The Hulbert Stock Newsletter Sentiment Index at 40.6% coincides with other sentiment indicators showing that among individual investors there are twice as many bears as bulls. And the AMG flow of funds info for a couple years now shows that investors in funds and ETFs are skeptical of US equities, prefering money market accounts, bonds and foreign equities.
Great Bull Markets "climb a wall of worry". We have all heard that expression and now we are wittnessing it - many from the sidelines.
Mortgages matter. American Home Mortgage matters to the market. Fremont General matters. Thornburg Mortgage matters. So does NovaStar. They matter to Bear Stearns and Lehman and Goldman. And all of the homebuilders. But that may be it. The systemic risk, the catastrophic risk that is supposed to manifest itself any day now, keeps being postponed. We just don't get the spillover to anything but the related stocks. Not even the companies. We know that the consumer is supposed to be on its last legs, but the numbers at Wal-Mart and Penney don't confirm the results at Sears and Home Depot. We aren't getting the big number cuts that are supposed to happen for anything but the homebuilders. Maybe, some month, they will matter. The resets to higher mortgages will matter, although if you lock in a long-term mortgage now it is still better than at almost any other time we have...
The farking problems are obvious and unavoidable. Except for the higher classes most people are under financial strain due to the largest ever debt load.
And they want people to go optimistic or the market won't stop going up.
It's kinda funny.
Optimist, though, does not pay the incredible debt loads people are facing.
How much of this stock market pop is due to the all-time lows of the US dollar?
Can anybody post a link to the US markets (DOW, S&P, NASD) priced in Euros or Yen? I'm curious to see those charted against their prices in US dollars, over a 5-10 year range.
Somebody's got to have that information available for free.
Great Bull Markets "climb a wall of worry". We have all heard that expression and now we are wittnessing it - many from the sidelines.
Kind of like watching the fools biding up houses in 2005 - they ain't making no more, buy now or be priced out forever, it's at a 52 week high must be a great time to buy as the price will only go higher.
What the fu#k is that this country needs a goddamn bubble every 15 minutes to offset one that is deflating? Some things never change in the land of funny money.
I've been lightening up on HB puts in the last two days. Looks like there is a squeezed today in the home builders. This clearly doesn't reflect fundamentals and I will probably buy some back before the July sales data come out.
Indymac is blogging about the downgrades on their bonds! they also disclosed the volume of EPD requests (not actual repurchases) in 2Q07, which is surprisingly way down from 1Q07.
bacon the biggie is if people start trying to force repurchases of fraudulent loans. Like, 60-80% of Stated Income loans could conceivably be proved "fraudulent" ...
That's something that will happen when Alt-A blows up.
did u know they were swift to cut off the head of the bad underwriting beast, so that lifetmie losses on 2Q production is down from 1Q (but that's most def using old LEVELS not the new perfect LEVELS)? and that subprime is only 4% of production? boy those guys are great!!!
Our idiot leaders are convinced that if the stock market goes up, the mortgage problem will disappear.
Problem is, the ones who can't pay their reset mortgage payments also don't have anything in the stock market. Dow 14k doesn't help a single mortgage problem. Not one. If may push off the day of reckoning for the investment bankers, but it is no cure. Not even close.
Tanta, I don't know if anyone had forwarded this to you (I didn't see it mentioned in the last couple of threads) but it looks like Reuters took your suggestion on looking into the S&P restatement from $12B to $7B.
"S&P: Whoops! A $5 billion subprime blunder
Rating agency lowers amount of mortgage-backed securities under review to $7.3 billion from $12.1 billion.
July 13 2007: 7:06 AM EDT
NEW YORK (Reuters) -- Standard & Poor's admitted to making a nearly $5 billion blunder in correcting its own estimate for subprime securities it is reviewing for ratings cuts.
S&P corrected the volume of residential mortgage-backed securities it placed under review for downgrade on Tuesday to $7.35 billion from $12.1 billion.
This is obviously sloppy by S&P," said Mirko Mikelic, a fund manager at Fifth Third Asset Management in Grand Rapids, Michigan. "I don't think anyone's doing back flips."
Standard & Poor's original statement announcing the review of 612 residential mortgage securities on Tuesday spooked investors, driving them away from financial stocks and other riskier investments and into the safety of U.S. government bonds. A benchmark subprime index fell to a record low.
"It was an error and we corrected it," S&P spokesman Adam Tempkin said on Thursday. "It was human error. It is what it is."
S&P said the volume corrected represents 1.3 percent of the $565.3 billion U.S. subprime mortgage market it rated between the fourth quarter of 2005 and the fourth quarter of 2006.
The changes by S&P, the credit-rating unit of McGraw-Hill Cos., come on the heels of increasing troubles in the subprime mortgage market that caters to borrowers with spotty credit histories.
"The market's been so sensitive to the subprime issue, so you would think that they would dot their I's," Mikelic said. "It doesn't help when S&P is changing their numbers."
The insane leveraged positions in everything, where the clowns in charge bought piles of worthless stuff with other people's money that they may or may not have ever really had. The only thing "real" about the market at the higher levels is the bonuses to the crooks!
The insane rate of inflation: 6%+ at least. Sales at Wal-mart are up about that much, and much of that "gain" was in food, but it's not inflation adjusted. So, I guess if food costs 6% more this month, it is a "good" thing? Why not - most people have been conned into believing that unaffordable housing is "good" when housing prices double to triple in under 10 years.
The crumbling dollar: tied to the previous point. The dollar continues to test record lows, so who cares where the DOW is when a lot of the gains are caused by how it takes more dollars to buy the same stuff (you know, worthless stock in failing companies like GM). Also, a weaker dollar does help exports (just don't expect any new jobs to be made from those exports!)
The overloaded consumer. Let's all ponder Joe Ultra Light Sixpack. He lives in his wonderful McMansion that he cannot afford. He can barely make his mortgage payments, or maybe he already can't, and the real resets have barely begun. Any equity he had was spent on Hummers and spinning rims for his BMW. His job will be outsourced or insourced soon (as will all jobs above Wal-mart greeter and burger flipper, which is now a "manufacturing" job), and he cannot afford to take on student loan debt to try to improve his life. As inflation in energy eats away at his flat to negative salary for the past 7+ years, he wonders just how much it will cost in the future to heat and cool his 4,000 square foot McMansion and fuel his H1 and BMW. Fortunately, Walmart is having a sale on meat (is it beef? Is it not? Who knows?), but even that is up 6% since last month... But everything is fine since: "subprime is contained," "housing/the market only goes up!" and "sales are up (even the dollar is sliding into worthlessness)."
The stock market is headed higher this year. Take a look at the spread between earnings yields for the S&P and bond yields for the ten year treasury. There is an arbitrage opportunity to issue debt and purchase shares. Private equity firms are capitalizing on this, as are corporations announcing share repurchases. The global supply of equities is shrinking, and this phenomenon will continue to drive stock prices higher until the spread between e/p and treasury yields is closed. This isn't a bubble, its just plain old supply and demand.
Kevin - The psychology of today's stock market is quite different from the residential housing market in 2005. In 2005, the majority of the public was convinced that home prices could only go up for the "reasons" you noted - very similar to the public's attitude toward the stock market in the of Spring of 2000.
Today, the public is very cautious on the stock market - not confident at all. Most expect a significant correction or worse for the reasons commonly expressed on this website.
There will not be a significant bear market until the sentiment values are reversed.
Indymac's experience with EPD's confirms the dynamic, so far, for defaults:
-spec's using stated 100% CLTV loans caused the bulk of alt-a EPD's. That pig is almost through the python.
-aside from spec's, subprime borrowers defaulted in size first. This was NOT because of their low FICO's, but because theirs is the only product requiring full amortizing payment at high rates. They just ran out of money first, in other words.
-the next group to default is stated interest only Alt-A. This is happening now.
-after that will come recast neg-am.
-and last, but certainly not least in terms of sheer size, resetting high-DTI conforming.
So lower EPD's is not an an clear. Thanks but no thanks Indy Clog.
M2-M1 increases by 8% on average year-on-year, more than in the previous quarter, which means that the Americans increase their saving and spend less. Demand decreases or adapts and growth slackens.
GDP growth will be 0% in the second quarter, and 1.26% YOY. It will be negative in the 3rd and 4th quarter because the Fed did not lower its rates.
The growth slowed not because high mortgage debt commitment but more due to a high Fed funds rate which should be at around 4%.
theroxylandr- you should read this guy. his interest outlook sounds very much like your.
More still: MOST of the public does not expect a financial disaster for the simple reason that most of the people does not have a clue about structured finance, and thinks housing is an old story contained to subprime.
Joe posted yesterday that the NEXT surprise will be the dollar increasing...
I'm beginning to agree especially against and I think that is PART of why the Dow went up so big yesterday.
If I were a FX exchange wonk from Europe... I'd be buying US equities LIKE CRAZY using the strong euro.
Why? Because the euro increase is KILLING their mfg business & labor market with the political repercussions becoming unbearable... the noise out of the new French President is a testimonial to this. It is just a matter of time before the EU also has to destroys the euro (to save the dollar).
So they race to get in now - buy a bunch of US equities - wait for the currency reversal and turn them back into (even more) euros.
Pure arbitrage play... a rising DOW doesn't hurt.
It is similar to what I'm seeing from MNCs & PEs racing to get plants built in China (NOW) before any large & significant RMB revaluation. Even if the plants are marginal from an operational perspective - the anticipated FX gain will be quite significant.
And if you were really plugged in from Europe... you use euros to buy US based MNCs with growing presence & exposure to RMB revaluation and get two arb bangs for the one buck.
Just a WAG... but makes sense seeing some of the recent gains (like GE, HON, etc.).
Ya but USUALLY it is about how important France (and Europe) is and why their currency should be the worlds currency (and France the world's language)...
Sarkozy was suggesting the opposite... complaining of how STRONG the euro is and how it needs to get whacked... He likes the idea that the dollar is the world currency and wants the euro to be more like the yen (with mfg job growth in europe similar to Asia).
My guess is if the euro continues to remain this strong - political pressure will force the ECB to 'intervene'.
We know that the consumer is supposed to be on its last legs, but the numbers at Wal-Mart and Penney don't confirm the results at Sears and Home Depot.
Wrong. They do confirm. JC Penny is sluggish. WalMart has a lot of food sales and food prices jumped last month. We don't know how much food WalMart sold, but we suspect that if you take it out the rest of the stuff will be sluggish.
OMG! Will the joyride never end? Yesterday I get up to 'Market Surge On Retail Numbers', and today I see 'Retail Takes Biggest Hit In 2 Years'. (Both of these are Yahoo! headlines of course.) I have to think the unwashed masses and the trading public are one and the same.
News is fun, lets buy some more, shall we ??????
What's that, you say? The snap, crackle and pop are not happy breakfast sounds? And what on earth has become of my broker, he is not answering the phone.
Yes indeed, welcome to the oblivious parade. Tanta dear, how many trillions are wound up in credit derivatives? I think we can ignore the artifical divide between mortgage backed and non. Like the exterminator dude said in 'Over The Hedge', prepare for a lot of stinging.
My guess is if the euro continues to remain this strong - political pressure will force the ECB to 'intervene'.
the strong stance of ECB President Trichet... Yesterday, he was quoted saying a couple of things...
"NOT ACCEPTABLE TO CLAIM THAT EURO GOES AGAINST JOB CREATION"
"FX MARKETS ARE NOT FULLY RECOGNIZING ECONOMIC FUNDAMENTALS IN JAPAN"
"IT WON'T WORK" FOR EUROPEAN GOVTS TO TELL TRICHET WHAT TO DO ON FX"
Kevin,
it helps to have experience speculating in real estate as we have over the last couple decades. the perspective has been crystal clear the last 2 yrs that prices have become way out of line with reality. which is why i moved to stock speculation 2 yrs ago.
Sarkozy was suggesting the ppposite... complaining of how STRONG the euro is and how it needs to get whacked... He likes the idea that the dollar is the world currency and wants the euro to be more like the yen (with mfg job growth in europe similar to Asia).
My guess is if the euro continues to remain this strong - political pressure will force the ECB to 'intervene'.
i would be careful about expecting the dollar to rally resulting in what you've hypothesized. don't forget all the fundamental reasons why its dropped to where it has. you answered beachguy yesterday about what might end this craziness and i would add another trigger to your cdo proposal and that would be a drop below 80 in the USD index at which it sits right now. that could trigger more dollar selling, a spike in interest rates, yen carry unwinding and stock corrections. this is why gold is rallying right now.
Sarkozy was suggesting the ppposite... complaining of how STRONG the euro is and how it needs to get whacked...
I wonder how he will whack the euro? Legalize counterfeiting? Start the war against Germany? Fund the huge intergalactic expedition and dedicate 5% of GDP to the preparations? Just get back to Franc and dump euros?
Kevin - I've been reading all of that (Trichet & ECB independence stuff)... They haven't had to face an explosive euro and dollar collapse... never.
Sometime this year China will be sending more stuff to the EU than NAFTA Zone. At $1.35 the euro isn't hurting China's cause.
As long as the jobs hold up in the EU Trichet will remain 'independent'... as soon as that stops - he's gone.
Remember, EU relies heavily on BOTH tourism and high end mfg'ing exports (machine tools, aerospace, etc.). All that is getting smoked on world markets - here, Asia, everywhere.
Plus there really isn't an EU constitution... its all ad hoc. The whole EU could blow apart if jobs are lost & SOMETHING isn't done...
My guess is they'll send Trichet into exile on St Helena before they let that happen. Then start printing some pretty money in earnest.
The French LOVED the euro... at about $0.90... not so much at $1.30... and at $1.50 and above the franc starts looking mighty good. Ask the Italians about the Lira.
Not everyone hates 'fiat'... just savers. All eight of them.
I'm beginning to agree especially against...the euro- Dryfly
I second it.
US$ may have a 2-3 quarters reversal soon. Something like in 2005
As US demand for Asian/European export continues to weaken, this would temporarily halt the US$ long term decline.
US trade deficit position would improve significantly for a period before the whole world is pulled down.
This would be the breathe of fresh air that refreshes which would flush out all US$ bears, like the 2005 US$ reversal flushed out Warren Buffett.
The flight to safety reaction in the event of a global equity melt down should help the US$. Contrary to what many Americans believe, the US$ is still held in high regards by most Asian and oil rich Arabs. My country is use as a key location to recycle the petrol dollars back to the US. Less questions asked when the "Mohammads" want to pull money out fast with all the terrorism funding concerns in US.
