Let's set up a new financial product. First we need a cool acronym, then we'll just throw some complicated crap into the prospectus, and bake for fifteen minutes.
Let's set up a new financial product. First we need a cool acronym, then we'll just throw some complicated crap into the prospectus, and bake for fifteen minutes.
Throw in a clean cut 20-something MBA grad with a great suit and you've got a deal.
"The complex structures involve selling credit default swap protection..."
This is something I've been wondering about recently, are the writers of all these CDS going to be able to take the hit?
Goldman Sachs has bragged that they hedged their exposure with CDSs. Are those CDSs definitely going to be redeemable?
There are trillions of $$ of credit derivatives out there and while we've heard about some of the subprime exposure, and then the CDO exposure, what about the CDS exposure?
What were they smoking? asks the cover of the current issue of Fortune magazine. Underneath the headline are photos of recently deposed Wall Street titans, captioned with the staggering sums they managed to lose.
They didn't lose anything. That's the whole point -- the shareholders and low-rung employees take the losses.
For the "Wall Street titans" the cost of failure is millions in accumulated bonuses during the good times and a muli-million dollar severance package during the bad.
Given the short-term nature of high-level compensation these days and the short-term appearance of prosperity created by bubbles, you've set up a situation that's virtually guaranteed to play out in precisely this manner.
It's almost impossible to imagine it not happening IMO.
Since I am admittedly "average" I wont venture to comment on a CPDO.
We beefed up patrol today to handle the expected "rush".
Parking lots are about like an average Saturday.
We have a new mall (1 year old) and we just opened a new TOLL road to it with a brief toll holiday before you have to pay. Despite all the press on the toll road opening, the mall is virtually "dead".
Yes there are people out shopping and some lines at stores that are offering specific deals. However, unless everyone is carpooling, the crowds we expected haven't materialized.
It's not noon yet however. I post an update at the end of the day on overall impression of holiday mall traffic.
Best hope they are not in a government worker pension.
How could they not be? As I stated elsewhere, who else is noted for ridiculously bad investment decisions?
While a rather obvious 25 or 35 basis points to 0 analogy could quickly be advanced here, a finer, more precise analysis emanates from the quantitative dissection of a new derivative credit product retailed to institutional buyers under the sticker known as a CPDO or constant proportion debt obligation. Without too much explanation, these multibillion-dollar instruments lever investment grade indices up to 15 times the amount invested and offer or have offered a spread of 200 basis points over LIBOR with a AAA rating. Hard to pass up I suppose, recognizing that AAA securities are by definition blue chip with rare, only infinitesimally small annual default rates. But this AAA rating is subject to numerous (more numerous than usual) subjective assumptions on the part of the rating services and in turn vulnerable to quicker downgrades than your normal AAA GE credit rating (there GE, Ive paid you back.) My purpose in bringing up the CPDO, however is not to denigrate the rating sources or to praise GE, but to state that under PIMCO quantitative modeling, current investment grade CDX spreads, shown in Chart 1, can only narrow by 3 or 4 more basis points before these CPDO instruments can no longer earn a AAA rating or offer such an attractive 200 basis point spread. More importantly, increasing multiples of leverage beyond 15x near current yields spreads cannot maintain either a AAA rating and/or the 200 basis points in yield spread that have made this derivative so attractive and in turn helped to reinforce a declining trend in all credit spreads over the past few months. The increasing use of leverage, in other words, at least as applied to this particular area, appears to have run out of its magical ability to increase returns. Investment grade corporate spreads therefore are not likely to narrow further. The perceived fat content in this supposed AAA cream, is as high as its going to get, and skim milk may eventually be the reality.
Since I am admittedly "average" I wont venture to comment on a CPDO.
