tag:blogger.com,1999:blog-4102429195693595750.post6257789261078115858..comments2024-03-22T05:15:17.042+02:00Comments on Sudden Debt: The False Prophets of WealthHellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.comBlogger32125tag:blogger.com,1999:blog-4102429195693595750.post-25503441775260563742011-06-07T15:39:39.608+03:002011-06-07T15:39:39.608+03:00Interesting. I guess efficient market theory is in...Interesting. I guess efficient market theory is in a way defined by exceptions and examples of irrational hype like these. It would be interesting to see your perspective a couple of years on from this post, now that the iphone has been around and sold in record numbers, despite the price barrier. Was that speculation really irrational or was it justified? 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factor at all in the 2000-2001 market correction?<BR/><BR/>Because he sure didn't mind lowering them back down immediately after the election year. Nor did he oppose unbalancing the budget with the obscene tax cuts for the very top income earners in 2001, either.<BR/><BR/>After being such a balance the budget hawk while Clinton was in office.<BR/><BR/>I also seem to recall Bush stating, incorrectly, that we were in a recession early in his first term, and the markets fainted.<BR/><BR/>farangAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-36121953652225358822007-12-11T00:32:00.000+02:002007-12-11T00:32:00.000+02:00What a responsible steward would do is raise inter...What a responsible steward would do is raise interest rates: call it a short squeeze on the liquidity pimps. Sure the US would go itno recession but it would also be a resounding mniddl;e finger to all those "decoupled" economies. America has long since forgotton about the national interest and hence don;t hold your breath. Now ios the time for Americans to hike up thier trousers, bite the bullet and acceopt the sacrafice so many in DC called for a few short years ago. It is about time we had a little social darwinism. Americans need to get used to the fact that the drugreenspan induced haze of the past decade was a fleeting dream. What is that saying: wwelcome to NY you ain't in Kansas, I mean Abu Dhabi, anymore.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-32249983249728500372007-12-11T00:02:00.000+02:002007-12-11T00:02:00.000+02:00Take a look at the Housing bubble bloghttp://theho...Take a look at the Housing bubble blog<BR/><BR/>http://thehousingbubbleblog.com/?p=3853<BR/><BR/>Houses seem to be worth less than used cars. <BR/><BR/>Really worrying.Manehttps://www.blogger.com/profile/10464686842902277389noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-18980276179362828562007-12-10T23:17:00.000+02:002007-12-10T23:17:00.000+02:00Not sure if I can agree on that. We have seen many...< ... best number to look at for such a critical point is the weekly initial claims for unemployment insurance ... ><BR/><BR/>Not sure if I can agree on that. <BR/><BR/>We have seen many months of below average job growth this year compared to last year, as well as the required 150K jobs per month to maintain umemployment rate. <BR/><BR/>Also, we know those bogus claims from BLS on Birth/Death model, as well as household survey (if I remember correctly) that is actually showing tons of jobs losses in the past few months. <BR/><BR/>However, with continuing claims remaining high and seeing lots of jobs reductions, I find it strange that the Unemployment Insurance claims still remain close to historical low. <BR/><BR/>Maybe the claim number is "massaged" too?Shawnhttps://www.blogger.com/profile/08155630920582744324noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-86518896379858114932007-12-10T22:15:00.000+02:002007-12-10T22:15:00.000+02:00somewhat OT but related to discussions in previous...somewhat OT but related to discussions in previous threads about higher education costs/loans.<BR/><BR/>Today's Boston Globe has a story that should be headlined "Harvard announces nobody can afford it; those making under $500k to get need-based aid."<BR/><BR/>http://tinyurl.com/yu57cm<BR/><BR/>They are no longer calculating financial aid based on the expectation of loans. Apparently the smart kids aren't even bothering to apply because they don't want to be 22yo and 6 figures in the hole. Even better, if you make $60,000 or less your kid can go to Harvard for free, because according to them, you can't afford to pay anything for college.Eva Peronhttps://www.blogger.com/profile/10753320950797110769noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-23658829003438501842007-12-10T18:45:00.000+02:002007-12-10T18:45:00.000+02:00Re: consumer critical pointIn my opinion the best ...Re: consumer critical point<BR/><BR/>In my opinion the best number to look at for such a critical point is the weekly initial claims for unemployment insurance. Americans live hand to mouth (near zero saving rate). When they get laid off they HAVE to cut down.