The 5-10% of the petrolum dollars that is retained in my local economy through the recycling process is creating a mini-boom here- According to a reliable source from Julius Bear, a swiss bank doing business here
We'll, yesterday convinced me and I finally broke down and bought every stock I could bet a hold of leveraged by a factor of 12 using loans from the bank of Japan and price swap derivatives.
None of my lenders know that I'm actually leveraged since the loans were supposedly for adding office space.
The stock market is headed higher this year. Take a look at the spread between earnings yields for the S&P and bond yields for the ten year treasury. There is an arbitrage opportunity to issue debt and purchase shares. Private equity firms are capitalizing on this, as are corporations announcing share repurchases. The global supply of equities is shrinking, and this phenomenon will continue to drive stock prices higher until the spread between e/p and treasury yields is closed. This isn't a bubble, its just plain old supply and demand.
There are two flaws that I see in this argument:
1) Earnings are juiced up by liquidity right now, perhaps by as much as 50%. Based on historically prevailing earnings P/E ratios are closer to 30 at the moment. Corporate earnings follow a dramatic boom/bust cycle, and there is good reason to think we are close to a peak.
2) Stock values are vastly more dangrous than high-grade bonds. The argument that this arbitrage opportunity will persist assumes that private equity investors (or even leveraged loan investors) won't suddenly become concerned with the inherent danger in owning (financing) companies compared to high grade debt.
Money that comes in at regular and predictable intervals is simply more valuable than money that doesn't because you can make concrete plans for its use.
You can't count on the complete absense of risk premiums lasting forever.
can someone pls shed some light on the marked divergence bet the u of michigan consumer sentiment survey and the rbc survey also released today? rbc.com - RBC Financial Group - Media Newsroom
Let's be clear about something. WalMart's sales did not--REPEAT, DID NOT--surprise to the upside.
WalMart is stuck in the same cycle in which they started out the year. Their June sales came in exactly where I expected they would. The guys in Bentonville are probably scratching their heads wondering what all of the excitement is about. Forget all of that food crap.
"it helps to have experience speculating in real estate"
I didn't have any experience, just a bunch of damn fools in a bidding war for a POS that we're to damn stupid to understand Greenspan was going to give them a good screwing, which is exactly what they got. Assets are only worth what some other fool is willing to pay you for them. I was buying oil stocks in 2000, buy low sell to some fool higher. Most just people are just plain stupid. Buy some oil stocks would ya help a poor old boy out.
whereas this could be true, i would be very careful with rumors. this would be a classic hedge fund squeeze play to get themselves out of a bad bet. i've seen this happen 3 times in last 7 mo with CFC. knowing what little i know about Buffett strategies, i can't see why he would buy a HB given whats coming with resets. it would be a dice roll which he's not known for. don't forget his buddy Gates bought and then quickly reversed a huge stake in HB's last Fall.
Interesting comments by dryfly and candyman in unnamed Asian country regarding the value of the dollar vs the euro. I agree with dryfly -- the Europeans can't sit back and let their currency appreciate against the rest of the world. So a worldwide inflation (race to the bottom) looks likely to me. It should be a wild ride...
re: HOV buyout via Buffet
if you look at HOV's cashflow, its hugely negative. the movement in the stock looks like it could go BK in the next year or so. if i were Buffett and looking to buy, i'd wait til the stock was near zero before making a move.
Won't happen. It recently raised the rates, and it will continue to do so, since the most of the euro area have an amazing strength at the moment.
I agree in principal with your logic - especially that the EU Zone is strong & Trichet feels confident to flex muscle - but not the end game outcome.
But that was the way we were in the late 90s as the dollar got stronger and stronger & Asia really started to eat into tradeable industries here one at a time.
Remember euro in the $.80 and 'Old Europe' back then? No more.
EU Zone is now the primary target of Asian exporters, not NAFTA Zone anymore. Asian new export growth will be into EU more than NAFTA.
I do biz and talked to MNCs with big operations in Eurozone, NAFTA ZONE & Asia - they have told me they would be ecstatic if they could get components & systems built in Asia to sell in EU Zone at EU prices... kicks over even Eastern European costs advantages.
It is happening & will accelerate. EU gov'ts will have to face it. Whacking the euro is the easiest and lest politically painful way to do this (as we in NAFTA Zone are learning).
It will happen in EU whether Trichet goes along or not. If he doesn't they'll find somebody who allows it. Period. Only question is when.
The MNCs with operations around the world are in excellent position to arbitrage it all the way around... a carry trade based on capital in place if you will.
re: HOV buyout via Buffett
the more i think about this the more i'm willing to short HB's today. once again, the Gates Foundation reversed its stake in HB's last Fall. don't you think he consulted with Buffett before this move? esp. since Buffett turned over his fortune to Gates to manage? the timing right after yesterdays rally is suspicious as well. HB's didn't really budge yesterday despite the rally so what better time to stoke squeeze fears in the market than the day after?
Euro is overvalued. Look at the Economist's The Big Mac Index. In short term, though, anything can happen. EU has a bunch of their own problems but IMO they are currently not as serious as American ones. In long term, though, unless Ben gets his helicopters to work, dollar should return to its fundamental value based on purchasing power parity (PPP).
On the other hand, it is not easy to look at PPP only. Yen should have never become this weak but it is the most undervalued currency. So "long term" might be really long.
I also worry that one day after all the mess is exposed, a group of central bankers would meet in a Swiss village and decide that they are going to inflate all in unison. Looking at M3 growth rates, I'm not sure they haven't met already.
Since the marginal transaction sets the price for all invariably creates massive price moves in both directions once the herd stampedes. While it is obvious that ever higher prices demand more capital to keep the trend sustained, few investors ever bother to analyze that fact and ride the momentum. Just as the house flippers who started early in the price run up beginning in 2001 and left the party when folks were really getting excited in 2005 have their capital intact, so too will those folks who have left the last ????? DJIA points to those who believe buying every dip using margin will be rewarding.
There is always an event that separates the masses in every generation from their capital leaving a fear that takes decades to overcome. The current generation of investors will have this event, just as night follows day. The younger the investor and the greater the time horizon to recoup from a devastating decline allows one to be more aggressive.
There is a saying that was told to me many moons ago.....young soldiers lead the charge because old soldiers know what happens. It would be noteworthy to analyze margin user by the age of the investor.
Yen should have never become this weak but it is the most undervalued currency. So "long term" might be really long.
That is a tribute to the power of central banking... I'm not condoning it just sayin' what is.
I also worry that one day after all the mess is exposed, a group of central bankers would meet in a Swiss village and decide that they are going to inflate all in unison. Looking at M3 growth rates, I'm not sure they haven't met already.
If Trichet throws in the towel - we'll know that day is here... 'Rapture' can't be far behind.
Normally, of course, advisers become more bullish and exuberant as the stock market rises. The fact that just the reverse happened over the last three months is quite unusual - and bullish.
To appreciate why, it can be helpful to imagine a bull market as a bucking bronco in a rodeo, trying its darndest to throw everyone off its back on the way to the other side of the ring. By doing exactly what its supposed to do, this bull market is revealing itself to be very healthy indeed.
The stock markets ability to keep advisers offs its back was particularly in evidence Thursday. Despite the stock markets impressive performance, the HSNSI didnt budge upward, not even a tiny bit.
If the best one-day return since 2003 isnt enough to lure advisers back into the stock market, what will?
There will come a time, of course, when advisers will be irrationally exuberant about the stock market, even if we cant predict now what factors will lead them to become so. Thats when contrarians will start to particularly worry.
For now, however, the sentiment picture does not suggest that we are at, or close to, that point.
dryfly: sure, anything could happen if we are talking in a 10 year timespan. Remember that the dollar have been overvalued since the 70s though. It can take quite some time before corrections come.
It can take quite some time before corrections come.
Sure but things on the trade front are speeding up for the EU. China's got a shit load of stuff that's gotta go somewhere... $1.30 euro buys a load of that and more. Think the folks in Stuttgart gonna be happy about that? Or down in Lyon?
I think not.
I think we see something happen faster than the 70s or 90s. Either that or Europe will be buried alive in Asian surplus after the dollar poops vs. the euro... Only fix from EU perspective will be to 'kill the euro to save the dollar'. If they wait their crisis will make ours look 'tame'.
But - we agree on one thing, we'll have to wait sometime... I say not as long as you say but we'll see.
Iran Asks Japan to Pay Yen for Oil, Start Immediately
Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it is reducing holdings of the U.S. dollar.
Iran wants yen-based transactions for any/all of your forthcoming Iranian crude oil liftings,'' according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipmentseffective immediately,'' according to the letter, dated July 10 and obtained by Bloomberg News.
jim, thanks for the rbc report. divergence abounds, in reports, in the news, in the market... just not in real life. i can see the homes not selling here in orange county, ca. and i know my own retail spending is a fraction of last year's...
look at fdx today! and with crude at 7 month highs, let me know how that makes sense...
The consumer, 72% of the economy, is clearly under pressure and slowing, and corporate earnings have decelerated from 11% to less than 5% YoY, so people have good reason to be skeptical of the stock market. If the stock market doesn't pass the smell test, there's nothing wrong with sitting on the sidelines and earning 5%. I did it in 99 and 2000, and was told I wasn't getting the new economy (seems that I did afterall), and I've been mostly out since last fall, because a market driven only by leverage and deal making will have a nasty accident sooner or later. That being said, you're tilting at windmills if you persistantly short sell a market that just wants to keep going up. Rule #1 of investing is capital preservation, unless you're doing it with other people's money that is (which is part of the reason this market keeps going up).
This latest story of Iran asking for Yen is another nail in the bucks coffin. Also Kuwait abandoning dollar peg, etc etc.
Much of the dollars value stems from its status as the worlds reserve currency. The more countries make moves like this the more that status is in jeopardy.
I'm not ruling out a flight to USD as a safety haven, but ongoing events dont rule out a collapse in USD value either. If it loses another 5% its status will really be in trouble. Then you could have a flight to other currencies or PMs whacking it down more.
Disclosure: 50% of my "cash" in MERKX for a few months now.
Cal you wanted updates so here you go. Here is a memo I recived from a friend at another mortgage banbking outfit. Big changes to be announced Monday.
"FYI. The second mortgage market is now officially in turmoil. My recommendation is to lock in and have approved immediately any second mortgages you have with us or our brokers. You can expect big changes regarding cash reserves, payment shock and of course our latest hurdle the reasonableness of the income stated or used."
U.S. Urges China to Buy Mortgage Securities Amid Subprime Woes
The U.S. is urging China's central bank to buy more mortgage-backed securities after a surge in defaults by risky borrowers in the world's largest economy eroded demand for such instruments.
dryfly, barely -
Just my 2 cents, the Buffett rumor reeks of desperation ... could be da Boyz trying to start a short squeeze, and maybe exit their positions ahead of next weeks trading.
If even a permabull like Cramer is saying short the homies, I'm loading up on puts.
ABXs still making new lows in most indexes and those that aren't, are only off by a couple of hundredths. Someone forgot to send the memo that Buffet joined Paulson and sees the bottom in housing, to the ABX traders.
Let me see if I understand this: It is bullish that people are relatively more pessimistic? I don't know but it sounds a little like the contrarian who ran TOWARD the big wave because everyone else was running away from it.
greektome - there is a problem with that analysis... and its the same one that keeps the dollar as the reserve currency whether we want it there or not.
No one else wants to be the reserve currency of choice. The Japanese learned that with Plaza... The Europeans are learning that now as the euro skies... Its great for folks who accumulated a lot of savings & assets in the new reserve currency when it was weak (say folks with inheritance or retirees with savings & fixed income in the reserve currency)... But it is a killer for any enterprise using the new strong currency as their cost base facing foreign competition denominated in other, weaker currencies.
So even as the dollar should collapse - enterprises in the non-dollar zone (Euro Zone, India, Brazil) - will get crushed in head-to-head competition by those using weak dollars as their base (directly or pegged to).
The only way this situation changes is if some country steps up and says "We will be happy to be the consumer of last resort after the US!!"...
If Europe does that & they don't care if their mfg & tourism industry tanks then the euro can replace the dollar as the wold currency.
My guess is the minute Europe sees that's really happening - their pols will make sure the ECB nukes the euro to preserve jobs. They do NOT want to run our CA deficits & resultant hollowing... and a strong euro facing a weak dollar pegged RMB guarantees that.
::
BTW - the Iranian statement is PR, it doesn't matter. The Kuwaiti decision IS significant... here's why:
OPEC countries have ALWAYS accepted yen, euros or about any convertible currency.. they just 'priced' the transaction in dollars. So if oil is 'set' at $80/bbl... and the yen is running 120yen/dollar... the oil producer will expect to receive 9,600 yen/bbl. Any of them will be happy to accept that.
The key has always been after OPEC gets payment in whatever currency - do they then keep assets denominated in that currency or do they convert out of it through the FX into something else (then hold assets in that currency instead... or say gold).
The dollar has historically (since BW) been the currency of choice for reserves... it doesn't matter what the immediate short term currency of transaction is, its the long term holding of reserves that matters.
Hence who cares about Iran buying in yen... But the Kuwaitis not wanting to hold as many dollars (unpegging from the USD) is an issue & will have consequences.
"You guys see the WalMart numbers? Nice. Imagine them buying that crap without loans... Now you folks wanna buy some nice MBS and helps them out some or what?"
scrutinizer, I am completely with you, but with the HUGE short interest the train can easily go the other way for no reason other than covering for a long time. I made the mistake of riding the downswing in Apr/May and it took the whole month of June to correct. FOr now I am sitting on my position and even adding. Could be painful..
I finally got around to reading my copy of "The Coming Generational Storm". That, combined with all this "global competitive devaluation" talk (which I thoroughly believe) makes me itch to visit the local PM dealer again.
Nothing quite like global equity meltdown topped with flaming fiat.
Just my 2 cents, the Buffett rumor reeks of desperation
If it is just a rumor it does smell a bit desperate...
However housing is going to be a very good business again someday and Buffet might be deciding which one he wants to own later by trying to make sure that company at least lasts (survives) until later.
I mean some of these firms are positioned better in the long run (land they own, operational efficiencies, etc.) than others. But in the short run some of these might be in as bad a shape as even those less well positioned.
Part of Buffet's genius is his ability to not only judge immediate value (likes 'em cheap) but also discern which companies are operationally positioned better for the eventual recovery. He's no means 100% but he's good. It's a mess out there.