What I've found is that if you start routinely commenting on something you know nothing about, you're eventually forced to learn something about it. =)
It was reading about these "instruments" that first got me interested in the ABS/MBS markets, and consequentially led me to CR. I had some vague ideas about how bonds were created out different kinds of debt, but when I read about the "sure things" that these represented, and then realized that they automatically increased leverage to compensate for shortfalls that the buzzer went off for me. The baddest trick in the gambling book is doubling up to cover losses, until you lose your backing or hit the house limit. "Did the debt markets really go along with this?" was the one question I wanted an answer to. Not only go along with it, they ate it up, apparently. It looks like the gamblers have found the limits.
A little black friday lifestyle advice for my drinking buddies. Think twice before drinking and shopping (I bought a $400 bright yellow Dyson vacuum from QVC that I hate and already had two vacuums.) 404 Error, No such article | Chron.com - Houston Chronicle
What is a CPDO? Just another complicated way to make[strikethrough] lose money.
Actually I believe the point of all this is to redistribute wealth.
That's the point of bubbles and their ilk in general -- to create something with the illusion of value and exchange it for something with real value.
So with their 401k(s) workers may be exchanging $1 of labor for 50 cents of ownership in a company via an inflated stock.
Alas, this kind of artificial redistribution of wealth can create economic imbalances that can lead to things like underconsumption crises, etc.
In the past bubbles have been used by savvy speculators as a means to literally move huge amounts of gold out of a country before anyone realized what was going on, making markets ultimately unable to function when the looting was revealed (I mean looting in the best possible sense, as a laudable victory of intellect).
This was part of the motivation for going off the gold standard I believe.
i was in train from Vienna Tueasday and i had the honor/horror to hear such 25 something math absolvents (exactly i am 27 xD) who work in some austrian bank picturing rosy pictures about how they models risk and buy options and how thee could never do that in our country in such a young age of of them was so selfconfident i so much wanted to ripe him into the nose that thanks to those kind of deals most banks are technicaly bankrot. i even had on my notebook open the comment section from this blog where there was this listing of lev3 assets/equity of investment banks luckily the gentleman i am i patiently suffered his wisecracks till the end station
My gut feel is that there will be the beginning of a buying opportunity in the fourth quarter,'' Barrack said in an interview. The decision depends on whether banks and securities firms take additional writedowns for assets affected by the collapse of the subprime mortgage market, he said.
thank goodness for that reasoned analysis provided by the Gut
As the CEO of Wells Fargo recently said
"It's interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine"
"...If a CPDO makes losses because of unexpected defaults or a worsening credit outlook, leverage can rise, up to a cap, in an effort to win back any shortfall..."
Yeah that doublin' down sh#t always works fo' me.
this is what we get when the fat cats hire a bunch of genius lunatic quants to build derivatives that complex into infinity. The quants should have stuck with their major which was physics not economics.
Yes. I wanted to confirm to myself that the genuis perma-[sh]longs on Kumblow never check to see in there's any substance to their bull[shit]ish claims.
ac,be careful with that MBA grad.Just because they LOOK cleancut doesn't mean they aren't SIV positive.as far as consequences,financial collapses frequently have ugly long term social consequences.Thankfully we don't have to worry about that here as long as we have fiscally responsible republicans in charge who avoid wild foreign adventures and protect our constitutional rights as a matter of faith!oh.
"It's interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine"
Just what you'd expect some reactionary banker to say.
I mean, duh, has the man never heard of productivity? I'll tell you people the truth, 'cause I was around in the bad old days: it took a lot longer, and a lot more people working on the project, to lose this kind of money.
Of course we didn't invent new ways to lose money. We invented ways to lose money much more efficiently, while being able to write IMs and listen to the iPod at the same time. How can that not improve the quality of life?
