derivatives market that was specifically created to avoid any regulation whatsoever. Thankfully, although no one knows the full extent of this shadow market e are at least aware of the CDO and CDS market and how it is eating away at the fabric of our financial strength.
In 1929 who knows what machinations were hatched in the back rooms that went bad. That is the reason that full transparency is a must in order for our economic well being and health. The secondary benefit is for economists and historians; a complete and accurate record of economic calamities.
I don't know about Santa but I do know a few fat bankers and their bag is full of red colored results.
On a factual note, although statistically you win making a short term Christmas bet, 13% of the time you loose money. If you look at the dynamics for the rally it's usually due to the holiday season not being as bad as forecasted or better. Also it is stimulated by fund managers who get new cash infusion from employees with Christmas bonuses who have nothing to do with the money. And it is topped off by Corporations who allocate profits from their last fiscal year.
I would not bet that this holiday season will be great (look around the shopping mall this season and compare it to the last one). I would not bet on big mutual fund deposits, most mutual funds, especially hedge funds are hoarding cash to pay off the clients withdrawing their funds. And although corporations made money this year, they are not likely to be spending it gambling as much as making sure they have enough money to meet payroll, fixed income, and inventory costs.
This year when money is scarce losing amy money is very very bad. In fact it is so bad short term treasuries are flirting into the negative interest zone. Proof positive about how bad it is to risk your money.
Mr. Saut, the fed lowering rates to 0 is a signal that they have run out of bullets and now only have 1/2 a TARP to cover them up during the cold rainy season. The good news, as you pointed out is the dollar weakened. Every government wants to weaken their currency so they can export their way out of this downturn on the backs of the unwary foreign consumer.
Does this sound like a recipe for success? In fact, it's a recipe for disaster and protectionism. If it gets too bad it can plummet a global downturn into a depression.
Well anyway, let's not dwell on it too much and enjoy our roasted marshmallows and holiday festivities now.
A Trillion Dollars Ain't What it Used to Be [View article]
Shhh Robert Nabloid, don't let them know about the big numbers. It's too tempting for them to handle.
Good graph and posting Paul Kedrosky. It is true, I expect government spending projects by most countries early 2009. I say spending not stimulus because the governments that do them tend not to spend the money efficiently and often end up sucking money out of the real economy to pay for them. So they appear to be spending but if people believe they 1) won't produce tangible goods and services, 2) won't produce long term employment, 3) will be offset by taxes and/or inflation in the long run 4) will be slow to implement and inefficiently run then the public's sentiment towards them will more than offset any apparent benefit.
Sadly, politicians need tokenism. For them it makes the world go round and the votes come in. It's the modern day rain dance. I make big money fall from the sky as Bernake said was the solution to any economic slowdown. Really... can't we get a better Fed today rather than waiting until the end of January? We need a Christmas present.
Sorry for being grim. I mean to wish everyone a happy holiday.
Oil is low, why not buy it for the long term, bonds are low they are bound to go up. Stocks may go up, keep an eye on it. I sense a distinct lack of analysis and lots of snake oil.
The 12-14 month period for recession is an often cited statistic. So let me revisit the history of this market tidbit.
First, pundits derided anyone saying there was a recession until November. Then they said the recession has been going on for 3 quarters and that most recessions only last 1-1.5 years. So hmmm, naturally the market is a buy huh? Just like they said it was a buy in June, July, and August. Then September and October it was a once in a lifetime opportunity. Now it's a great stocking stuffer.
Because I wish a happy holiday to everyone I suggest that you be prudent this year and make sure you save cash to get through this down period. Have a safe Christmas/Hanukkah/Win... Solstice/New Year and drive carefully.
T-Bills: Bubble, Bubble, Toil and Trouble [View article]
I suppose the safest way quasi-short bonds is by not owning them. If you park your money in bonds I suggest short term bonds just in case. I would agree that the extra 1 or 2% for longer term maturities are not really worth the risk.
If you are a big bank, I'm sure they are making up the difference charging huge spreads on the few loans they do actually make. Which is part of the problem.