If so it makes sense to idenify the one you want to own over the long haul kick a little into the pot now to keep it going & hope the cost of maintenance isn't too high. Then consummate the final transaction for all of it later - when the timing is ideal, nearer a recovery.
If somebody else buys the whole company before Buffet - he then sells them his holding & takes the gain.
Win either way.
The only way he loses is if it fails.
I have no idea if that's what's going on - but it would be Buffet like if it was.
Barely: No guts no glory ... you are right though a short squeeze could get ugly. How 'bout a play like this: go long a builder you think is going to survive the carnage, and short a likely weak link like HOV or WCI ... only problem is the buyout rumors, I'm certain is either bankrupcy or buyout to a shark like Icann for at least 4-5 of these big public builders.
Guys, remember that Buffet is into a decent chunk of housing names already. I'm no expert on his portfolio, but it certainly doesn't seem like he's a believer in a hard landing.
He has:
-a private furniture company
-Wells Fargo (big RE exposure)
-H&R Block (bought BEFORE sp blew up)
-USG (building materials)
-Moody's (enough said)
-M&T Bank (decent Alt-A exposure)
-American Standard (hvac, bathrooms)
-Suntrust (Florida!)
Then there's a bunch of derivatives, MBS, ABS, you name it, in the insurance company.
So which of the companies listed above has been knocking the cover off the ball since WB bought it?
Of course, what lots of people fail to realize is he doesn't mind taking a stake now and buying in the rest when the thing cracks. I'd give him the benefit of the doubt on that one.
tj - before you visit the PM dealer stop off at the gun dealer. If the world changes such that you need gold you'll need lead even more.
If wealth evaporates for most, having wealth is the only thing more dangerous than having none... That is unless you have so much that you can hire your own army.
BTW - I'm not concerned about the 'generational storm'... nor about fiat per se. I'm concerned about overall productivity of necessary goods and services to sustain civilization. Do that and the rest usually works out fine.
If there is enough 'stuff to eat' then it comes down to deciding who gets what & it isn't usually worth fighting a lot over it... surplus does that and just about any fiat systems works adequately under those conditions.
If there isn't enough production then no fiat system (metal based included) will be enough. People can't eat the metal.
I am somewhat concerned about that. That we don't invest enough now to have real productive capacity to meet our needs going forward, energy, food, materials - then we will fight over it... generational, geographical, demographical... somebody somehow somewhere. Human nature.
Focus on sustainable profitable production & folks are mostly pretty peaceful - that's always been the key to civilization from 'Adam & Eve' onward...
Don't forget Buffet owns Homeservices of America which is a huge real estate company nationwide (I think they are 2)..they also own mortgage companies, title companies and even homeowners insurance....of course he's gonna say he sees a bottom because these companies are getting slammed right now..
Me & the wife are loaded for bear. We also have a big dog with shiny teeth, plus access to many more on short notice (since we volunteer at a rescue).
Honestly, though, if the world gets in a race to the bottom, PMs ought to do pretty well, relatively speaking. Unlike more obvious signs of material wealth (property, etc.), us poor folks can have it without anyone knowing any better. Easily transported, too!
BTW - I'm not concerned about the 'generational storm'... nor about fiat per se.
Pretty amazing statement, really. Have you read it, or perhaps "Empire of Debt"? These are real issues, and could easily end up causing huge civil unrest.
Most people -- even Kotlikoff & Burns -- consider this coming to a head decades or more into the future. However, IMHO, the coming depression will make it a problem almost immediately thereafter. The young won't pay exorbitant tax rates -and- the old won't give up their benefits, so it'll get ugly fast.
dryfly - agree on the Iran statement only PR, my "another nail" comment is more based on what the perception that it is significant will cause currency traders to do. the buzz seems to be that the 80 level is crucial support, so anything that causes that to be violated, whether truly signficant in an economic sense or not, ends up being significant....perhaps?
scrutinizer, I was tempted, when I first heard the rumor, to go way out of the money on HOV calls, until I came to the conclusion it's total BS. Otherwise, I can't bring myself to go long on any builder until the bottom is at least somewhere in sight. I may think about TOL in Q108 for calls, late this year.
dryfly - your case for why the EU might try to drive down the euro is compelling, and I can easily imagine some limited intervention, but I doubt if they'd join a race to the bottom. With a bit of forward thinking, at which the EU seems superior as of late, no one is likely to win at the end of this race, and if the eurozone doesn't join in they'll be much better prepared when liquidity dries up and the carry trade unwinds.
Unlike more obvious signs of material wealth (property, etc.), us poor folks can have it without anyone knowing any better.
But then you can't use it 'cause the minute you do everyone knows you got it and the mob will kill you for the rest. So what's the point in having any?
In anticipation of a complete meltdown you'd be better off learning how to make good booze (brew beer and run a still) - you'll have people trading you everything for that and its hard to steal (you make it). Just make sure to pay off the local mob... then you become important to them, they protect you.
Most people -- even Kotlikoff & Burns -- consider this coming to a head decades or more into the future.
I don't see it as a real problem as long as society remains highly productive - then it is a matter of who gets how much of the bounty not who lives or dies because there isn't any. The politics of surplus are a whole lot easier than those of scarcity regardless of the money supply situation.
Dollar estimates of future liability mean nothing to me - talk to me about the actual physical demand of goods & service expected to be required and the number of bodies, material & capital needed to produce them. If that capacity is there in 25 years or so then we'll be okay. In that case we just argue about who gets how much.
If the capacity isn't there then we are screwed. Then instead of worrying about accounting now we better get after adding real capacity for later.
Its far more desirable to have a well running monetary system but regardless, the money available - whatever kind it is, paper, electronic, metal - will 'expand' to fill the 'supply' of stuff available.
Not having the stuff is a bigger problem, one money won't fix.
anotherajh - I agree that Euro Zone won't try to beat Japan in a race to the bottom if it has a choice - my point is they can't let the dollar fall too far or they have very serious currency based competitiveness issues. Especially as long as China peg USD.
So they intervene as much as they have to... and dollar hegemony continues until somebody really wants to take the lead away from the dollar. European manufacturers and tourist industry does NOT want to take the lead... they like being a close number two... that's a pretty sweet spot to be.
"What the fu#k is that this country needs a goddamn bubble every 15 minutes to offset one that is deflating? Some things never change in the land of funny money."
David Pearson.
Add Shaw to your Buffett list...and Mitek and Benjamin Moore paints.
Unlike the homebuilders, these are industries that have unique positions or long-term histories or other distinguishing characteristics. Buffet does not own 'another face in the crowd'. Ever.
Look at Mitek, for instance: only one real competitor, worldwide, and EVERY homebuilder buys from them. Has to. Why? They make the truss plates that make roof and floor trusses possible and hold patents and proprietary engineering software and sell the plants and equipment for people to build the trusses that use the plates that they buy from Mitek... like Gillette used to be with razors.
You are exaggerating. No guns were necessary during Weimar hyperinflation. I also lived throughout hyperinflationary period in Poland and life was normal except you were robbed of wealth every day you held cash. So gold (or more conveniently dollars or Deutsche marks) was perfectly useful storage of wealth and quite often also medium of exchange (even though it was illegal).
I'm too young to be alive at that time but I heard stories that gold/foreign currency was very useful during WWII. It was perfect for bribes and even though the occupying forces could do almost whatever they wanted, taking bribes was easier than violence. Iterated prisoner's dilemma in practice. If you tried to be too ruthless, you could get on a execution shortlist of the underground resistance. If you just took bribes, everybody was happy.
Then, the communists came and you could have said "goodbye" to real estate and any visible wealth that was left after the war as it was confiscated (including companies). Gold, on the other hand, could be well hidden and after the storm passed could have been used.
Sometimes it's indeed unwise to show that you have gold. But even the most dangerous times pass by and well-hidden gold could be a perfect treasure to get on the feet after the life returns to normal.
I don't think any such scenarios are likely but I have implanted deeply into my brain the fear of hyperinflation. Believe me, it is hard to cure. And inflation is a very real threat.
The stock market is headed higher this year. Take a look at the spread between earnings yields for the S&P and bond yields for the ten year treasury. There is an arbitrage opportunity to issue debt and purchase shares. Private equity firms are capitalizing on this, as are corporations announcing share repurchases. The global supply of equities is shrinking, and this phenomenon will continue to drive stock prices higher until the spread between e/p and treasury yields is closed. This isn't a bubble, its just plain old supply and demand.
Matt, get out of your head and get this phenom, 70% of GDP is consumer spending and the VAST majority of Americans aren't doing better than they were last year.
You are exaggerating. No guns were necessary during Weimar hyperinflation. I also lived throughout hyperinflationary period in Poland and life was normal except you were robbed of wealth every day you held cash. So gold (or more conveniently dollars or Deutsche marks) was perfectly useful storage of wealth and quite often also medium of exchange (even though it was illegal).
Poszi - in the US you'd need guns. Everyone's got 'em - you better have 'em too. Trust me, on that one. UK, Canada, Australia - maybe not. US, yes sir. In a real crisis anyway.
BTW - I have good friends whose Mom was Ukrainian (still USSR then) and lived through the war in Germany - she was occupied then deported to one of the 'milder' work camps if there was such a thing. She was the one who told me the best 'money' when there is no 'money' is booze (vodka could buy almost anything in 1945 Germany).
I agree that gold is a good thing to hold in small quantities - but saved to use once in the 'mother of all' emergencies - like bribing your way across a border. Even then you need to be careful they don't get your gold & smoke you.
BTW - I don't see any of this happening in the US. But I'm also not a gold bug... Inflation I believe will happen though nothing like Wiemar, just enough to be a serious nuisance, not enough to rob all your wealth, just 'tax' it and your patience.
My guess is the best practice to beat an inflationary condition like this would be to own (either directly or via stock) the methods of production of common goods/services with short cycle time and low level of inventory so as to not be captive to 'time value of money' losses. Think 'services' or JIT mfg.
I wish I could accumulate anything more than small quantities!
I still find rather mystifying you're downplaying of "goods distribution". If it isn't such a big deal, why is Social Security the "third rail"? Americans in general are spoiled; they'll fight over who gets what simply because they can't conceive of being totally without.
The question of whether goods will even be there is a huge concern, too, given future energy problems.
p.s.: Reported "productivity gains" are mostly BS.
Vodka and cigarettes were great for everyday transactions. Even during communist times I remember various professions (e.g. plumbers) quoting their prices in bottles of vodka. It was especially good as there was rationing and goods were hard to get. Hard currency was good but illegal (actually later the transactions were only illegal, having it was fine) so all transactions with hard currency carried some risk (including exchange). But if you were buying a car on the second-hang market, you handed a pack of $100 bills.
I don't think there is going to be a Weimar scenario but why not 1970s?
I still find rather mystifying you're downplaying of "goods distribution". If it isn't such a big deal, why is Social Security the "third rail"?
'Cause the folks protecting SS think its their ticket to the distribution of those future goods.
My question to them is 'distribute what? Where is it all coming from, those goods & services in the future? What will SS buy?'
On the other side are the privatizer's - those who want private accounts. My question to them is 'what is it about private accounts that changes the physical situation... what changes the demographics & supply/demand conditions that all of a sudden private SS accounts magically work where public SS didn't?'
Neither camp has a real answer.
The 'answer' is we better invest now to be able to produce a lot of goods & services to be produced in the future - to meet the demand for health care & such consumed in the future... Plus take care of everyone else's needs & demands in the future too. Or be able to produce other stuff to trade for those goods & services we demand. If not, neither private retirement or SS will work.
Remember we can't inventory this stuff... I can't buy health care today and use it 30 years from now. Even saving gold only assumes SOMEBODY ELSE invested in the capacity to produce those goods & will trade with me. The gold did nothing to produce anything - now or in the future.
However, if we are extremely productive private retirement schemes or SS work BOTH work... then its just a matter of how we distribute the surplus.
But it all starts with surplus of goods & services not a surplus of money. Money whether paper, electronic or metal only works if there are enough goods and services to make the trades work.
Here's another way to look at it - money is a means of transaction but not a means of production. You 'eat' the result of the production... not the result of the 'money'. That is as true in the hear and now as it is in the future.
I don't think there is going to be a Weimar scenario but why not 1970s?
The 1970s in the US weren't as terrible as people say. You were in Poland in the 70s I assume - can't speak for that... I was in Rust Belt US then... my father started a business (succeeded) and I worked my way through college.
It wasn't an easy time but not hard like the depression (my father went through) or even as bad as the farm crisis 10 years later (I went through).
The key in the 70s was to NOT get caught in long term transactions in which you were the lender... people who did got hurt. Folks very quickly learned either stay out of those or charge interest rates high enough to compensate (meaning everyone was avoiding them & going 'short' by the end).
There are strategies to survive 70s like inflation - they distort & are inefficient & undesirable but are tolerable. There are no solutions for Wiemar - that I agree. Nor for severe depression/deflation.
Mish has an interesting post tonight regarding the rating model that Fitch has been using a bit:
What follows are excerpts from Absence of Fear, an excellent article written by Robert L. Rodriguez at First Pacific Advisors.
We were on the March 22 call with Fitch regarding the sub-prime securitization markets difficulties. In their talk, they were highly confident regarding their models and their ratings. My associate asked several questions.
FPA: What are the key drivers of your rating model?
Fitch: They responded, FICO scores and home price appreciation (HPA) of low single digit (LSD) or mid single digit (MSD), as HPA has been for the past 50 years.
FPA: What if HPA was flat for an extended period of time?
Fitch: They responded that their model would start to break down.
FPA: What if HPA were to decline 1% to 2% for an extended period of time?
Fitch: They responded that their models would break down completely.
FPA: With 2% depreciation, how far up the ratings scale would it harm?
Fitch: They responded that it might go as high as the AA or AAA tranches.
Fatally Flawed Model
Essentially Fitch extrapolated a model of constantly rising home prices forever into the future, in spite of obvious signs of rampant speculation and home price appreciation far above the long term average for four consecutive years. In addition, Fitch made no allowances for reversion to the mean on home prices, in fact did not even make provisions for a flattening market let alone a reversion to the mean at a time of massively declining lending standards, and with home price appreciation orders of magnitude above affordability indices and rental prices.
p.s.: Reported "productivity gains" are mostly BS.
tj - anyone who has worked in factories or engineering offices like I did in the late 70s through today will tell you there has been HUGE gains in productivity. People who are telling you that it is BS haven't walked factory floors for three decades.