"While a rather obvious 25 or 35 basis points to 0 analogy could quickly be advanced here, a finer, more precise analysis emanates from the quantitative dissection of a new derivative credit product retailed to institutional buyers under the sticker known as a CPDO or constant proportion debt obligation. Without too much explanation, these multibillion-dollar instruments lever investment grade indices up to 15 times the amount invested and offer or have offered a spread of 200 basis points over LIBOR with a AAA rating. Hard to pass up I suppose, recognizing that AAA securities are by definition blue chip with rare, only infinitesimally small annual default rates. But this AAA rating is subject to numerous (more numerous than usual) subjective assumptions on the part of the rating services and in turn vulnerable to quicker downgrades than your normal AAA GE credit rating (there GE, Ive paid you back.) My purpose in bringing up the CPDO, however is not to denigrate the rating sources or to praise GE, but to state that under PIMCO quantitative modeling, current investment grade CDX spreads, shown in Chart 1, can only narrow by 3 or 4 more basis points before these CPDO instruments can no longer earn a AAA rating or offer such an attractive 200 basis point spread. More importantly, increasing multiples of leverage beyond 15x near current yields spreads cannot maintain either a AAA rating and/or the 200 basis points in yield spread that have made this derivative so attractive and in turn helped to reinforce a declining trend in all credit spreads over the past few months. The increasing use of leverage, in other words, at least as applied to this particular area, appears to have run out of its magical ability to increase returns. Investment grade corporate spreads therefore are not likely to narrow further. The perceived fat content in this supposed AAA cream, is as high as its going to get, and skim milk may eventually be the reality."
Made my head hurt. Read it 3 times. But I suspect that the point is that the leverage phenomenon is over.
Damn, this has just got silly. Where's Seb and O-Joe to tell us all to get stuffed?
Just spent the last two hours rechecking every major shopping center in the city (major suburb of San Diego). The traffic, both foot and vehicle are decidedly average.
I am unable to tell by just looking that it's a special shopping day.
The malls on the eastern side of the city (3-4 years newly developed with a major forclosure problem) are very empty as usual.
There is plenty of parking at all malls. In fact, we have had several new malls and shopping centers in the last year come on line, so I think are many more stores to choose from and thus shooper traffic may be more effeciently dispersed.
There is much activity at the mouths of the stores with vendors out in front with attractive banners and sale merchandise. Like mentioned before, it looks like there are shoppers but they all carpooled.
All fellow cops shrug their shoulders and ask "where is everyone?" Roll call promised large crowds, fights, shoplifters etc. Our staffing is double the usual with more cops the patrol cars. So far the city is virtually crickets, much more quiet than even a normal friday. Not sure what that's all aobut.
Needless to say we aren't earning our keep today which is just how I like it. Knocking on wood.
"This was part of the motivation for going off the gold standard I believe."
Hasn't worked, has it? At least under a gold standard I'd, if i were conservative, which i am, would have he stuff...so to speak. Whereas now all you get is a bunch of paper. n
Hasn't worked, has it? At least under a gold standard I'd, if i were conservative, which i am, would have he stuff...so to speak. Whereas now all you get is a bunch of paper. n
Well, it the past you could literally steal a currency outright when it was essentially gold. So markets could shut down for lack of currency.
At least that can't happen now, but they still might shut down for lack of faith in the currency, or an unwillingness to trade for it.
On the issue of decoupling, Nouriel Roubini has just posted "Recoupling rather than Decoupling..." and it is pretty shocking.
Yeah, I think the basic argument is that China's consumer is located in the US, and that their economic growth is in part due to a runaway capital spending boom unjustified by domestic increases in consumption (which hasn't maintaned the same pace of growth). So all the factories they're building may not have anybody to sell stuff to once they're done selling stuff to other businessmen who are building factories. At some point the chain has to end in consumption, which just isn't keeping up right now.
I know Gary Shilling has been making a similar argument for well over a year now.
The report is Beijing's first public comment on what repercussions it expects from the global credit crisis and a sign that the government does not support the view that Asian growth has "decoupled" from the US.
"If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders," the report said.
OT, but while I'm waiting for Average Joe's evening report, and particularly for rsj @ 3:54, here is part of an essay called "New-Fashioned Christmas" by Aldous Huxley. I don't know when this was written, but Huxley died in 1963.