Also may I point out that the Fed is begging for $ by paying interest on bank deposits (encouraging them to take money out of the system and put it in the valut where no one can reach it) to fuel it's debt buying binge and balance sheet inflation. This is itself deflationary. So in actuality they are deflating at the same time they are inflating.
If you are a fund manager, if you haven't been making money on volatility plays you are probably under water. The tough part in 2009 will be that just about everyone is now making them and the premiums are getting bubbly (fit's nicely with the theme of the article lol).
Governments Tested as Global Economies Enter Dangerous Part of the Crisis [View article]
I agree that the longer this downturn lasts the more ugly it will get. Luckily the US doesn't have a history of revolution.
China is much more worrisome. If their economy hasn't even had a year of negative growth and they are already coming unhinged I hate to see what happens when they experience a real downturn.
As for protectionism. I think every player and every government is eying that option. Unfortunately that hurts everyone. But no politician is paid to think about the world.
The US is also set to engage in protectionism though. Bailouts are mild forms of protectionism. And the US is liable to start imposing more import restrictions (fines, levys, tariffs, or other trade barriers) although too many may actually ignite inflation. So, I think the US protectionism will be more constrained than Europe, Russia, etc.
Anyway, it doesn't look good going into 2009 even if some people are saying we should get a technical rally in January. That may be so but I think we need more than a technical rally to turn the economic tides.
James Grant Wants to Know: Who Will Buy Our Greenbacks? [View article]
Right now Asia is buying as they have been. This is a double edged sword. While we reap the rewards of cheap goods we slowly loose our financial independence. We are already tied very close to them right now in a somewhat symbiotic relationship. The question remains as the US keeps running roughshod over it's own finances will this relationship become parasitic.
This can occur either by the US essentially getting everything for nothing (debasing their currency so much their dollars become worthless), or by foreign debt holders forcing the US into a Wold Bank type austerity program with payments to foreign countries higher than Germany paid as a percent of GDP to the Allies after WWI? Of course if the US debases like this it will be a cold day in hell before anyone else starts accumulating US treasuries again. And if the second case occurs, it will be the end of Asia's export fueled expansion.
In order to keep our balance we need some level of fiscal restraint and de-leveraging. How much is healthy and if we can control it is the question. I think James Grant is right in the fact Bernake and the current administration have no real control which bodes very ill. However, that is not to say Volker or another person is unable to right the ship with some amount of pain. I'm sure they can. All is not lost.
LOL how do you invest in the precession of the earth events? Can I buy stock in lava demons and winged men? Oh, and 7 scrolls that taste bitter and sweet and pour pestilence upon man turning 1/3 of the seas to blood?
Actually never mind. I don't exactly want to bet on these things after all.
Giving Even Odds on a Holiday Rally [View article]
Wow... I'd comment except for the fact I'm puking in the toilet about now. And you say the auto workers are overpaid? I think I'd start with Wall Street analysts like Ms. Bartels.
Did (or Didn't) Japan Just Reintroduce Quantitative Easing? [View article]
Short response, yes they are but it's best to deny the facts since Japanese people are not in the mood to retest a failed initiative that has punished their people for over 15 years.
The long response is, they can defend it as a reaction to try to weaken their currency which is too strong to help them export their way out of their economic morass. The only problem is, every other country is also struggling to make their currencies worthless which ends up negating everyone's efforts to weaken their currency relative to one another.
This is the beginning of economic infighting similar to what happened in the great depression. If things get worse we get protectionism and some 3rd world countries (possibly even China) start revolting.
We can all hope this doesn't happen. But it is a clear and present danger. Gee, now I sound like Tom Clancy.
Deconstructing the Fed's Balance Sheet [View article]
An interesting note to this is what I have mentioned a few times before. Whereas the Fed and Treasury are publicly stating they are supporting quantitative easing and inflating the money supply, they are actually contracting the money supply. By paying interest on Fed deposits they are encouraging banks to deposit more than the necessary amount with them choking off the money supply and money multiplier.