Example: back in the 70s I did production control for a agricultural products factory one summer (college job)... I literally did the 'MRP' regen by hand - paper and pencil... In modern geek speak you would say I was the MES of their ERP. This plant employed about 300 people - it was not a mom-n-pop.
I then went out with the note cards, found the parts counted them to confirm the card file inventory & brought them to the line with the routing & job schedule (also hand gen). If I couldn't find them or counts were off (often the case)... we wrote POs or work orders (again by hand)... POs went out to suppliers by snail mail... we'd get a paper acknowledgment a week later or so. Typical lead times 16-18 weeks for simple parts from a supplier a state or two over. If we were in a real hurry - we'd phone them and place the order verbally... wooohoo, that had to be an emergency. Of course the lead was the same less the snail mail.
And if they said 18 weeks they really meant 20... they'd be done at their plant but days to weeks to ship & go through receiving.
Ah the good old days.
It is easier for me NOW to keep contact with folks I do business with in Europe, India or Asia then it was to do business back then with the folks in the next state. Seriously.
Plus we can get parts in here form Asia in way less than the leads back then - weeks in some cases.
And whether it is JIT/Kanban, MRO or process industry control - the capacity & capability to control process has resulted in mind boggling improvements & real efficiencies (much less wasted energy, material & labor).
A plant like that would have a quarter of the head count and produce four times as much valuable stuff at better quality today than we ever dreamed of.
I could repeat this same productivity then vs now exercise in engineering (CAD, CAM, FEA, etc.) manufacturing (toolmaking, machining rapid prototyping, etc.)... on and on.
There might be some weird accounting for productivity & the measurements might be imprecise but the gains are real and huge. Believe me.
I've heard theories that soap is a better medium of storing wealth in hard times than gold. It is can be traded in small quantities for good and services and is unlikely to attract the attention of the unlawful-too bulky to move quickly and not real 'sexy' to hold.
Drugs and sex are good things to be able to sell in bad times. In a decaying society, 'dirty' pictures could be a store of wealth if your control of actual flesh is not an option. Booze made from whatever, grapes, potatoes, grains is handy. It'd be 'taxed' by the local gang but still very profitable. 'Weed' can be grown in the backyard.
Labor will be valuable, Plumbing, electrical, car repairs and the like.
Of course, this points up the fact that paper money is easier to use in tractions than things. You might be able to barter booze, but the bottles are awkward, and I am not real sure how you barter sex, bring one of the 'girls' along to the 7-11????.
The U.S. Congress passed legislation this week that strengthens the vetting system for foreign purchases of companies in the U.S., a measure that observers say will mostly likely lead other countries to tighten their rules as well. FINANCE-US: Congress Reins in Foreign Investors - IPS ipsnews.net
It includes a provision to notify U.S. senators of investigations into foreign acquisitions in their home states.
Wow. That's a deal killer. Senators can be a real pain.
Initially, U.S. business groups opposed the measure, saying that it could prompt a backlash against their expansive presence and free trade agenda across the globe. But the groups later changed their stance.
The U.S. Chamber of Commerce, the nation's largest business interest group, now says the bill strikes the appropriate balance between keeping the U.S. safe and protecting the economy.
USCC on board? WTF? The C level exec's pulling the strings at USCC must think this is a 'job security' bill. With the dollar falling & offshore interests looking at US firms fore take over - CEOs must be feeling a little paranoid.
Just like the turn of the last century (1900)... when business, not labor, was the driver for protectionist measures. Could be the start of a real sea change.
"For us a strong currency is not synonymous with power. What you see is that power, by contrast, uses the monetary weapon for its own interests - it is the case with China, Japan, and the United States," Secretary of State for Europe Jean-Pierre Jouyet told LCI television.
He should just of just said 'Zee whore currencies!'... we'd have known. Man the French sure get angry when they are jealous.
Kevin I think what he's saying is its a lot easier for a society to produce money than it is to produce goods. The two are not necessarily the same - that has to change if we are going to remain prosperous.
I meant 1970s in the USA. The 1970s in Poland were actually very good, the 1980s were terrible (this was a direct result that 1970s were very good since at that time the investment and consumption was fueled by enormous debt that buried us in the 1980s). And I didn't mean the economic growth but the level of inflation.
It is interesting that for Americans, crisis=Great Depression=deflation, whereas for me crisis=inflation. Inflationary depression is perfectly possible and historically more frequent than deflationary depressions.
I also recall people hoarded and exchanged coffee. Stuff that people are (semi)addicted to is better than anything else.
What I also think as interesting is that it was good to have "connections". To know as many people of various professions as possible as it helps bartering.
I should've been more specific about "productivity". Yes, there have been great strides over past decades, but the gains of recent years have been wildly exaggerated. The measurements are as unreliable as the CPI.
Bob Dobbs is right, too. There's certainly no lack of goods in this world.
Like poszi, I also believe that a depression doesn't have to be deflationary.
It is interesting that for Americans, crisis=Great Depression=deflation, whereas for me crisis=inflation. Inflationary depression is perfectly possible and historically more frequent than deflationary depressions.
Well, in secular inflation (first par of Kondratieff wave) all recessions are inflationary, in the second part they are deflationary.
So far we had only 2 recessions in the current deflationary secular market. The next 1-2 recessions will be deflationary, much more deflationary than 2001.
Guys, question! I lost the link the the fine German blog with the impossible name, something like "immobulazen" or whatever. Please help to find!
I also worry that one day after all the mess is exposed, a group of central bankers would meet in a Swiss village and decide that they are going to inflate all in unison. Looking at M3 growth rates, I'm not sure they haven't met already.
who loses under that scenario...
russia?
Africa?
South america?
To insure the ability for all to purchase certain goods, the law of the "Maximum" was created to keep prices set; however, the result was that the manufacture of good (or the wholesale of goods) ceased when the gov't price no longer covered the costs to produce, thus the availability declined. Mugabe and Chavez have both experimented with similar folly in recent times.
Also, regarding use of soap, isn't glycerin a byproduct of biodiesel brewing? A double-bonus for anyone eqipped to produce the fuel.
One thing about the 1970's that might be harder to repeat today was that the 30-somethings and 40-somethings were making out like bandits with respect to their net worth without even trying. I know my parents were!!
This was because the long-term fixed-rate mortgages they took out in the 50s and 60s were getting depreciated to nothing at the same time as wages were broadly keeping up with inflation.
Mum and Dad bought here in Australia for $12K in the early 1970's with 5% down and a 40-year 5.25% loan. 10 years later they had only paid a few hundred off the principal, but had about 70% equity and regarded the monthly payment as a joke.
(Mind you, they got their loan from a government agency. The major banks at that time had a maximum LTV of 60%.)
With respect to your comments about MNC factory arbitrage, there is the factor that an Eastern (but not TOO Eastern) European factory would be behind the drawbridge if the EU REALLY started to get paranoid about Asian import penetration.
(Which they are quite capable of doing; ask a New Zealand farmer what happened when the UK joined the EU and disappeared behind the CAP wall.)
"Also, regarding use of soap, isn't glycerin a byproduct of biodiesel brewing? A double-bonus for anyone eqipped to produce the fuel.
Lumpeninvestor | 07.14.07 - 1:16 am | "
Commercial biodiesel refiners who want to use waste grease from restaurants, etc., face still competition from renderers, who've been buying used fats for soapmaking since forever. Soap and biodiesel are indeed intertwined.
You wouldn't want me to talk about 1980s in Poland because you'd think I'm crazy or at least exaggerating I was too young to remember much of 1970s and the final years of 1970s were getting bad and not much different from 1980s (for Poles 1970s are synonymous with the first half which was good and the second-half which was so-so was then dwarfed by much more serious crisis of 1980/81 and the following years).
This part of the Wikipedia article gives a pretty good description of these times. The pictures of queue lines and shortage of goods in shops are given in the 1970s section but were typical for 1980s. This is not exaggeration and not exception. It was fairly common. The shortages were caused by attempts of freezing prices during rampart inflation. I guess something similar now happens in Zimbabwe. Most of my memories of the economic situation during those times are the shortages and inflation.
Continued as Haloscan complained of too many links.
If you want to get a feel of the general mood (but it's not a documentary), I find The Decalogue, a movie series of 10 short films by Krzysztof Kieślowski, an excellent depiction of life in late 1980s in Poland. This movie is (with some difficulties) available in the USA (but it's hard to say how good the translation is since I watched it only in the original language version). Apart from showing the depressing scenery of these times, it's a deep artistic movie I greatly enjoyed (read the Wikipedia article for links to reviews).
You may get a kick out of this. When my grandfather went back to visit his family in Nowa Huta in the 1980s, he smuggled a couple of thousand dollars in a fake heel in his shoe. He also changed about $200 at the official rate when he entered the country. Once he got there, he changed the rest on the black market. When it was time to go home, he realized he had about $10,000 (or some similar ridiculous amount) of zloyty at the official exchange rate. He obviously couldn't change it back at the official rate - because the govt. had no record of him exchanging all these dollars.
So for a while he was the most popular guy in Poland, just throwing money at anyone he knew.
"Some traders speculated the rallies yesterday and today were also supported by so-called short sellers deciding to close out their positions as stocks rose.
The amount of shorting -- where traders sell borrowed stocks expecting to buy them back after prices fall -- jumped to 3.3 percent of the total shares listed on the New York Stock Exchange this month. That's the highest since at least 1931, according to Bespoke Investment Group LLC, a research firm in Mamaroneck, New York."
I traveled in Poland in the mid 1980's as a guest scientist. At that time, it seemed that farmers were switching from tractors to horses. My hosts (limnologists; lake ecologists) used a large diesal powered boat because gasloline to fuel outboards was not available. The Poles were the most gracious and friedly hosts that I have encountered. They used their ration tickets to feed me very well. I tried to reciprocate by helping to tighten up the English in their manuscript.
Thanks poszi - I'd still like to lift a few with you and chat about your day-to-day experiences back in Poland. Maybe someday.
All this talk makes me want to arrange a business trip down to Chicago so I can escape to the 'neighborhoods' to hunt up a good local butcher shop & bring home some kielbasa.
buy fast. Or else Blackfein will buy them all up.
great post!
alert alert
SK Telecom, Bausch & Lomb, Ceva: U.S. Corporate Bond Alert - Bloomberg.com
The Hulbert Stock Newsletter Sentiment Index at 40.6% coincides with other sentiment indicators showing that among individual investors there are twice as many bears as bulls. And the AMG flow of funds info for a couple years now shows that investors in funds and ETFs are skeptical of US equities, prefering money market accounts, bonds and foreign equities.
Great Bull Markets "climb a wall of worry". We have all heard that expression and now we are wittnessing it - many from the sidelines.
collapse may be nearer than I thought:
Mortgages matter. American Home Mortgage matters to the market. Fremont General matters. Thornburg Mortgage matters. So does NovaStar. They matter to Bear Stearns and Lehman and Goldman. And all of the homebuilders. But that may be it. The systemic risk, the catastrophic risk that is supposed to manifest itself any day now, keeps being postponed. We just don't get the spillover to anything but the related stocks. Not even the companies. We know that the consumer is supposed to be on its last legs, but the numbers at Wal-Mart and Penney don't confirm the results at Sears and Home Depot. We aren't getting the big number cuts that are supposed to happen for anything but the homebuilders. Maybe, some month, they will matter. The resets to higher mortgages will matter, although if you lock in a long-term mortgage now it is still better than at almost any other time we have...
TheStreet.com's RealMoney
Tragedy into farce:
Lehman says worst is over in credit markets, buy European investment-grade debt
US HUD secretary urges China to buy MBS:
Bloomberg.com refer=asia
I guess that makes Bernanke the rodeo clown.
sep spu's at 1562 .... yikes
anybody else exxhausted ?
oil 73.60--does'nt matter
nebraska can't get fuel
and there allowing fuel tanker trucker's to drive overtime....Sweet...
anybody for a summer road trip with the kids in corn country?
The farking problems are obvious and unavoidable. Except for the higher classes most people are under financial strain due to the largest ever debt load.
And they want people to go optimistic or the market won't stop going up.
It's kinda funny.
Optimist, though, does not pay the incredible debt loads people are facing.
How much of this stock market pop is due to the all-time lows of the US dollar?
Can anybody post a link to the US markets (DOW, S&P, NASD) priced in Euros or Yen? I'm curious to see those charted against their prices in US dollars, over a 5-10 year range.
Somebody's got to have that information available for free.
Great Bull Markets "climb a wall of worry". We have all heard that expression and now we are wittnessing it - many from the sidelines.
Kind of like watching the fools biding up houses in 2005 - they ain't making no more, buy now or be priced out forever, it's at a 52 week high must be a great time to buy as the price will only go higher.
What the fu#k is that this country needs a goddamn bubble every 15 minutes to offset one that is deflating? Some things never change in the land of funny money.
I've been lightening up on HB puts in the last two days. Looks like there is a squeezed today in the home builders. This clearly doesn't reflect fundamentals and I will probably buy some back before the July sales data come out.
OMG look!
http://theimbreport.com/?p=34
Indymac is blogging about the downgrades on their bonds! they also disclosed the volume of EPD requests (not actual repurchases) in 2Q07, which is surprisingly way down from 1Q07.
bacon the biggie is if people start trying to force repurchases of fraudulent loans. Like, 60-80% of Stated Income loans could conceivably be proved "fraudulent" ...
That's something that will happen when Alt-A blows up.
did u know they were swift to cut off the head of the bad underwriting beast, so that lifetmie losses on 2Q production is down from 1Q (but that's most def using old LEVELS not the new perfect LEVELS)? and that subprime is only 4% of production? boy those guys are great!!!
bacon dreamz, I think a corporately-sponsored blog is known as a "clog."
Homies up huge in the first hour. Kept some powder dry for a day like today so I could add to my PUT position. So I did. Wish me luck!
Tanta, theyz just trying to help us understand their awesomeness why u gotta hate?
seriously, it is a "clog" though. i like that term. maybe it should be called "the imb distort"
These "clogs" are not the kitchen sink or hair type either . . . ahh, you get the picture.
Our idiot leaders are convinced that if the stock market goes up, the mortgage problem will disappear.
Problem is, the ones who can't pay their reset mortgage payments also don't have anything in the stock market. Dow 14k doesn't help a single mortgage problem. Not one. If may push off the day of reckoning for the investment bankers, but it is no cure. Not even close.