The first sentence is:
"The name is still the same; but the thing is almost unrecognizably different from what Charles Dickens meant by 'Christmas'"
After discussing the previously unknown "need" to have boughten presents not hand-made or home=grown ones, and describing present day Christmas as "an important economic event" Huxley concludes with this paragraph:
"The last thirty years have witnessed the promotion of innkeeping and shownmanship to the rank of major commercial enterprises. Major commercial enterprises spend money on advertising. Therefore, newspapers are always suggesting that a good time can be enjoyed only by those who take what is offered them by entertainment manufacturers. The Dickensian Christmas-at-Home recieves only perfunctory lip-service from a press which draws a steady income from the catering and amusement trades. Home-made fun is gratuitous, and gratuitousness is something which an industrialized world cannot afford to tolerate."
You can go too far trying to predict stuff I've found
Some things are relatively easy to predict... like "a return to commodity-backed paper". That's an easy one if you're read enough history.
Thirty-six years off the gold standard is an impressive record but it's now clear that "central bankers" can't maintain the necessary apolitical discipline to mimic a commodity-based currency.
fed will expand the creation of credits/paper money....relax .. system will survive...they can create a trillion bucks if they want,,,they can bail out (indirectly) anything that moves if they want
The Constant Proportion aspect of CPDO really reminds me of portfolio insurance and the 1987 debacle. How widespread was this one wonders ?
On the Black Friday front, just after noon I was at the local(CO Front Range) Walmart Supercentre ( to pick up my cat's blood pressure med, I hasten to add) and the parking lot looked like any usual Sat. noon. Parked in the lanes right opposite the entrance, 10 cars up. And while I didn't linger in the store it looked like an usual Saturday to me.
fed will expand the creation of credits/paper money....relax .. system will survive...they can create a trillion bucks if they want,,,they can bail out (indirectly) anything that moves if they want
Anonymous,
hehehe.. that's the good part, the Fed will have to increase the money supply many times over (if these hundreds of trillions of dollars worth of swaps contracts are "tested").. the only part I would worry about is:
Will there be wage inflation across the board, or will most of the money shoot straight to the most wealthy 1% in the U.S. (or the world)?
Of course we didn't invent new ways to lose money. We invented ways to lose money much more efficiently, while being able to write IMs and listen to the iPod at the same time. How can that not improve the quality of life?
You are in top form today. I don't know whether to laugh or cry, so I've decided to do both!
fed will expand the creation of credits/paper money....relax .. system will survive...they can create a trillion bucks if they want,,,they can bail out (indirectly) anything that moves if they want
The Fed does not run the US government, however. And all the people who do run things might not want their money rendered worthless just maybe?
People who run things tend to be the people with the most money, after all.
rsj "Only shopping I did was at craft store for more yarn and some needles. handmade christmas this year"
Fascinating - make vs. buy?
The company I work for (fortune 10) has an entire department devoted to that very subject. They invariably opt for buy. Executives are usually the Neros and it eventually boils down to a "core competency" decision point. See, we build very little, opting to produce specifications & do integration. That has become what US enterprises will be reduced to. Pretty soon every US enterprise will be a PO box in the Cayman Islands with some eBusiness software & server farm. I think of it as drifting quickly into obscurity.
It's 3:30 and their sending extra police staffing home including me.
They don't expect a night rush.
I did find a Walmart that was absolutely packed. It's popular with traffic coming from Mexico. However, the two other Walmarts were as usual. I have no answers as to why. I looked for signs of something different but found none. We have two Costco's and they looked slow actually. Plenty of parking. We had some Gamestop stores with huge lines early this morning (video game specials), but they look like business as usual now.
I think the news of the slow new mall, if my observations are correct, will be big news in our city. The mayor and city manager are fighting huge deficits. They acknowledge the slow housing market, but also blamed the slow new mall and surrounding businesses mostly on the failure to open the Tollway in time. Well, as said before, the Toll road is open and FREE. No more excuses. Today was do or die. Alot of the big stores like Neiman Marcus, Sacks, and Nordstroms said they were gonna give it a year to see how business was before signing on to this mall....It's been a year and a half.