It is true if the Fed can issue more money on Treasury debt and issue money by buying public debt they essentially can issue an infinite amounts of money since the first increases the public debt and the buying the public debt can increase even more public debt. However, the ugly part about sanitizing the loss and paying interest still rears it's ugly head. So the Fed and the Treasury have been squeezing all the markets to get as much cash it can to pay for the bad debt (presumably in the future). So in effect, without a mechanism for purging the system of all the bad debt, and with a general intolerance for the public to shoulder bank bad debt losses no real inflationary or stimulus is being done. Quite the opposite, asides from TARP which also has the same problem. No one wants it to take the loss either although the public surely is.
So the government's actions stagger on deflating the market and putting off recognizing and allocating the losses until later. There will be no good time when the public will happily accept the losses. So just like Japan, except this cycle to continue on and on and on. Just like what happened in Japan.
You will know when the downturn is over because there will be financial blood in the street. Someone someday will have to atone for the loss (bankruptcy, public write offs, prison time, and the like). That would be the good result.
The bad one is where we choose to let banks spend decades of long slow write offs using interest on your debt to pay off the excesses of the last few years as slowly as a you pay off a 20-30 year mortgage. All while an entire generation languishes in a prolonged recession.
Newspapers: Any Options Beyond Cutting, Selling or Closing? [View article]
It is funny, if you pick out 3 random newspapers and then read 3 online news sites you will know why they are going out of business. For one thing 90% of the articles are ripped from the same source, usually the associated press. In this case, you get the news much faster online and the quality is 0% different.
For another thing the newspaper these days is about 20-40% trash advertisements and another 20-40% are articles only about 5% of the people would ever read and only when they are bored out of their gourd. Simply stated, they are not able to target users interest or needs the way we expect this day and age.
If you want to start being eco-friendly, cancel your newspaper service and print out any news item on your printer that you want as a hard copy. You'll lower the paper content from 110 large pages of trash to about 7 pages. Plus you'll also save those little green papers you stick in your wallet to buy stuff.
White House Sees Bleak Q4 [View article]
Freeing up credit does nothing when there is de-leveraging and the appetite for borrowing is dropping. Furthermore job losses are accelerating and bank losses are mounting. A complete lack of economic understanding is occurring. Dumping money into the economy does not necessarily stimulate growth although it can stimulate inflation if overdone. Real economic contraction occurs through a drop in goods and services produced. The effect of decreasing money supply is a result of that fact. Increasing money supply without a corresponding decrease in assets leads down a inflationary recession not out of a recession.
Stopping the flow of layoffs, increasing demand our of more efficient production/lower prices, increasing demand for new products with new technology (computers, Internet, biotech, medical advancements, etc.), and creating stability through assurances your economic future is safe is a way to revitalize the economy. It is not by having a bank lottery every week, bailout the bad company quarterly givaway, and promoting instability through an erratic Fed and Treasury policy.
Although direct infusions of assets into banks gives you more bang for your buck, when Paulson sold TARP to the public he essentially lied. If you are a little more forgiving you could say he didn't keep his word. Either way, they are promoting erratic behavior and contributing to instability. They are the contributing to the cause of a collapse not really helping.
Anyway, since it's the festive season, let's hope for a better 2009 since we are getting a lump of coal this year.
VIX: Holiday Lull in Volatility [View article]
That would tend to imply that a lower volatility implies that the market should continue a slow unwinding and that the odds for a sharp high percentage rally is conversely fading (after the unteenth time we have gtot sharp rallies and then regressed back down to the low 8,000s in the Dow).
The more conventional thinking is that we are in a trading range between 7,500 and 9,000 which I ascribe to as well until funamentals markedly change. Being the holiday, I hope fundamentals change for the better next year, but hope is just that... hope. Not bad for the holiday season.
Lacking that, there is still eggnog.