Our leaders are losers.
Viva la Revolucion!
barely,
i'm with u. shorted PHM at the top of the squeeze and just closed them out at a nice profit. these squeeze attempts are getting weaker and weaker.
Can anybody post a link to the US markets (DOW, S&P, NASD) priced in Euros or Yen
Gary, this is what you want. It is from April, but the picture is fugly. Dow in alternate currencies and commodities.
Dow in other currencies plus
Tanta, I don't know if anyone had forwarded this to you (I didn't see it mentioned in the last couple of threads) but it looks like Reuters took your suggestion on looking into the S&P restatement from $12B to $7B.
CNNMoney.com: 404 Page Not Found
"S&P: Whoops! A $5 billion subprime blunder
Rating agency lowers amount of mortgage-backed securities under review to $7.3 billion from $12.1 billion.
July 13 2007: 7:06 AM EDT
NEW YORK (Reuters) -- Standard & Poor's admitted to making a nearly $5 billion blunder in correcting its own estimate for subprime securities it is reviewing for ratings cuts.
S&P corrected the volume of residential mortgage-backed securities it placed under review for downgrade on Tuesday to $7.35 billion from $12.1 billion.
This is obviously sloppy by S&P," said Mirko Mikelic, a fund manager at Fifth Third Asset Management in Grand Rapids, Michigan. "I don't think anyone's doing back flips."
Standard & Poor's original statement announcing the review of 612 residential mortgage securities on Tuesday spooked investors, driving them away from financial stocks and other riskier investments and into the safety of U.S. government bonds. A benchmark subprime index fell to a record low.
"It was an error and we corrected it," S&P spokesman Adam Tempkin said on Thursday. "It was human error. It is what it is."
S&P said the volume corrected represents 1.3 percent of the $565.3 billion U.S. subprime mortgage market it rated between the fourth quarter of 2005 and the fourth quarter of 2006.
The changes by S&P, the credit-rating unit of McGraw-Hill Cos., come on the heels of increasing troubles in the subprime mortgage market that caters to borrowers with spotty credit histories.
"The market's been so sensitive to the subprime issue, so you would think that they would dot their I's," Mikelic said. "It doesn't help when S&P is changing their numbers."
These "clogs" are not the kitchen sink or hair type either . . . ahh, you get the picture.
Maybe "shlog" would be more exact than 'clog' in that case...
where's our hedgie Shortbuster today? Shortie, you'll have to do alot better than yesterday to get yourself back in the money with real estate.
Well, as we all know, the "market only goes up!"
Just ignore all of these things:
We are in sooo much trouble!
bacon dreamz, I think a corporately-sponsored blog is known as a "clog."
Actually, Tanta, I believe they are known as the "Corporate Rap".
Aka CRAP
The stock market is headed higher this year. Take a look at the spread between earnings yields for the S&P and bond yields for the ten year treasury. There is an arbitrage opportunity to issue debt and purchase shares. Private equity firms are capitalizing on this, as are corporations announcing share repurchases. The global supply of equities is shrinking, and this phenomenon will continue to drive stock prices higher until the spread between e/p and treasury yields is closed. This isn't a bubble, its just plain old supply and demand.
Kevin - The psychology of today's stock market is quite different from the residential housing market in 2005. In 2005, the majority of the public was convinced that home prices could only go up for the "reasons" you noted - very similar to the public's attitude toward the stock market in the of Spring of 2000.
Today, the public is very cautious on the stock market - not confident at all. Most expect a significant correction or worse for the reasons commonly expressed on this website.
There will not be a significant bear market until the sentiment values are reversed.
Indymac's experience with EPD's confirms the dynamic, so far, for defaults:
-spec's using stated 100% CLTV loans caused the bulk of alt-a EPD's. That pig is almost through the python.
-aside from spec's, subprime borrowers defaulted in size first. This was NOT because of their low FICO's, but because theirs is the only product requiring full amortizing payment at high rates. They just ran out of money first, in other words.
-the next group to default is stated interest only Alt-A. This is happening now.
-after that will come recast neg-am.
-and last, but certainly not least in terms of sheer size, resetting high-DTI conforming.
So lower EPD's is not an an clear. Thanks but no thanks Indy Clog.
That was supposed to read, "not an all clear."
Matt, the FED Model was as cheap in 1929 as it is today. Was there an arbitrage opportunity back then too?
Tennis_8 the people that were telling everyone Housing was a bubble back in 2005, are the SAME that are telling the Stock Market is a bubble today.
American are increasing their savings the bank.
M2-M1 increases by 8% on average year-on-year, more than in the previous quarter, which means that the Americans increase their saving and spend less. Demand decreases or adapts and growth slackens.
GDP growth will be 0% in the second quarter, and 1.26% YOY. It will be negative in the 3rd and 4th quarter because the Fed did not lower its rates.
The growth slowed not because high mortgage debt commitment but more due to a high Fed funds rate which should be at around 4%.
theroxylandr- you should read this guy. his interest outlook sounds very much like your.
Link:
http://chevallier.turgot.org/a636-Unreal.html
Also, Tennis_8, margin debt is mostly taken by the public, and it's a its highest level BY FAR, having risen the most ever in May.
That hardly tells us the public is not buying this rally, now does it?
More still: MOST of the public does not expect a financial disaster for the simple reason that most of the people does not have a clue about structured finance, and thinks housing is an old story contained to subprime.
dot: Thanks much.
Tennis_8
I retired thanks to the housing market and I'm doing very well on my stocks and investments but please spare me the bull sh*t
do not lower interest rates... they should be raised. Bring back my currency value!
Joe posted yesterday that the NEXT surprise will be the dollar increasing...
I'm beginning to agree especially against and I think that is PART of why the Dow went up so big yesterday.
If I were a FX exchange wonk from Europe... I'd be buying US equities LIKE CRAZY using the strong euro.
Why? Because the euro increase is KILLING their mfg business & labor market with the political repercussions becoming unbearable... the noise out of the new French President is a testimonial to this. It is just a matter of time before the EU also has to destroys the euro (to save the dollar).
So they race to get in now - buy a bunch of US equities - wait for the currency reversal and turn them back into (even more) euros.
Pure arbitrage play... a rising DOW doesn't hurt.
It is similar to what I'm seeing from MNCs & PEs racing to get plants built in China (NOW) before any large & significant RMB revaluation. Even if the plants are marginal from an operational perspective - the anticipated FX gain will be quite significant.
And if you were really plugged in from Europe... you use euros to buy US based MNCs with growing presence & exposure to RMB revaluation and get two arb bangs for the one buck.
Just a WAG... but makes sense seeing some of the recent gains (like GE, HON, etc.).
I'm beginning to agree especially against...
the euro.
Finish the sentence YOU MORON! LOL...
"the noise out of the new French President is a testimonial to this."
When isn't a French Pesident making noise?
When isn't a French Pesident making noise?
Ya but USUALLY it is about how important France (and Europe) is and why their currency should be the worlds currency (and France the world's language)...
Sarkozy was suggesting the opposite... complaining of how STRONG the euro is and how it needs to get whacked... He likes the idea that the dollar is the world currency and wants the euro to be more like the yen (with mfg job growth in europe similar to Asia).
My guess is if the euro continues to remain this strong - political pressure will force the ECB to 'intervene'.
OH MY!! Check out this post from Market Ticker
Inside view of the mortgage market [General] - MarketTicker Forums
Oxy-moron alert... HOV rumor confirmed
Home builders, Hovnanian rise on Buffett rumors - MarketWatch
Wrong. They do confirm. JC Penny is sluggish. WalMart has a lot of food sales and food prices jumped last month. We don't know how much food WalMart sold, but we suspect that if you take it out the rest of the stuff will be sluggish.
I want that Mortgage company!If they will take a ostdated check on a closed account i could come out OK...
OMG! Will the joyride never end? Yesterday I get up to 'Market Surge On Retail Numbers', and today I see 'Retail Takes Biggest Hit In 2 Years'. (Both of these are Yahoo! headlines of course.) I have to think the unwashed masses and the trading public are one and the same.
News is fun, lets buy some more, shall we ??????
What's that, you say? The snap, crackle and pop are not happy breakfast sounds? And what on earth has become of my broker, he is not answering the phone.
Yes indeed, welcome to the oblivious parade. Tanta dear, how many trillions are wound up in credit derivatives? I think we can ignore the artifical divide between mortgage backed and non. Like the exterminator dude said in 'Over The Hedge', prepare for a lot of stinging.
My guess is if the euro continues to remain this strong - political pressure will force the ECB to 'intervene'.
the strong stance of ECB President Trichet... Yesterday, he was quoted saying a couple of things...
"NOT ACCEPTABLE TO CLAIM THAT EURO GOES AGAINST JOB CREATION"
"FX MARKETS ARE NOT FULLY RECOGNIZING ECONOMIC FUNDAMENTALS IN JAPAN"
"IT WON'T WORK" FOR EUROPEAN GOVTS TO TELL TRICHET WHAT TO DO ON FX"
Kevin,
it helps to have experience speculating in real estate as we have over the last couple decades. the perspective has been crystal clear the last 2 yrs that prices have become way out of line with reality. which is why i moved to stock speculation 2 yrs ago.
Indeed it is. Thanks for the link! Except that he's probably full-time profi while I'm just managing my own money in the spare time
Sarkozy was suggesting the ppposite... complaining of how STRONG the euro is and how it needs to get whacked... He likes the idea that the dollar is the world currency and wants the euro to be more like the yen (with mfg job growth in europe similar to Asia).
My guess is if the euro continues to remain this strong - political pressure will force the ECB to 'intervene'.
No way that Germany would agree to that.
Why don't you look at junk bonds?
SHAIX
So it goes up, uh?
dryfly,
i would be careful about expecting the dollar to rally resulting in what you've hypothesized. don't forget all the fundamental reasons why its dropped to where it has. you answered beachguy yesterday about what might end this craziness and i would add another trigger to your cdo proposal and that would be a drop below 80 in the USD index at which it sits right now. that could trigger more dollar selling, a spike in interest rates, yen carry unwinding and stock corrections. this is why gold is rallying right now.
I wonder how he will whack the euro? Legalize counterfeiting? Start the war against Germany? Fund the huge intergalactic expedition and dedicate 5% of GDP to the preparations? Just get back to Franc and dump euros?
Kevin - I've been reading all of that (Trichet & ECB independence stuff)... They haven't had to face an explosive euro and dollar collapse... never.
Sometime this year China will be sending more stuff to the EU than NAFTA Zone. At $1.35 the euro isn't hurting China's cause.
As long as the jobs hold up in the EU Trichet will remain 'independent'... as soon as that stops - he's gone.
Remember, EU relies heavily on BOTH tourism and high end mfg'ing exports (machine tools, aerospace, etc.). All that is getting smoked on world markets - here, Asia, everywhere.
Plus there really isn't an EU constitution... its all ad hoc. The whole EU could blow apart if jobs are lost & SOMETHING isn't done...
My guess is they'll send Trichet into exile on St Helena before they let that happen. Then start printing some pretty money in earnest.
Just get back to Franc and dump euros?
The French LOVED the euro... at about $0.90... not so much at $1.30... and at $1.50 and above the franc starts looking mighty good. Ask the Italians about the Lira.
Not everyone hates 'fiat'... just savers. All eight of them.
I second it.
US$ may have a 2-3 quarters reversal soon. Something like in 2005
As US demand for Asian/European export continues to weaken, this would temporarily halt the US$ long term decline.
US trade deficit position would improve significantly for a period before the whole world is pulled down.
This would be the breathe of fresh air that refreshes which would flush out all US$ bears, like the 2005 US$ reversal flushed out Warren Buffett.
The flight to safety reaction in the event of a global equity melt down should help the US$. Contrary to what many Americans believe, the US$ is still held in high regards by most Asian and oil rich Arabs. My country is use as a key location to recycle the petrol dollars back to the US. Less questions asked when the "Mohammads" want to pull money out fast with all the terrorism funding concerns in US.
The 5-10% of the petrolum dollars that is retained in my local economy through the recycling process is creating a mini-boom here- According to a reliable source from Julius Bear, a swiss bank doing business here
We'll, yesterday convinced me and I finally broke down and bought every stock I could bet a hold of leveraged by a factor of 12 using loans from the bank of Japan and price swap derivatives.
None of my lenders know that I'm actually leveraged since the loans were supposedly for adding office space.
Someday is coming for the housing market, but first we need to have a couple of nice rallies to let the folks in the know out at a comfortable profit.
Remember Enron didn't head straight down, it took quite a while to have all of the fraud come out, and then, and only then did it plunge.
Someday this war's gonna end...
dryfly: Heh. You believe the ECB will take action to make the euro weaker?
Won't happen. It recently raised the rates, and it will continue to do so, since the most of the euro area have an amazing strength at the moment.
The stock market is headed higher this year. Take a look at the spread between earnings yields for the S&P and bond yields for the ten year treasury. There is an arbitrage opportunity to issue debt and purchase shares. Private equity firms are capitalizing on this, as are corporations announcing share repurchases. The global supply of equities is shrinking, and this phenomenon will continue to drive stock prices higher until the spread between e/p and treasury yields is closed. This isn't a bubble, its just plain old supply and demand.
There are two flaws that I see in this argument:
1) Earnings are juiced up by liquidity right now, perhaps by as much as 50%. Based on historically prevailing earnings P/E ratios are closer to 30 at the moment. Corporate earnings follow a dramatic boom/bust cycle, and there is good reason to think we are close to a peak.
2) Stock values are vastly more dangrous than high-grade bonds. The argument that this arbitrage opportunity will persist assumes that private equity investors (or even leveraged loan investors) won't suddenly become concerned with the inherent danger in owning (financing) companies compared to high grade debt.
Money that comes in at regular and predictable intervals is simply more valuable than money that doesn't because you can make concrete plans for its use.
You can't count on the complete absense of risk premiums lasting forever.
can someone pls shed some light on the marked divergence bet the u of michigan consumer sentiment survey and the rbc survey also released today?
rbc.com - RBC Financial Group - Media Newsroom
Let's be clear about something. WalMart's sales did not--REPEAT, DID NOT--surprise to the upside.