There is a ton of empty commercial buildings on the east side near the mall just waiting for deli's and bars etc to fill once the shopping centers take off. Alot in my city is riding on the success of this new mall.
I am biased of course so I asked my fellow cops...it seems "recession" is common knowledge these days.
The unwind of the deal known as a Constant Proportion Debt Obligation (CPDO) caused an approximate 90 percent loss for investors, Moodys said in a statement.
Moody's, ha! Everyone respects Buffet so much and he is a maggot, just like all the rest. I just love those cute little names they come up with. How much will this one cost the taxpayers I wonder?
ac - "The Fed does not run the US government, however. And all the people who do run things might not want their money rendered worthless just maybe?
People who run things tend to be the people with the most money, after all."
I have thought about this issue quite a bit over the past few months, regarding Ben's printing operations and what happens to those with "paper money". Is it possible that over the past year or so that those with paper money have aleady been informed about this likely outcome and got a head start converting their wealth to hard commodities, so their wealth doesn't get destroyed at all?
"Exports to the US have slowed significantly since the start of the year, dropping from a 20.4 per cent year-on-year rise in the first quarter to a 15.6 per cent increase in the second. Growth fell to 12.4 per cent in the third quarter following the eruption of subprime loan problems."
Still quite impressive, but growing bubbles have to be fed.
The decoupling thesis is almost as silly as the containment thesis.
Just catching the political talking heads on the NewsHour w/Jim Lehrer, and one of them was cutting up about being able to park at the mall today as a sign of a downturn...file under funny 'cause its true.
I don't understand why you think "hard commodities" will preserve value in a deep recession. I would think the price of almost everything, including hard commodities, will fall. (Gold may be a special case, because of its long history of being a kind of money.)
I once read an interview with a famous investor (the elder Fischer?) who lived through the Great Depression, and he said that although everyone was hurt, people who owned stock in companies that were able to continue paying dividends did best. I don't know, I'm just asking.
Avg Joe,
I think what could be missed with your valuable analytics, is the mystery shopper in car #9 , the one with the platinum visa, with an equity linked inverse lot proportion OA NINA limit.
This mystery shopper generally makes the rounds at various outlets, main line, and upscale malls that are suffering from the malaise you speak of.
This is when they go into action , charging the one item that will skew all box retailers Black Friday numbers to a +1% gain YOY.
phil, I am not certain about what sure-fire plan exists to accomplish wealth preservation during a sharp recession. That's a game-time decision, each day, as I see it.
The problem I am referring to is serious inflation, and in that case, commodities should help preserve real wealth.
I have thought about this issue quite a bit over the past few months, regarding Ben's printing operations and what happens to those with "paper money". Is it possible that over the past year or so that those with paper money have aleady been informed about this likely outcome and got a head start converting their wealth to hard commodities, so their wealth doesn't get destroyed at all?
Quite possible.
barely | 11.23.07 - 7:02 pm | #
for a smart guy, i'm shocked that you've only now come to this realization. what do u think Wall St has been engaged in ever since rates went to 1% back in 2001 ala Greenspan? the whole leverage to the hilt of IB's has encouraged them to convert worthless dollars into a variety of asset; stocks, bonds, RE, oil, commodities. they know precisely that the USD has been plunging in value so the logical thing is to borrow and accumulate. then end game is nigh however and certain of these assets are going to plunge in value.
i'm not sure i expressed that properly. who does inflation benefit? debtors. so Wall St. borrows 25x capital assets and goes out and buys assets. private equity and hedge funds are another example of borrow and accumulate. been happenin since 2001.
I dunno about recession but in a deflation cash is KING. Its purely mathematical equivalence, that's all - Check Mish's blog for deeper discussion or Ludwig von Mises Institute - Homepage for discusion, demonstration and historical evidence. Ahhh, but when deflation comes in play is a tough question. Its not happening "generally" yet - Its simple to say it will be when "general" prices start dropping. You have to think of it rolling from sector to sector if you look at it as prices IMO - in the current case its houses, then stocks then commodity assets, then household goods then ....