In Trying to Prevent Another Depression, Government Gets it Wrong [View article]
The recession of 2008 may also be equally ponderous in the future. Although historians will cite the housing bubble, how many will recall the ill laid plans by bankers to hedge themselves out of losses by making a $50 trillion derivatives market that was specifically created to avoid any regulation whatsoever. Thankfully, although no one knows the full extent of this shadow market e are at least aware of the CDO and CDS market and how it is eating away at the fabric of our financial strength.
In 1929 who knows what machinations were hatched in the back rooms that went bad. That is the reason that full transparency is a must in order for our economic well being and health. The secondary benefit is for economists and historians; a complete and accurate record of economic calamities.
Does the Santa Claus Rally Exist? [View article]
On a factual note, although statistically you win making a short term Christmas bet, 13% of the time you loose money. If you look at the dynamics for the rally it's usually due to the holiday season not being as bad as forecasted or better. Also it is stimulated by fund managers who get new cash infusion from employees with Christmas bonuses who have nothing to do with the money. And it is topped off by Corporations who allocate profits from their last fiscal year.
I would not bet that this holiday season will be great (look around the shopping mall this season and compare it to the last one). I would not bet on big mutual fund deposits, most mutual funds, especially hedge funds are hoarding cash to pay off the clients withdrawing their funds. And although corporations made money this year, they are not likely to be spending it gambling as much as making sure they have enough money to meet payroll, fixed income, and inventory costs.
This year when money is scarce losing amy money is very very bad. In fact it is so bad short term treasuries are flirting into the negative interest zone. Proof positive about how bad it is to risk your money.
Sensing a Market Turning Point [View article]
Does this sound like a recipe for success? In fact, it's a recipe for disaster and protectionism. If it gets too bad it can plummet a global downturn into a depression.
Well anyway, let's not dwell on it too much and enjoy our roasted marshmallows and holiday festivities now.
A Trillion Dollars Ain't What it Used to Be [View article]
Good graph and posting Paul Kedrosky. It is true, I expect government spending projects by most countries early 2009. I say spending not stimulus because the governments that do them tend not to spend the money efficiently and often end up sucking money out of the real economy to pay for them. So they appear to be spending but if people believe they 1) won't produce tangible goods and services, 2) won't produce long term employment, 3) will be offset by taxes and/or inflation in the long run 4) will be slow to implement and inefficiently run then the public's sentiment towards them will more than offset any apparent benefit.
Sadly, politicians need tokenism. For them it makes the world go round and the votes come in. It's the modern day rain dance. I make big money fall from the sky as Bernake said was the solution to any economic slowdown. Really... can't we get a better Fed today rather than waiting until the end of January? We need a Christmas present.
Sorry for being grim. I mean to wish everyone a happy holiday.
Three Ideas for the Year's End [View article]
The 12-14 month period for recession is an often cited statistic. So let me revisit the history of this market tidbit.
First, pundits derided anyone saying there was a recession until November. Then they said the recession has been going on for 3 quarters and that most recessions only last 1-1.5 years. So hmmm, naturally the market is a buy huh? Just like they said it was a buy in June, July, and August. Then September and October it was a once in a lifetime opportunity. Now it's a great stocking stuffer.
Because I wish a happy holiday to everyone I suggest that you be prudent this year and make sure you save cash to get through this down period. Have a safe Christmas/Hanukkah/Win... Solstice/New Year and drive carefully.
T-Bills: Bubble, Bubble, Toil and Trouble [View article]
If you are a big bank, I'm sure they are making up the difference charging huge spreads on the few loans they do actually make. Which is part of the problem.
Also may I point out that the Fed is begging for $ by paying interest on bank deposits (encouraging them to take money out of the system and put it in the valut where no one can reach it) to fuel it's debt buying binge and balance sheet inflation. This is itself deflationary. So in actuality they are deflating at the same time they are inflating.
If you are a fund manager, if you haven't been making money on volatility plays you are probably under water. The tough part in 2009 will be that just about everyone is now making them and the premiums are getting bubbly (fit's nicely with the theme of the article lol).
Governments Tested as Global Economies Enter Dangerous Part of the Crisis [View article]
China is much more worrisome. If their economy hasn't even had a year of negative growth and they are already coming unhinged I hate to see what happens when they experience a real downturn.