WalMart is stuck in the same cycle in which they started out the year. Their June sales came in exactly where I expected they would. The guys in Bentonville are probably scratching their heads wondering what all of the excitement is about. Forget all of that food crap.
idoc
"it helps to have experience speculating in real estate"
I didn't have any experience, just a bunch of damn fools in a bidding war for a POS that we're to damn stupid to understand Greenspan was going to give them a good screwing, which is exactly what they got. Assets are only worth what some other fool is willing to pay you for them. I was buying oil stocks in 2000, buy low sell to some fool higher. Most just people are just plain stupid. Buy some oil stocks would ya help a poor old boy out.
Look at a 2 day intraday chart of AMGN and GE.
Who sets these things up?
re: HOV buyout via Buffett
whereas this could be true, i would be very careful with rumors. this would be a classic hedge fund squeeze play to get themselves out of a bad bet. i've seen this happen 3 times in last 7 mo with CFC. knowing what little i know about Buffett strategies, i can't see why he would buy a HB given whats coming with resets. it would be a dice roll which he's not known for. don't forget his buddy Gates bought and then quickly reversed a huge stake in HB's last Fall.
Interesting comments by dryfly and candyman in unnamed Asian country regarding the value of the dollar vs the euro. I agree with dryfly -- the Europeans can't sit back and let their currency appreciate against the rest of the world. So a worldwide inflation (race to the bottom) looks likely to me. It should be a wild ride...
Friday morning gossip:
http://data.nationalmortgagenews.com/columns/hearing/
"Not only is Aegis Mortgage shutting its home-equity division, but the lender is plagued by $100 million in early payment defaults."
They haven't had to face an explosive euro and dollar collapse... never.
We need good currency collapse just to keep things interesting, I'm getting bored with all this sub prime mortgage stuff.
re: HOV buyout via Buffet
if you look at HOV's cashflow, its hugely negative. the movement in the stock looks like it could go BK in the next year or so. if i were Buffett and looking to buy, i'd wait til the stock was near zero before making a move.
re: HOV buyout via Buffet
i just tried to short HOV but NO SHARES AVAILABLE via Fidelity. lots of ppl don't believe this.
re: HOV buyout via Buffett
Don't buy it either. If there's one thing Buffett likes, it's companies that are oligopolies or monopolies.
Homebuilders are neither. Could be wrong, but this story seems like nonsense.
Won't happen. It recently raised the rates, and it will continue to do so, since the most of the euro area have an amazing strength at the moment.
I agree in principal with your logic - especially that the EU Zone is strong & Trichet feels confident to flex muscle - but not the end game outcome.
But that was the way we were in the late 90s as the dollar got stronger and stronger & Asia really started to eat into tradeable industries here one at a time.
Remember euro in the $.80 and 'Old Europe' back then? No more.
EU Zone is now the primary target of Asian exporters, not NAFTA Zone anymore. Asian new export growth will be into EU more than NAFTA.
I do biz and talked to MNCs with big operations in Eurozone, NAFTA ZONE & Asia - they have told me they would be ecstatic if they could get components & systems built in Asia to sell in EU Zone at EU prices... kicks over even Eastern European costs advantages.
It is happening & will accelerate. EU gov'ts will have to face it. Whacking the euro is the easiest and lest politically painful way to do this (as we in NAFTA Zone are learning).
It will happen in EU whether Trichet goes along or not. If he doesn't they'll find somebody who allows it. Period. Only question is when.
The MNCs with operations around the world are in excellent position to arbitrage it all the way around... a carry trade based on capital in place if you will.
re: HOV buyout via Buffett
the more i think about this the more i'm willing to short HB's today. once again, the Gates Foundation reversed its stake in HB's last Fall. don't you think he consulted with Buffett before this move? esp. since Buffett turned over his fortune to Gates to manage? the timing right after yesterdays rally is suspicious as well. HB's didn't really budge yesterday despite the rally so what better time to stoke squeeze fears in the market than the day after?
Euro is overvalued. Look at the Economist's The Big Mac Index. In short term, though, anything can happen. EU has a bunch of their own problems but IMO they are currently not as serious as American ones. In long term, though, unless Ben gets his helicopters to work, dollar should return to its fundamental value based on purchasing power parity (PPP).
On the other hand, it is not easy to look at PPP only. Yen should have never become this weak but it is the most undervalued currency. So "long term" might be really long.
I also worry that one day after all the mess is exposed, a group of central bankers would meet in a Swiss village and decide that they are going to inflate all in unison. Looking at M3 growth rates, I'm not sure they haven't met already.
Since the marginal transaction sets the price for all invariably creates massive price moves in both directions once the herd stampedes. While it is obvious that ever higher prices demand more capital to keep the trend sustained, few investors ever bother to analyze that fact and ride the momentum. Just as the house flippers who started early in the price run up beginning in 2001 and left the party when folks were really getting excited in 2005 have their capital intact, so too will those folks who have left the last ????? DJIA points to those who believe buying every dip using margin will be rewarding.
There is always an event that separates the masses in every generation from their capital leaving a fear that takes decades to overcome. The current generation of investors will have this event, just as night follows day. The younger the investor and the greater the time horizon to recoup from a devastating decline allows one to be more aggressive.
There is a saying that was told to me many moons ago.....young soldiers lead the charge because old soldiers know what happens. It would be noteworthy to analyze margin user by the age of the investor.
Yen should have never become this weak but it is the most undervalued currency. So "long term" might be really long.
That is a tribute to the power of central banking... I'm not condoning it just sayin' what is.
I also worry that one day after all the mess is exposed, a group of central bankers would meet in a Swiss village and decide that they are going to inflate all in unison. Looking at M3 growth rates, I'm not sure they haven't met already.
If Trichet throws in the towel - we'll know that day is here... 'Rapture' can't be far behind.
I tried to short HOV too and no shares with my brokerage either so I took Dec PUTs. Instead shorted MTH to satisfy my urge to short.
No irrational exuberance in sight!
Normally, of course, advisers become more bullish and exuberant as the stock market rises. The fact that just the reverse happened over the last three months is quite unusual - and bullish.
To appreciate why, it can be helpful to imagine a bull market as a bucking bronco in a rodeo, trying its darndest to throw everyone off its back on the way to the other side of the ring. By doing exactly what its supposed to do, this bull market is revealing itself to be very healthy indeed.
The stock markets ability to keep advisers offs its back was particularly in evidence Thursday. Despite the stock markets impressive performance, the HSNSI didnt budge upward, not even a tiny bit.
If the best one-day return since 2003 isnt enough to lure advisers back into the stock market, what will?
There will come a time, of course, when advisers will be irrationally exuberant about the stock market, even if we cant predict now what factors will lead them to become so. Thats when contrarians will start to particularly worry.
For now, however, the sentiment picture does not suggest that we are at, or close to, that point.
Contrarians believe that further market gains are likely Mark Hulbert - MarketWatch
Oh, and if the silly Buffet rumor turns out to be true PUTs keep me from selling everything I own to get out from under the trade.
Eevryone's talking about how people are not irrationally optimistic so the market has to continue to climb.
Funny that people aren't optimistic yet they're taking on the largest margin debt ever by a wide margin.
dryfly: sure, anything could happen if we are talking in a 10 year timespan. Remember that the dollar have been overvalued since the 70s though. It can take quite some time before corrections come.
Michael
Hey baby buy oil stocks would ya help an old boy out.
Tues Cramer says short the HBs. A good time to cover as they go up.
Today Cramer says HBs are tough to short. I feel better.
It can take quite some time before corrections come.
Sure but things on the trade front are speeding up for the EU. China's got a shit load of stuff that's gotta go somewhere... $1.30 euro buys a load of that and more. Think the folks in Stuttgart gonna be happy about that? Or down in Lyon?
I think not.
I think we see something happen faster than the 70s or 90s. Either that or Europe will be buried alive in Asian surplus after the dollar poops vs. the euro... Only fix from EU perspective will be to 'kill the euro to save the dollar'. If they wait their crisis will make ours look 'tame'.
But - we agree on one thing, we'll have to wait sometime... I say not as long as you say but we'll see.
Housing starts are due out next week. Help me here. I don't see a number that would be a positive for the HB shares.
Starts up adds to record supply.
Starts down reinforces the impression that housing weakness will persist longer than Paulson acknowledges.
Today Cramer says HBs are tough to short. I feel better.
Cramer note to himself...
'Jim you moron - next time buy the damn shorts first THEN tell everyone... Sheesh, slap my monkey!'
Iran Asks Japan to Pay Yen for Oil, Start Immediately
Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it is reducing holdings of the U.S. dollar.
Iran wants yen-based transactions for any/all of your forthcoming Iranian crude oil liftings,'' according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipmentseffective immediately,'' according to the letter, dated July 10 and obtained by Bloomberg News.
Iran Asks Japan to Pay Yen for Oil, Start Immediately (Update3) - Bloomberg.com
jim, thanks for the rbc report. divergence abounds, in reports, in the news, in the market... just not in real life. i can see the homes not selling here in orange county, ca. and i know my own retail spending is a fraction of last year's...
look at fdx today! and with crude at 7 month highs, let me know how that makes sense...
Very interesting Kevin - I wonder if all those carriers in the PG & IO have anything to do with that?
Also interesting:
$ Hits All Time Low vs Euro
DOW Rallies, Eyes 14000
Flight to 'quality?'
The consumer, 72% of the economy, is clearly under pressure and slowing, and corporate earnings have decelerated from 11% to less than 5% YoY, so people have good reason to be skeptical of the stock market. If the stock market doesn't pass the smell test, there's nothing wrong with sitting on the sidelines and earning 5%. I did it in 99 and 2000, and was told I wasn't getting the new economy (seems that I did afterall), and I've been mostly out since last fall, because a market driven only by leverage and deal making will have a nasty accident sooner or later. That being said, you're tilting at windmills if you persistantly short sell a market that just wants to keep going up. Rule #1 of investing is capital preservation, unless you're doing it with other people's money that is (which is part of the reason this market keeps going up).
Well spoken Turbo...
re: dollar rally?
This latest story of Iran asking for Yen is another nail in the bucks coffin. Also Kuwait abandoning dollar peg, etc etc.
Much of the dollars value stems from its status as the worlds reserve currency. The more countries make moves like this the more that status is in jeopardy.
I'm not ruling out a flight to USD as a safety haven, but ongoing events dont rule out a collapse in USD value either. If it loses another 5% its status will really be in trouble. Then you could have a flight to other currencies or PMs whacking it down more.
Disclosure: 50% of my "cash" in MERKX for a few months now.
dryfly
I wonder if all those carriers in the PG & IO have anything to do with that?
Flight to 'quality?'
The US goes launching a few missiles into Iran and the only flight to quality I see will be oil. Maybe Bush just needs a good distraction, who knows.
Michael
Major oil stocks all hiting new 52 week highs today keep buying Michael maybe my kids can retire too.
Cal you wanted updates so here you go. Here is a memo I recived from a friend at another mortgage banbking outfit. Big changes to be announced Monday.
"FYI. The second mortgage market is now officially in turmoil. My recommendation is to lock in and have approved immediately any second mortgages you have with us or our brokers. You can expect big changes regarding cash reserves, payment shock and of course our latest hurdle the reasonableness of the income stated or used."
Dryfly, I posted the link on the retail sales thread.
Did someone mention piggybacks?
http://bp1.blogger.com/_wFWqWIH-WFU/RpfS3UdfBZI/AAAAAAAABjs/f4s--arfU0M/s1600-h/piggybacks.gif
U.S. Urges China to Buy Mortgage Securities Amid Subprime Woes
The U.S. is urging China's central bank to buy more mortgage-backed securities after a surge in defaults by risky borrowers in the world's largest economy eroded demand for such instruments.
U.S. Urges China to Buy Mortgage Securities Amid Subprime Woes - Bloomberg.com
We can't bail our worthless country out we need a country with real money WTF. Come on down and step in front of this bus.
dryfly, barely -
Just my 2 cents, the Buffett rumor reeks of desperation ... could be da Boyz trying to start a short squeeze, and maybe exit their positions ahead of next weeks trading.
If even a permabull like Cramer is saying short the homies, I'm loading up on puts.
ABXs still making new lows in most indexes and those that aren't, are only off by a couple of hundredths. Someone forgot to send the memo that Buffet joined Paulson and sees the bottom in housing, to the ABX traders.
Let me see if I understand this: It is bullish that people are relatively more pessimistic? I don't know but it sounds a little like the contrarian who ran TOWARD the big wave because everyone else was running away from it.
greektome - there is a problem with that analysis... and its the same one that keeps the dollar as the reserve currency whether we want it there or not.
No one else wants to be the reserve currency of choice. The Japanese learned that with Plaza... The Europeans are learning that now as the euro skies... Its great for folks who accumulated a lot of savings & assets in the new reserve currency when it was weak (say folks with inheritance or retirees with savings & fixed income in the reserve currency)... But it is a killer for any enterprise using the new strong currency as their cost base facing foreign competition denominated in other, weaker currencies.
So even as the dollar should collapse - enterprises in the non-dollar zone (Euro Zone, India, Brazil) - will get crushed in head-to-head competition by those using weak dollars as their base (directly or pegged to).
The only way this situation changes is if some country steps up and says "We will be happy to be the consumer of last resort after the US!!"...
If Europe does that & they don't care if their mfg & tourism industry tanks then the euro can replace the dollar as the wold currency.
My guess is the minute Europe sees that's really happening - their pols will make sure the ECB nukes the euro to preserve jobs. They do NOT want to run our CA deficits & resultant hollowing... and a strong euro facing a weak dollar pegged RMB guarantees that.
::
BTW - the Iranian statement is PR, it doesn't matter. The Kuwaiti decision IS significant... here's why:
OPEC countries have ALWAYS accepted yen, euros or about any convertible currency.. they just 'priced' the transaction in dollars. So if oil is 'set' at $80/bbl... and the yen is running 120yen/dollar... the oil producer will expect to receive 9,600 yen/bbl. Any of them will be happy to accept that.
The key has always been after OPEC gets payment in whatever currency - do they then keep assets denominated in that currency or do they convert out of it through the FX into something else (then hold assets in that currency instead... or say gold).
The dollar has historically (since BW) been the currency of choice for reserves... it doesn't matter what the immediate short term currency of transaction is, its the long term holding of reserves that matters.
Hence who cares about Iran buying in yen... But the Kuwaitis not wanting to hold as many dollars (unpegging from the USD) is an issue & will have consequences.
Come on down and step in front of this bus.