Of course the duplicitous bastards at the Fed will fight this like hell so you will get an ebb and flow to this - so you can't be wedded to some smooth downward slope. It WILL be spikey. For inflation I watch the Fed AMB, the temporary and permanent operations and their weekly total money report to see what's happening at the discount window.
Of course they could be lying in their published stuff - I did say they are duplicitous after all so anecdotal evidence is important too.
We are certainly in a (MZM -M1 ) deflation / "non-Fed directly created money" destruction deflation at the moment.
Thanks, Barely. You are probably right. But it's a shame if ordinary people are going to be forced to make "game-time decisions" day by day to protect their life savings.
Somewhere up-thread, someone made the point that bubbles are about redistribution of wealth, which they most certainly are. They are also about mal-investment. In the abstract, something is bid up to a crazy price, and the market responds by increasing the supply of this something. When the music stops, the economy as a whole is left with a great pile of this something and not as much of other things because resources had been diverted to create the somethings. Now if the bubble is in tulips, then at the end of the cycle the economy is left with a lot of pretty flowers. If the bubble is in internet stocks, then there is a lot of dark fiber lying around and a lot of useless code. In this instance we can identify two bubbles, one in real estate, and one in the price of credit. The real estate bubble, in the end, has left the US economy with a few million extra houses that will not really be 'needed' for some number of years. To get a rough idea of the mal-investment, suppose we assume that 3 million extra homes were built over the last 6 years, or about 500,000 per year. Ballpark, this is about 2 years extra supply. Holding all else fixed, this implies that the mal-investment is the cost of capital on 3 million homes for an average of 1 year. At a 10% rate, and an average price of 250,000k, we get about 75 billion dollars. Now, certainly there are a lot of knock on effects, but the gross dollar value of mal-investment is not really that big a deal.
The credit bubble is a different story and is more about redistribution of wealth than mal-investment. Now I am sure that there are a few quants building credit models who might otherwise have been working on reactor designs, but in the aggregate it is a pretty small number. The remarkable thing about a credit bubble is that the redistribution of wealth is from rich to less rich, or from lender to borrower. Lenders, lend at absurdly low rates and the borrowers reap the benefits. It would appear that in absolute dollars, the biggest losers in the whole game will be foreign central banks. In the aggregate, they own about 2 trillion dollars worth of our treasury and GSE paper, measured in gold or oil or soybeans they've probably taken a 50% hit, never mind the credit losses on the GSE stuff. Anyway, the point of this tangent, is that the redistribution of wealth is probably not going to be a really bad one, in the sense that it has already occurred and it has gone from rich to poor. All the remaining intrigue rates to be about credit availability and the impairment of the banking system. Since in the end, we have socialized credit risk, and default is rendered in an increase in the general price level, I am not terribly concerned with a cascading credit crunch. There should continue to be an extreme bifurcation in the economy and markets, depending upon whether or not your enterprise is 'in the line of fire'. I do not think that the broad equity indexes have enough exposure to the imp
the problem with cash is KING is that downward sloping USD index. i certainly don't want cash right now which is why i've accumulated alot of gold and gold stocks. Mish does advocate deflation but he also advocates gold. i think we're headed for stagflation based on Austrian economics. some point to the Slosh report and say the Fed isn't adding to money supply and this was always confusing to me. but Aaron Krowne's explanation makes sense to me. they've drastically decreased bank reserve requirements which has allowed significantly more credit creation which also needs to be considered when thinking about the money supply. not to mention all the FHLB lending going on in the background to prop up banks like CFC.
he problem with cash is KING is that downward sloping USD index
Agreed and to take care of that I use Swiss Francs, Euros, past accounts in UK Pounds and speculatively, Aussie, Norwegian and Icelandic currencies.