As for protectionism. I think every player and every government is eying that option. Unfortunately that hurts everyone. But no politician is paid to think about the world.
The US is also set to engage in protectionism though. Bailouts are mild forms of protectionism. And the US is liable to start imposing more import restrictions (fines, levys, tariffs, or other trade barriers) although too many may actually ignite inflation. So, I think the US protectionism will be more constrained than Europe, Russia, etc.
Anyway, it doesn't look good going into 2009 even if some people are saying we should get a technical rally in January. That may be so but I think we need more than a technical rally to turn the economic tides.
James Grant Wants to Know: Who Will Buy Our Greenbacks? [View article]
This can occur either by the US essentially getting everything for nothing (debasing their currency so much their dollars become worthless), or by foreign debt holders forcing the US into a Wold Bank type austerity program with payments to foreign countries higher than Germany paid as a percent of GDP to the Allies after WWI? Of course if the US debases like this it will be a cold day in hell before anyone else starts accumulating US treasuries again. And if the second case occurs, it will be the end of Asia's export fueled expansion.
In order to keep our balance we need some level of fiscal restraint and de-leveraging. How much is healthy and if we can control it is the question. I think James Grant is right in the fact Bernake and the current administration have no real control which bodes very ill. However, that is not to say Volker or another person is unable to right the ship with some amount of pain. I'm sure they can. All is not lost.
Ten Economic Predictions for 2009 [View article]
Actually never mind. I don't exactly want to bet on these things after all.
Giving Even Odds on a Holiday Rally [View article]
Did (or Didn't) Japan Just Reintroduce Quantitative Easing? [View article]
The long response is, they can defend it as a reaction to try to weaken their currency which is too strong to help them export their way out of their economic morass. The only problem is, every other country is also struggling to make their currencies worthless which ends up negating everyone's efforts to weaken their currency relative to one another.
This is the beginning of economic infighting similar to what happened in the great depression. If things get worse we get protectionism and some 3rd world countries (possibly even China) start revolting.
We can all hope this doesn't happen. But it is a clear and present danger. Gee, now I sound like Tom Clancy.
Deconstructing the Fed's Balance Sheet [View article]
It is true if the Fed can issue more money on Treasury debt and issue money by buying public debt they essentially can issue an infinite amounts of money since the first increases the public debt and the buying the public debt can increase even more public debt. However, the ugly part about sanitizing the loss and paying interest still rears it's ugly head. So the Fed and the Treasury have been squeezing all the markets to get as much cash it can to pay for the bad debt (presumably in the future). So in effect, without a mechanism for purging the system of all the bad debt, and with a general intolerance for the public to shoulder bank bad debt losses no real inflationary or stimulus is being done. Quite the opposite, asides from TARP which also has the same problem. No one wants it to take the loss either although the public surely is.
So the government's actions stagger on deflating the market and putting off recognizing and allocating the losses until later. There will be no good time when the public will happily accept the losses. So just like Japan, except this cycle to continue on and on and on. Just like what happened in Japan.
You will know when the downturn is over because there will be financial blood in the street. Someone someday will have to atone for the loss (bankruptcy, public write offs, prison time, and the like). That would be the good result.
The bad one is where we choose to let banks spend decades of long slow write offs using interest on your debt to pay off the excesses of the last few years as slowly as a you pay off a 20-30 year mortgage. All while an entire generation languishes in a prolonged recession.
Newspapers: Any Options Beyond Cutting, Selling or Closing? [View article]
For another thing the newspaper these days is about 20-40% trash advertisements and another 20-40% are articles only about 5% of the people would ever read and only when they are bored out of their gourd. Simply stated, they are not able to target users interest or needs the way we expect this day and age.
If you want to start being eco-friendly, cancel your newspaper service and print out any news item on your printer that you want as a hard copy. You'll lower the paper content from 110 large pages of trash to about 7 pages. Plus you'll also save those little green papers you stick in your wallet to buy stuff.