<BR/><BR/>RegardsHellasioushttps://www.blogger.com/profile/03564511281240682625noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-33762085139370777342007-12-10T18:33:00.000+02:002007-12-10T18:33:00.000+02:00This is sort of an impossible question to answer, ...This is sort of an impossible question to answer, but I noticed it mentioned in other posts. What's the point of critical mass? When do consumers finally realize the direness of the situation and everything starts unwinding?<BR/><BR/>I am not so sure that there is a definitive point that could serve as the answer, but it seems like a question worth asking.Ignorancehttps://www.blogger.com/profile/11603287217970676829noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-56818918203577317202007-12-10T17:20:00.000+02:002007-12-10T17:20:00.000+02:00Hellasious, My 2 cents tells me that there is an ...Hellasious,<BR/><BR/><I> < What could be done? > </I><BR/><BR/>My 2 cents tells me that there is an equally important question to yours: "What could happen"?<BR/><BR/>Because, what could happen would drive What Would FED/Government do. <BR/><BR/>Deflation or not, I think it boils down to one fundamental cause -- as Roubini argue, is today crisis a Liquidity, or a Solvency one?<BR/><BR/>To extend that, at what break-point will the overall american debt become intorelable? should the debt level be done in American consumer, or at government level, or both? As far as my eyes see, it would probably easier to analyze at cosumer level, since US government debt will always be granted AAA and someone will buy it up (unless Oil is totally unpegged and priced in Euro).<BR/><BR/>My more immediate concern is Bernanke. Until it concludes, I would not count him out. He spent his life analyzing Great depression and the solutions for it.<BR/><BR/>Greenspan pull out a trick in 2002 possible depression to blow housing bubble "echoing" Bush's American dream. Now, would Bernanke pull out a new trick in 2008, possibly in Stock Market again? <BR/><BR/>I know Stock and Housing are the 2 biggest asset to support economy. I always wonder what is the 3rd asset class, or if the 3rd is big enough this time? Maybe Bernanke will blow Stock + 3rd asset class to get us through? <BR/><BR/>Hm ... a lightning just cross my mind -- remind me of 1997 Asia Currency Crisis. When demand collapse internally, the government resort to micro-managing the currency to low value, and create a boom to factory expansion and export growth. <BR/><BR/>Would Bernanke + Paulson lower the interest rate to 0% nagative interest rate, and forcing other countries economies to overheat, dollar continue its downslide to cash index 40, therefore attracting foreign money?<BR/><BR/>You will be surprise that back here in Ohio, there have been Call Centers moving back from India!! Also, Russia is building its Steel factory here.<BR/><BR/>Why??? One common reason cited -- Cheaper USD and therefore cheaper cost. Quality is higher, therefore it makes more business sense to build factory and cheap call centers here (imagine those $6/hr minimal labor). Plus, don't underestimate the power of cleanest indutry -- tourism, as well as the buying power of Canada$ or British$ or Euro$, as they have shown their strength during the Thanks Giving shopping period.<BR/><BR/>I tend to think FED/Government plan is to extend or blowing a bigger bubble and problem, rather than to face the issue and resolve it.Shawnhttps://www.blogger.com/profile/08155630920582744324noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-51534709121484705992007-12-10T16:45:00.000+02:002007-12-10T16:45:00.000+02:00greenie, Exactly. If oil is priced in Euro only, ...greenie,<BR/><BR/><I> < When US dollar loses that status (i.e. final collapse of Bretton Woods era), then US becomes equivalent to any other country in the world.... > </I><BR/><BR/>Exactly. If oil is priced in Euro only, that's the beginning of the end. However, if oil is priced in basket, then I agree that we have to wait and see how things develop, as USD may still continue to be world reserve currency. But claiming to have zero-consequence in any way is a bogus clim I think.