I agree with barely that this is a game time decision with the game being played again and again month to month and you need to bend and weave and flex. I also agree with Phil that its a shame that ordinary people have to make game-time decisions especially as you have to watch the rules change - they do kinda, sorta post them of course - except on Alpha Centauri !
I'm watching MAXED OUT at the moment - and it really saddens me to see the shit that's happening.
we're pretty much on the same wavelength and i have invested in MERKX which is a proxy for your diverse currency strategy. however i think ALL currencies are devaluing vs. gold and its a race to the bottom. yes we need to be flexible but thats somewhat akin to day trading. maximum profits will be made by making your decisions now and sticking to them in the long run.
=======================
maximum profits will be made by making your decisions now and sticking to them in the long run.
idoc
Good luck to you ! the long run is not just a song by the Eagles - its can be awful long time, as even Jim Rogers or Bill Bonner ( especially Bill Bonner ) would readily admit.
I'm more comfortable with - I really don't really really know; what's working ? Ignoring the wins which are easy to work with, when, what price level, do I admit defeat ( not stick to it ) to my thesis and move on to a prevalent one - above all contrary speculating does not mean against the crowd, its actually WITH the crowd for a lot of the time.
Day trading is a pejorative and its not an accurate descriptor of the analytical and thought processes I've described IMO. To clarify, some aspects will unfold, fold, refold ( in other incarnations ) in months, some in days, some out of the blue, some over years, some over decades and some over centuries.
Over periods of time one makes judgment calls for periods of time - that's all.
Lastly, maximization is for mathematical functions ( I say that with a lot of expertise in that field ) - I practice SAFE-SPECULATING.
I agree with Avg Joe everywhere I went there was plenty of parking. I was right in front of the door at Dick's Sporting goods. I did sin and bought some new golf clubs. The manager dropped an additional 50 dollars off to get me to buy. I was the only one in the golf section. I got a 479 orig cost set of irons for 129.00 and two fairway woods org 179.00 for 29.00 each. Came out right at 200.00 dollars for almost 800 in clubs. Less than I paid for my last set 18 years ago. What I did see was a lot of people walking in circles but 75% were empty handed.
After more than a week of heated debate about the Gulf currencies peg to the weak US dollar, speculation is intensifying about whether Saudi Arabia will revalue the riyal for the first time in 21 years
More anecdotal shopping info:
I went to Costco around 7:00 PM. Only one register was open and when I was ready to check out I walked right up to the register. No one was even in line.
Any of you fellas betting on deflation while Bernanke's running the fed are in for a ass-whoopin'. Best to err on the side of massive inflation and latch on to the next bubble that attracts the hot investment money. Agriculture based equities (perhaps) and commodities in general are likely to fare reasonably well in the short term. This is a tricky period as the hot money tries to find a home. Emerging markets are a trap waiting to be triggered, imo.
Thank you very much for your shopping scoops. Much appreciated.(and everyone elses.)
Ethan--so I guess the sentiments havent changed regarding the commercialisatoin of christmas. Just more intense now with the rise of Tyrannasauras consumerex.
Barely-
Interesting point. An idea for me to spin around and round in my head.
I work in a factory. We make stuff. When I started there I was a refugee from retail and the receptionist gulag. The first month floored we with "oh wow " moments as I held actual, real, made by me product in my hands as well as a paycheck in my poor grubby paws. The other jobs were work, but the difference in directing phone calls and sorting mail vs producing something concrete is both large and subtle at the same time.
I wonder with more and more of jobs being in service, retail and various incarnations of desk-bound paperhockey maybe many people dont understand what producivity is, what producing is what making is. neat thing to think about.
Throw in greed and lazy with lack of connection to making something.
I tis late so if this thread is done, I may post this in the new thread just to make sure people see the thankyous.
I'm trying to better understand credit default swaps (CDS), so that I can compare them to traditional bond insurance. I don't see much difference, except 1) the greater speculative element in CDS; and 2) the ability to write multiple insurance on the same bonds in CDS.
I do see one big similarity, which is the way both types of insurance have worked to increase risky debt and make it look more wholesome and appealing to institutional investors.