Kevin - more like (with a Tony Soprano tone):
"You guys see the WalMart numbers? Nice. Imagine them buying that crap without loans... Now you folks wanna buy some nice MBS and helps them out some or what?"
scrutinizer, I am completely with you, but with the HUGE short interest the train can easily go the other way for no reason other than covering for a long time. I made the mistake of riding the downswing in Apr/May and it took the whole month of June to correct. FOr now I am sitting on my position and even adding. Could be painful..
dryfly,
I finally got around to reading my copy of "The Coming Generational Storm". That, combined with all this "global competitive devaluation" talk (which I thoroughly believe) makes me itch to visit the local PM dealer again.
Nothing quite like global equity meltdown topped with flaming fiat.
Just my 2 cents, the Buffett rumor reeks of desperation
If it is just a rumor it does smell a bit desperate...
However housing is going to be a very good business again someday and Buffet might be deciding which one he wants to own later by trying to make sure that company at least lasts (survives) until later.
I mean some of these firms are positioned better in the long run (land they own, operational efficiencies, etc.) than others. But in the short run some of these might be in as bad a shape as even those less well positioned.
Part of Buffet's genius is his ability to not only judge immediate value (likes 'em cheap) but also discern which companies are operationally positioned better for the eventual recovery. He's no means 100% but he's good. It's a mess out there.
If so it makes sense to idenify the one you want to own over the long haul kick a little into the pot now to keep it going & hope the cost of maintenance isn't too high. Then consummate the final transaction for all of it later - when the timing is ideal, nearer a recovery.
If somebody else buys the whole company before Buffet - he then sells them his holding & takes the gain.
Win either way.
The only way he loses is if it fails.
I have no idea if that's what's going on - but it would be Buffet like if it was.
Barely: No guts no glory ... you are right though a short squeeze could get ugly. How 'bout a play like this: go long a builder you think is going to survive the carnage, and short a likely weak link like HOV or WCI ... only problem is the buyout rumors, I'm certain is either bankrupcy or buyout to a shark like Icann for at least 4-5 of these big public builders.
Guys, remember that Buffet is into a decent chunk of housing names already. I'm no expert on his portfolio, but it certainly doesn't seem like he's a believer in a hard landing.
He has:
-a private furniture company
-Wells Fargo (big RE exposure)
-H&R Block (bought BEFORE sp blew up)
-USG (building materials)
-Moody's (enough said)
-M&T Bank (decent Alt-A exposure)
-American Standard (hvac, bathrooms)
-Suntrust (Florida!)
Then there's a bunch of derivatives, MBS, ABS, you name it, in the insurance company.
So which of the companies listed above has been knocking the cover off the ball since WB bought it?
Of course, what lots of people fail to realize is he doesn't mind taking a stake now and buying in the rest when the thing cracks. I'd give him the benefit of the doubt on that one.
Rumor: "ALLIANCE BANCORP/AMPRO MORTGAGE CLOSED ITS DOORS!."
ALLIANCE BANCORP/AMPRO MORTGAGE CLOSED ITS DOORS!
tj - before you visit the PM dealer stop off at the gun dealer. If the world changes such that you need gold you'll need lead even more.
If wealth evaporates for most, having wealth is the only thing more dangerous than having none... That is unless you have so much that you can hire your own army.
BTW - I'm not concerned about the 'generational storm'... nor about fiat per se. I'm concerned about overall productivity of necessary goods and services to sustain civilization. Do that and the rest usually works out fine.
If there is enough 'stuff to eat' then it comes down to deciding who gets what & it isn't usually worth fighting a lot over it... surplus does that and just about any fiat systems works adequately under those conditions.
If there isn't enough production then no fiat system (metal based included) will be enough. People can't eat the metal.
I am somewhat concerned about that. That we don't invest enough now to have real productive capacity to meet our needs going forward, energy, food, materials - then we will fight over it... generational, geographical, demographical... somebody somehow somewhere. Human nature.
Focus on sustainable profitable production & folks are mostly pretty peaceful - that's always been the key to civilization from 'Adam & Eve' onward...
Don't forget Buffet owns Homeservices of America which is a huge real estate company nationwide (I think they are 2)..they also own mortgage companies, title companies and even homeowners insurance....of course he's gonna say he sees a bottom because these companies are getting slammed right now..
HomeServices of America, Inc.
Did buffet own USG before May06? If so it's a wonder he's still solvent...
USG: Basic Chart for U S G CP - Yahoo! Finance
dryfly,
Me & the wife are loaded for bear. We also have a big dog with shiny teeth, plus access to many more on short notice (since we volunteer at a rescue).
Honestly, though, if the world gets in a race to the bottom, PMs ought to do pretty well, relatively speaking. Unlike more obvious signs of material wealth (property, etc.), us poor folks can have it without anyone knowing any better. Easily transported, too!
BTW - I'm not concerned about the 'generational storm'... nor about fiat per se.
Pretty amazing statement, really. Have you read it, or perhaps "Empire of Debt"? These are real issues, and could easily end up causing huge civil unrest.
Most people -- even Kotlikoff & Burns -- consider this coming to a head decades or more into the future. However, IMHO, the coming depression will make it a problem almost immediately thereafter. The young won't pay exorbitant tax rates -and- the old won't give up their benefits, so it'll get ugly fast.
dryfly - agree on the Iran statement only PR, my "another nail" comment is more based on what the perception that it is significant will cause currency traders to do. the buzz seems to be that the 80 level is crucial support, so anything that causes that to be violated, whether truly signficant in an economic sense or not, ends up being significant....perhaps?
scrutinizer, I was tempted, when I first heard the rumor, to go way out of the money on HOV calls, until I came to the conclusion it's total BS. Otherwise, I can't bring myself to go long on any builder until the bottom is at least somewhere in sight. I may think about TOL in Q108 for calls, late this year.
dryfly - your case for why the EU might try to drive down the euro is compelling, and I can easily imagine some limited intervention, but I doubt if they'd join a race to the bottom. With a bit of forward thinking, at which the EU seems superior as of late, no one is likely to win at the end of this race, and if the eurozone doesn't join in they'll be much better prepared when liquidity dries up and the carry trade unwinds.
It 'could be' that for most folks the basic needs will be met and the fight is for the high level finances.
Think Europe where the peasants were mostly untouched by war as the nobles fought it out for this or that town.
Thus the new wave 'could be' that the rich fight over more and more exotic financial instruments while the common folk just muddle through.
or as I have asserted in the past, money past a certain amount loses value.
Unlike more obvious signs of material wealth (property, etc.), us poor folks can have it without anyone knowing any better.
But then you can't use it 'cause the minute you do everyone knows you got it and the mob will kill you for the rest. So what's the point in having any?
In anticipation of a complete meltdown you'd be better off learning how to make good booze (brew beer and run a still) - you'll have people trading you everything for that and its hard to steal (you make it). Just make sure to pay off the local mob... then you become important to them, they protect you.
Most people -- even Kotlikoff & Burns -- consider this coming to a head decades or more into the future.
I don't see it as a real problem as long as society remains highly productive - then it is a matter of who gets how much of the bounty not who lives or dies because there isn't any. The politics of surplus are a whole lot easier than those of scarcity regardless of the money supply situation.
Dollar estimates of future liability mean nothing to me - talk to me about the actual physical demand of goods & service expected to be required and the number of bodies, material & capital needed to produce them. If that capacity is there in 25 years or so then we'll be okay. In that case we just argue about who gets how much.
If the capacity isn't there then we are screwed. Then instead of worrying about accounting now we better get after adding real capacity for later.
Its far more desirable to have a well running monetary system but regardless, the money available - whatever kind it is, paper, electronic, metal - will 'expand' to fill the 'supply' of stuff available.
Not having the stuff is a bigger problem, one money won't fix.
anotherajh - I agree that Euro Zone won't try to beat Japan in a race to the bottom if it has a choice - my point is they can't let the dollar fall too far or they have very serious currency based competitiveness issues. Especially as long as China peg USD.
So they intervene as much as they have to... and dollar hegemony continues until somebody really wants to take the lead away from the dollar. European manufacturers and tourist industry does NOT want to take the lead... they like being a close number two... that's a pretty sweet spot to be.
"What the fu#k is that this country needs a goddamn bubble every 15 minutes to offset one that is deflating? Some things never change in the land of funny money."
I second that motion.
David Pearson.
Add Shaw to your Buffett list...and Mitek and Benjamin Moore paints.
Unlike the homebuilders, these are industries that have unique positions or long-term histories or other distinguishing characteristics. Buffet does not own 'another face in the crowd'. Ever.
Look at Mitek, for instance: only one real competitor, worldwide, and EVERY homebuilder buys from them. Has to. Why? They make the truss plates that make roof and floor trusses possible and hold patents and proprietary engineering software and sell the plants and equipment for people to build the trusses that use the plates that they buy from Mitek... like Gillette used to be with razors.
dryfly,
You are exaggerating. No guns were necessary during Weimar hyperinflation. I also lived throughout hyperinflationary period in Poland and life was normal except you were robbed of wealth every day you held cash. So gold (or more conveniently dollars or Deutsche marks) was perfectly useful storage of wealth and quite often also medium of exchange (even though it was illegal).
I'm too young to be alive at that time but I heard stories that gold/foreign currency was very useful during WWII. It was perfect for bribes and even though the occupying forces could do almost whatever they wanted, taking bribes was easier than violence. Iterated prisoner's dilemma in practice. If you tried to be too ruthless, you could get on a execution shortlist of the underground resistance. If you just took bribes, everybody was happy.
Then, the communists came and you could have said "goodbye" to real estate and any visible wealth that was left after the war as it was confiscated (including companies). Gold, on the other hand, could be well hidden and after the storm passed could have been used.
Sometimes it's indeed unwise to show that you have gold. But even the most dangerous times pass by and well-hidden gold could be a perfect treasure to get on the feet after the life returns to normal.
I don't think any such scenarios are likely but I have implanted deeply into my brain the fear of hyperinflation. Believe me, it is hard to cure. And inflation is a very real threat.
This kind of thing drives me nuts:
The stock market is headed higher this year. Take a look at the spread between earnings yields for the S&P and bond yields for the ten year treasury. There is an arbitrage opportunity to issue debt and purchase shares. Private equity firms are capitalizing on this, as are corporations announcing share repurchases. The global supply of equities is shrinking, and this phenomenon will continue to drive stock prices higher until the spread between e/p and treasury yields is closed. This isn't a bubble, its just plain old supply and demand.
Matt, get out of your head and get this phenom, 70% of GDP is consumer spending and the VAST majority of Americans aren't doing better than they were last year.
Profit does matter.
You are exaggerating. No guns were necessary during Weimar hyperinflation. I also lived throughout hyperinflationary period in Poland and life was normal except you were robbed of wealth every day you held cash. So gold (or more conveniently dollars or Deutsche marks) was perfectly useful storage of wealth and quite often also medium of exchange (even though it was illegal).
Poszi - in the US you'd need guns. Everyone's got 'em - you better have 'em too. Trust me, on that one. UK, Canada, Australia - maybe not. US, yes sir. In a real crisis anyway.
BTW - I have good friends whose Mom was Ukrainian (still USSR then) and lived through the war in Germany - she was occupied then deported to one of the 'milder' work camps if there was such a thing. She was the one who told me the best 'money' when there is no 'money' is booze (vodka could buy almost anything in 1945 Germany).
I agree that gold is a good thing to hold in small quantities - but saved to use once in the 'mother of all' emergencies - like bribing your way across a border. Even then you need to be careful they don't get your gold & smoke you.
BTW - I don't see any of this happening in the US. But I'm also not a gold bug... Inflation I believe will happen though nothing like Wiemar, just enough to be a serious nuisance, not enough to rob all your wealth, just 'tax' it and your patience.
My guess is the best practice to beat an inflationary condition like this would be to own (either directly or via stock) the methods of production of common goods/services with short cycle time and low level of inventory so as to not be captive to 'time value of money' losses. Think 'services' or JIT mfg.
dryfly,
I wish I could accumulate anything more than small quantities!
I still find rather mystifying you're downplaying of "goods distribution". If it isn't such a big deal, why is Social Security the "third rail"? Americans in general are spoiled; they'll fight over who gets what simply because they can't conceive of being totally without.
The question of whether goods will even be there is a huge concern, too, given future energy problems.
p.s.: Reported "productivity gains" are mostly BS.
dryfly,
Vodka and cigarettes were great for everyday transactions. Even during communist times I remember various professions (e.g. plumbers) quoting their prices in bottles of vodka. It was especially good as there was rationing and goods were hard to get. Hard currency was good but illegal (actually later the transactions were only illegal, having it was fine) so all transactions with hard currency carried some risk (including exchange). But if you were buying a car on the second-hang market, you handed a pack of $100 bills.
I don't think there is going to be a Weimar scenario but why not 1970s?
I still find rather mystifying you're downplaying of "goods distribution". If it isn't such a big deal, why is Social Security the "third rail"?
'Cause the folks protecting SS think its their ticket to the distribution of those future goods.
My question to them is 'distribute what? Where is it all coming from, those goods & services in the future? What will SS buy?'
On the other side are the privatizer's - those who want private accounts. My question to them is 'what is it about private accounts that changes the physical situation... what changes the demographics & supply/demand conditions that all of a sudden private SS accounts magically work where public SS didn't?'
Neither camp has a real answer.
The 'answer' is we better invest now to be able to produce a lot of goods & services to be produced in the future - to meet the demand for health care & such consumed in the future... Plus take care of everyone else's needs & demands in the future too. Or be able to produce other stuff to trade for those goods & services we demand. If not, neither private retirement or SS will work.
Remember we can't inventory this stuff... I can't buy health care today and use it 30 years from now. Even saving gold only assumes SOMEBODY ELSE invested in the capacity to produce those goods & will trade with me. The gold did nothing to produce anything - now or in the future.
However, if we are extremely productive private retirement schemes or SS work BOTH work... then its just a matter of how we distribute the surplus.
But it all starts with surplus of goods & services not a surplus of money. Money whether paper, electronic or metal only works if there are enough goods and services to make the trades work.
Here's another way to look at it - money is a means of transaction but not a means of production. You 'eat' the result of the production... not the result of the 'money'. That is as true in the hear and now as it is in the future.
I don't think there is going to be a Weimar scenario but why not 1970s?
The 1970s in the US weren't as terrible as people say. You were in Poland in the 70s I assume - can't speak for that... I was in Rust Belt US then... my father started a business (succeeded) and I worked my way through college.
It wasn't an easy time but not hard like the depression (my father went through) or even as bad as the farm crisis 10 years later (I went through).