<BR/><BR/>If you look at the Wikipedia extensive analysis, you could find that the leading cause was private current account deficits. <BR/><BR/>Fixed exchange rate was wrongly stated as the reason -- today most Asia economics have pegged currency, yet why no currency crisis? With such strong foreign reserve, even if there is a recession today, do you really think there will be a repeat of 1997 Currency Crisis? In fact, there were strong arguements that it was the later PEGGING (as a matter of fact) that saved these countries from further currency issues. <BR/><BR/>Blaming the crisis on Pegged currency was a total ignorence by various articles too. Then China had the most stringent pegged (not even floating) since 1990, yet Yuan was never impacted, and the pegged was never shaken a bit during the 1997 crisis.<BR/><BR/>Again, Asia currency crisis was not fundamentally due to Japan or what so ever in my opinon. Facts:<BR/><BR/>1) Economy boom and bust is always a cycle, but not every cycle bust is termed "Currency Crisis".<BR/><BR/>2) There was a reason for the term "Currency Crisis" for Asia 1997. <BR/><BR/>Overheated economy + Recession + Exit of FDI (foreign direct investment) all compounded the problem.<BR/><BR/>But made no mistake, Low Foreign Reserve (running deficit) was the main culprit. Once the citizens realized their respective country did not have enough reserve to meet foreign inport/export demand, more head to exits. <BR/><BR/>Anyway, appreciate your inputs so far. <BR/><BR/>Sorry Hellasious for taking over the board.Shawnhttps://www.blogger.com/profile/08155630920582744324noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-20411457572434874742007-12-10T07:32:00.000+02:002007-12-10T07:32:00.000+02:00Can you give the counter-scenario or argument for ...<I>Can you give the counter-scenario or argument for inflation?</I><BR/><BR/>Another scenario...<BR/><BR/>In response to a recession the government passes wave after wave of fiscal stimulus packages while the Federal Reserve holds interest rates at zero percent.<BR/><BR/>The government debt becomes so large that it creates a public debt trap. Meaning that interest payments on the public debt are so high that raising interest rates threatens the solvency of the US Government.<BR/><BR/>At that point the Federal Reserves only course of action is to monetize the US Government's debt.<BR/><BR/>A public debt trap has always (to my knowledge) preceeded hyper-inflation in industrialized countries.<BR/><BR/>The other instances of hyper (or even high) inflation has been in situations where government policies subsidized consumption and penalized investment (Venezuela, Chavez) or systematic looting of the country by officials (Zimbabwe).Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-31681740025060372412007-12-10T05:27:00.000+02:002007-12-10T05:27:00.000+02:00Dear Marcus,One argument for inflation concentrate...Dear Marcus,<BR/><BR/>One argument for inflation concentrates around the German inflation that took place after World War I (Weimar Republic). Essentially, the German government authorities devalued its currency to repay its war debts resulting in hyperinflation. Some believe that the Fed could similarly relfate the US economy by monetizing the bad loans in the banking system. The banks would exchange these non-performing loans for Fed reserve dollars. This would recapitalize the banks, but the banks would still have to have incentive to lend and borrowers to borrow. This is a giant leap of faith with a whole lot of other things to consider like a falling dollar, restoration of confidence, and the US being able to attract foreign capital. As you can see, there seems to be no good choices here.<BR/><BR/>GMGAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-36824153301172453292007-12-10T04:21:00.000+02:002007-12-10T04:21:00.000+02:00GMG in Nashville,Thank you very much for a clear e...GMG in Nashville,<BR/><BR/>Thank you very much for a clear explanation. <BR/><BR/>Can you give the counter-scenario or argument for inflation? Could it happen by a combination of government support of bad assets and a new creative financial vehicle, for example CDO 2.1?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-72363789862300326172007-12-10T03:27:00.000+02:002007-12-10T03:27:00.000+02:00No one's remarking on the end-of-year (except NASA...No one's remarking on the end-of-year (except NASA, who announced they won't try to fly the shuttle til early January to avoid problems with software in flight, over the end of the year).<BR/><BR/>Lots of people still have money being poured into 401ks, and have to spend their medical reimbursement accounts, and so on.<BR/><BR/>Doesn't that stuff always bump up the economy?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-24173913224634687162007-12-10T02:20:00.000+02:002007-12-10T02:20:00.000+02:00Dear Marcus,Overall net selling of assets, whether...Dear Marcus,<BR/><BR/>Overall net selling of assets, whether they be stocks, or bonds, or houses, or commercial property, would be indicative of asset deflation as investors shun holding riskier assets and seek liquidity (cash or gold) and safety. As a result, money would pile up at lending institutions. Money returning to the banking sector to minmize debt would result in the money supply contracting, causing a downward chase in asset prices. The question becomes for the banker and the borrower, "Does the investment climate offer me an opportunity to compensate me for my RISK?" If not, velocity of money falls, possibly even at ultralow interest rates as people restore their balance sheets. I hope this answers your question.<BR/><BR/>GMG in NashvilleAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-65261668317241024722007-12-10T00:13:00.000+02:002007-12-10T00:13:00.000+02:00"Credit/borrowings have increased substantially in..."Credit/borrowings have increased substantially in fed's 3Q Flow of Funds."<BR/><BR/>No kidding.<BR/><BR/>delta(TCMD)/delta(national income) is more than 10 for Q3, 2007.<BR/><BR/>What can be done?<BR/><BR/>Real transparency would help. Bernanke could regularly appear on C-span and answer questions from the little people instead of giving us more frequent economic palm readings.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-65551654848958899092007-12-09T22:45:00.000+02:002007-12-09T22:45:00.000+02:00As it regards 3Q Flow of Funds, according to this ...As it regards 3Q Flow of Funds, according to this site:<BR/><BR/>http://www.prudentbear.com/ index...bleBulletinHome<BR/><BR/>Credit/borrowings have increased substantially in the 3Q, as indicated in fed's 3Q Flow of Funds.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-43176766151979648142007-12-09T21:36:00.000+02:002007-12-09T21:36:00.000+02:00Re: Junk bonds to 16%.If such rates happen in the ...Re: Junk bonds to 16%.<BR/><BR/>If such rates happen in the overall junk market, then we will see a rash of bankruptcies as big as 1932, or Japan in the 1990s. Hope not...<BR/><BR/>RegardsHellasioushttps://www.blogger.com/profile/03564511281240682625noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-57007528193502957512007-12-09T21:16:00.000+02:002007-12-09T21:16:00.000+02:00gmg "I wonder how making credit available would he...gmg <BR/><BR/>"I wonder how making credit available would help if no one wants or needs to borrow or lend."<BR/><BR/>Excuse my lack of economic knowledge. Isn't credit going to be need when the holders (municipalities e.g.) of the financial vehicles (CDO e.g.) need to cash out.<BR/><BR/>Not the Fed but the people in the pocket of Citi will bail them out. Faith-based? No, reality-basedAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-59987349621942453632007-12-09T21:04:00.000+02:002007-12-09T21:04:00.000+02:00In a world where debt expands much faster than our...<I> In a world where debt expands much faster than our ability to put it into productive use generating income . . . </I><BR/><BR/>A foolish question doubtless betraying astonishing naivete:<BR/><BR/>Why can't we put this debt into <I>long-term</I> investments, such replacing or maintaining infrastructure or developing alternate sources of energy? Seems to me that would be a productive use - but such thoughts also seem to cross the minds of few possessors of leverage. Instead, we pursue short-term yet risky gains in M&A/private equity, CDS, CDOs, etc., that arguably are not productive in any other than a financial-metric sense.<BR/><BR/>/RantAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-76345291917921578362007-12-09T20:17:00.000+02:002007-12-09T20:17:00.000+02:00Hel,Much has been written about mark-to-market los...Hel,<BR/><BR/>Much has been written about mark-to-market losses of level 3 assets at major banks. It is harder to find an estimate of how serious losses to level 2 assets could be if mark-to-market happens there. The big banks have 80% or more of their assets in the level 2 category.<BR/><BR/>If deflation of financial assets occurs , and I agree with you and GMG that this is a possible outcome, then couldn't the losses to level 2 assets exceed those to level 3?<BR/><BR/>What's your take on this?<BR/><BR/>Also, do you think the Fed can prevent junk bond yields from getting up to the 16%+ level? If that happens, and if it is sustained, there are sure to be more bankruptcies and writedowns. Could we not then see a period in which total debt stays flat or declines slightly (YoY declines in total debt are extremely rare)?<BR/><BR/>RegardsAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-69412264957024741622007-12-09T16:50:00.000+02:002007-12-09T16:50:00.000+02:00Independent accountant said:"The Fed will not let ...Independent accountant said:<BR/><BR/>"The Fed will not let Citigroup, et. al., go bankrupt."<BR/><BR/>That's what I call faith-based investing :)<BR/><BR/>BestHellasioushttps://www.blogger.com/profile/03564511281240682625noreply@blogger.com