The key in the 70s was to NOT get caught in long term transactions in which you were the lender... people who did got hurt. Folks very quickly learned either stay out of those or charge interest rates high enough to compensate (meaning everyone was avoiding them & going 'short' by the end).
There are strategies to survive 70s like inflation - they distort & are inefficient & undesirable but are tolerable. There are no solutions for Wiemar - that I agree. Nor for severe depression/deflation.
Mish has an interesting post tonight regarding the rating model that Fitch has been using a bit:
What follows are excerpts from Absence of Fear, an excellent article written by Robert L. Rodriguez at First Pacific Advisors.
We were on the March 22 call with Fitch regarding the sub-prime securitization markets difficulties. In their talk, they were highly confident regarding their models and their ratings. My associate asked several questions.
FPA: What are the key drivers of your rating model?
Fitch: They responded, FICO scores and home price appreciation (HPA) of low single digit (LSD) or mid single digit (MSD), as HPA has been for the past 50 years.
FPA: What if HPA was flat for an extended period of time?
Fitch: They responded that their model would start to break down.
FPA: What if HPA were to decline 1% to 2% for an extended period of time?
Fitch: They responded that their models would break down completely.
FPA: With 2% depreciation, how far up the ratings scale would it harm?
Fitch: They responded that it might go as high as the AA or AAA tranches.
Fatally Flawed Model
Essentially Fitch extrapolated a model of constantly rising home prices forever into the future, in spite of obvious signs of rampant speculation and home price appreciation far above the long term average for four consecutive years. In addition, Fitch made no allowances for reversion to the mean on home prices, in fact did not even make provisions for a flattening market let alone a reversion to the mean at a time of massively declining lending standards, and with home price appreciation orders of magnitude above affordability indices and rental prices.
p.s.: Reported "productivity gains" are mostly BS.
tj - anyone who has worked in factories or engineering offices like I did in the late 70s through today will tell you there has been HUGE gains in productivity. People who are telling you that it is BS haven't walked factory floors for three decades.
Example: back in the 70s I did production control for a agricultural products factory one summer (college job)... I literally did the 'MRP' regen by hand - paper and pencil... In modern geek speak you would say I was the MES of their ERP. This plant employed about 300 people - it was not a mom-n-pop.
I then went out with the note cards, found the parts counted them to confirm the card file inventory & brought them to the line with the routing & job schedule (also hand gen). If I couldn't find them or counts were off (often the case)... we wrote POs or work orders (again by hand)... POs went out to suppliers by snail mail... we'd get a paper acknowledgment a week later or so. Typical lead times 16-18 weeks for simple parts from a supplier a state or two over. If we were in a real hurry - we'd phone them and place the order verbally... wooohoo, that had to be an emergency. Of course the lead was the same less the snail mail.
And if they said 18 weeks they really meant 20... they'd be done at their plant but days to weeks to ship & go through receiving.
Ah the good old days.
It is easier for me NOW to keep contact with folks I do business with in Europe, India or Asia then it was to do business back then with the folks in the next state. Seriously.
Plus we can get parts in here form Asia in way less than the leads back then - weeks in some cases.
And whether it is JIT/Kanban, MRO or process industry control - the capacity & capability to control process has resulted in mind boggling improvements & real efficiencies (much less wasted energy, material & labor).
A plant like that would have a quarter of the head count and produce four times as much valuable stuff at better quality today than we ever dreamed of.
I could repeat this same productivity then vs now exercise in engineering (CAD, CAM, FEA, etc.) manufacturing (toolmaking, machining rapid prototyping, etc.)... on and on.
There might be some weird accounting for productivity & the measurements might be imprecise but the gains are real and huge. Believe me.
I've heard theories that soap is a better medium of storing wealth in hard times than gold. It is can be traded in small quantities for good and services and is unlikely to attract the attention of the unlawful-too bulky to move quickly and not real 'sexy' to hold.
Drugs and sex are good things to be able to sell in bad times. In a decaying society, 'dirty' pictures could be a store of wealth if your control of actual flesh is not an option. Booze made from whatever, grapes, potatoes, grains is handy. It'd be 'taxed' by the local gang but still very profitable. 'Weed' can be grown in the backyard.
Labor will be valuable, Plumbing, electrical, car repairs and the like.
Of course, this points up the fact that paper money is easier to use in tractions than things. You might be able to barter booze, but the bottles are awkward, and I am not real sure how you barter sex, bring one of the 'girls' along to the 7-11????.
barely, dryfly, mp, banker, ron and any other regulars:
have you ever heard of that guy Shortbuster who posted yesterday here for what i saw as the first time?
FINANCE-US: Congress Reins in Foreign Investors
The U.S. Congress passed legislation this week that strengthens the vetting system for foreign purchases of companies in the U.S., a measure that observers say will mostly likely lead other countries to tighten their rules as well.
FINANCE-US: Congress Reins in Foreign Investors - IPS ipsnews.net
Another dagger in the US dollar
Another dagger in the US dollar
So is Haliburton now considered foreign? Or are the Caymans and Bermuda states?
vader, soaps a good one - I hadn't thought of that.
Wow! From kevin's foreign acquisitions bill link:
It includes a provision to notify U.S. senators of investigations into foreign acquisitions in their home states.
Wow. That's a deal killer. Senators can be a real pain.
Initially, U.S. business groups opposed the measure, saying that it could prompt a backlash against their expansive presence and free trade agenda across the globe. But the groups later changed their stance.
The U.S. Chamber of Commerce, the nation's largest business interest group, now says the bill strikes the appropriate balance between keeping the U.S. safe and protecting the economy.
USCC on board? WTF? The C level exec's pulling the strings at USCC must think this is a 'job security' bill. With the dollar falling & offshore interests looking at US firms fore take over - CEOs must be feeling a little paranoid.
Just like the turn of the last century (1900)... when business, not labor, was the driver for protectionist measures. Could be the start of a real sea change.
France waging lonely war against Europe currency
"Let us not fall into the temptation of trying to resolve real economic problems by devaluing or bringing about changes in nominal exchange rates. The solution lies in structural reforms."
Gulf Daily News » Business News » France waging lonely war against Europe currency
This one is for you dryfly
That's outstanding - thanks kevin. Best lines:
"For us a strong currency is not synonymous with power. What you see is that power, by contrast, uses the monetary weapon for its own interests - it is the case with China, Japan, and the United States," Secretary of State for Europe Jean-Pierre Jouyet told LCI television.
He should just of just said 'Zee whore currencies!'... we'd have known. Man the French sure get angry when they are jealous.
"rather than making money"
That ain't ever going to fly
Kevin I think what he's saying is its a lot easier for a society to produce money than it is to produce goods. The two are not necessarily the same - that has to change if we are going to remain prosperous.
dryfly,
I meant 1970s in the USA. The 1970s in Poland were actually very good, the 1980s were terrible (this was a direct result that 1970s were very good since at that time the investment and consumption was fueled by enormous debt that buried us in the 1980s). And I didn't mean the economic growth but the level of inflation.
It is interesting that for Americans, crisis=Great Depression=deflation, whereas for me crisis=inflation. Inflationary depression is perfectly possible and historically more frequent than deflationary depressions.
I also recall people hoarded and exchanged coffee. Stuff that people are (semi)addicted to is better than anything else.
What I also think as interesting is that it was good to have "connections". To know as many people of various professions as possible as it helps bartering.
idoc, "have you ever heard of that guy Shortbuster who posted yesterday here for what i saw as the first time?"
No. Just curious... why?
We agree poszi on a lot.
I'd love to sit down with you and hear about what it was like in Poland in the 70s & 80s.
70s US was a pain for many but not unbearable for most... we were a long way from hyperinflation.
dryfly,
I should've been more specific about "productivity". Yes, there have been great strides over past decades, but the gains of recent years have been wildly exaggerated. The measurements are as unreliable as the CPI.
Bob Dobbs is right, too. There's certainly no lack of goods in this world.
Like poszi, I also believe that a depression doesn't have to be deflationary.
Regardless, a depression is coming.
Well, in secular inflation (first par of Kondratieff wave) all recessions are inflationary, in the second part they are deflationary.
So far we had only 2 recessions in the current deflationary secular market. The next 1-2 recessions will be deflationary, much more deflationary than 2001.
Guys, question! I lost the link the the fine German blog with the impossible name, something like "immobulazen" or whatever. Please help to find!
Where there are humans...
You'll find flies,
And Buddhas.
Kobayashi Issa
theroxylandr,
immobilienblasen
dryfly
I know what he was saying but hell it's almost Saturday where I live so let's start it off right.
YouTube -
I also worry that one day after all the mess is exposed, a group of central bankers would meet in a Swiss village and decide that they are going to inflate all in unison. Looking at M3 growth rates, I'm not sure they haven't met already.
who loses under that scenario...
russia?
Africa?
South america?
There is an arbitrage opportunity to issue debt and purchase shares
tell me how that works vs CSCO?
"I am not real sure how you barter sex"
I know a painter and he said a stroke at a time just like he put it on. What color you want?
re: the gold vs goods debate.
I found the Fiat Money Inflation in France (Browse by subject :: Mises Institute to be an interesting read.
To insure the ability for all to purchase certain goods, the law of the "Maximum" was created to keep prices set; however, the result was that the manufacture of good (or the wholesale of goods) ceased when the gov't price no longer covered the costs to produce, thus the availability declined. Mugabe and Chavez have both experimented with similar folly in recent times.
Also, regarding use of soap, isn't glycerin a byproduct of biodiesel brewing? A double-bonus for anyone eqipped to produce the fuel.
dryfly,
One thing about the 1970's that might be harder to repeat today was that the 30-somethings and 40-somethings were making out like bandits with respect to their net worth without even trying. I know my parents were!!
This was because the long-term fixed-rate mortgages they took out in the 50s and 60s were getting depreciated to nothing at the same time as wages were broadly keeping up with inflation.
Mum and Dad bought here in Australia for $12K in the early 1970's with 5% down and a 40-year 5.25% loan. 10 years later they had only paid a few hundred off the principal, but had about 70% equity and regarded the monthly payment as a joke.
(Mind you, they got their loan from a government agency. The major banks at that time had a maximum LTV of 60%.)
dryfly,
With respect to your comments about MNC factory arbitrage, there is the factor that an Eastern (but not TOO Eastern) European factory would be behind the drawbridge if the EU REALLY started to get paranoid about Asian import penetration.
(Which they are quite capable of doing; ask a New Zealand farmer what happened when the UK joined the EU and disappeared behind the CAP wall.)
"Also, regarding use of soap, isn't glycerin a byproduct of biodiesel brewing? A double-bonus for anyone eqipped to produce the fuel.
Lumpeninvestor | 07.14.07 - 1:16 am | "
Commercial biodiesel refiners who want to use waste grease from restaurants, etc., face still competition from renderers, who've been buying used fats for soapmaking since forever. Soap and biodiesel are indeed intertwined.
Lumpeninvestor
ah, but France did not have oil
or
Cheap Chinese labor.
Both mean that Chavez can keep it up for a long time.
Considering we, in the US, are trading pretty pictures of presidents in virtual space for real goods, may also give the Mises folks pause.
Also back in the day, costs of production of goods were extremely high, now extremely low. Thus controls could be effective for a very long time.
dryfly,
You wouldn't want me to talk about 1980s in Poland because you'd think I'm crazy or at least exaggerating
I was too young to remember much of 1970s and the final years of 1970s were getting bad and not much different from 1980s (for Poles 1970s are synonymous with the first half which was good and the second-half which was so-so was then dwarfed by much more serious crisis of 1980/81 and the following years).
This part of the Wikipedia article gives a pretty good description of these times. The pictures of queue lines and shortage of goods in shops are given in the 1970s section but were typical for 1980s. This is not exaggeration and not exception. It was fairly common. The shortages were caused by attempts of freezing prices during rampart inflation. I guess something similar now happens in Zimbabwe. Most of my memories of the economic situation during those times are the shortages and inflation.
Continued as Haloscan complained of too many links.
If you want to get a feel of the general mood (but it's not a documentary), I find The Decalogue, a movie series of 10 short films by Krzysztof Kieślowski, an excellent depiction of life in late 1980s in Poland. This movie is (with some difficulties) available in the USA (but it's hard to say how good the translation is since I watched it only in the original language version). Apart from showing the depressing scenery of these times, it's a deep artistic movie I greatly enjoyed (read the Wikipedia article for links to reviews).
poszi
You may get a kick out of this. When my grandfather went back to visit his family in Nowa Huta in the 1980s, he smuggled a couple of thousand dollars in a fake heel in his shoe. He also changed about $200 at the official rate when he entered the country. Once he got there, he changed the rest on the black market. When it was time to go home, he realized he had about $10,000 (or some similar ridiculous amount) of zloyty at the official exchange rate. He obviously couldn't change it back at the official rate - because the govt. had no record of him exchanging all these dollars.
So for a while he was the most popular guy in Poland, just throwing money at anyone he knew.
`I've Got to Cover'
"Some traders speculated the rallies yesterday and today were also supported by so-called short sellers deciding to close out their positions as stocks rose.
The amount of shorting -- where traders sell borrowed stocks expecting to buy them back after prices fall -- jumped to 3.3 percent of the total shares listed on the New York Stock Exchange this month. That's the highest since at least 1931, according to Bespoke Investment Group LLC, a research firm in Mamaroneck, New York."
U.S. Stock Indexes Rise to Records for 2nd Day; Hovnanian Jumps - Bloomberg.com
I traveled in Poland in the mid 1980's as a guest scientist. At that time, it seemed that farmers were switching from tractors to horses. My hosts (limnologists; lake ecologists) used a large diesal powered boat because gasloline to fuel outboards was not available. The Poles were the most gracious and friedly hosts that I have encountered. They used their ration tickets to feed me very well. I tried to reciprocate by helping to tighten up the English in their manuscript.
This time is different!
This time is different « The Theroxylandr in Flame
Do they have a stock ticker? It is no the same as WAL?
poszi, thanks a lot!
Hyper inflation anyone?
Thanks poszi - I'd still like to lift a few with you and chat about your day-to-day experiences back in Poland. Maybe someday.
All this talk makes me want to arrange a business trip down to Chicago so I can escape to the 'neighborhoods' to hunt up a good local butcher shop & bring home some kielbasa.
Have a good weekend.
CR posters meeting? Good idea but I doubt based on the geographical distribution of posters (BTW I'm in Delaware), it is likely to happen.
Enjoy your weekend, too.
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