Muni revenue bond annual issurance has more than doubled in the last five years. Why? We need so many more schools, hospitals, roads, waste treatment plants, etc. than before? Of course not. Muni revenue bonds have soared because insurance became cheap and plentiful, enabling these bonds to find investment markets that they never could before. Therefore, many marginal projects got funds.
The parallels between housing/mortgages and lower-quality insured corporate and municipal debt are scary. The coming insurance meltdown will be something.
Nice reports, however, San Diego, upper-NorCal, Florida, Las Vegas and Arizona have all led the housing crash by at least a full year. Decreased consumer spending in these areas are a given.
Don't fret. I believe come Sunday at 9:00 pm, members of the PPT will come in and purchase enough merchandise with their Platinum PPT cards to achieve a 2% increase over last year.
I'd imagine that as the US$ drops dramatically, the appeal for foreigners to buy US stocks will be inversely increasing (i.e. suddenly your Euros can buy a lot more Citigroup than they used to). Wouldn't this cause an increased demand for US stocks in the short-medium runs that would forgo a lot of this fundamental-is-flawed analysis that so many here espouse?
Not claiming this is my stance, just wanted to know how people react to this view.
I've had the same thought. If all we had to fear was the continuing gradual devaluation of our currency, then one ought to be able to do pretty well by investing in a basket of good, stable US companies, using conservative (e.g., Graham & Dodd type) principles. Those companies ought to hold their real value despite the declining currency, for the reasons you state and others. The problem is that there are other dangers out there - e.g., financial turmoil, US or world-wide recession - that could cause the best laid plans to "gang astray."
Praetorians Local Market Observation: Stanford shopping mall in Palo Alto was a ghost town this morning despite a Stanford/ND home game. The parking lot was half full at 11 am. Most saturdays at this point you'd have to park in Menlo Park and walk over.
My wife remarked on it unprompted as we passed through on our daily walk with Prat Jr.
Some of the commentators have recommended the purchase of closed end muni bond funds, on the theory that they are now very cheap. Others argue for the purchase of treasuries as a hedge against the worst case scenario. Others argue for the purchase of gold.
globeandmail.com
"The head of Fairfax Financial had a front-row seat when the Japanese market began its 15-year retreat. And he thinks the U.S. indexes might be about to do the same"
DEREK DECLOET
00:00 EST Friday, November 23, 2007
"The global credit squeeze is in its "early days," says investor Prem Watsa, who is so bearish that his insurance company has stashed the bulk of its $18-billion investment portfolio into ultrasafe government bonds."
From the article "Demystifying the Structured Credit Jargon and Identifying the Opportunities.":
CPDO Constant Proportion Debt Obligation As referenced in the December 2006 Investment Outlook by Bill Gross, the original form CPDO was offered as a high coupon (LIBOR + 200 basis points), highly rated (AAA) and highly levered (approximately 15x) 10-year security, comprising formulaic rolling of positions in 5-year iTraxx and CDX indices.
Excuse me, has anybody seen my ears? My head just exploded......
Let's set up a new financial product. First we need a cool acronym, then we'll just throw some complicated crap into the prospectus, and bake for fifteen minutes.
Pimco's Gross wrote about CPDO's 6-9 months ago, calling it the top in the spread compression game(my term)...
searching for article now
I hope these were safely detonated in some state run pension plan and not in house.
CPDO's For uber....
ah whateva
here it is
PIMCO - ECP- Mead- May 2007
Let's set up a new financial product. First we need a cool acronym, then we'll just throw some complicated crap into the prospectus, and bake for fifteen minutes.
Throw in a clean cut 20-something MBA grad with a great suit and you've got a deal.
Best hope they are not in a government worker pension. The tax payer will makeup the difference.
The "Quant" are back in spot light:
Europe Funds May Be Down 15% in Month, JPMorgan Says (Update1) - Bloomberg.com
Search
this search screen covers so much, it is required reading to 'get it
"The complex structures involve selling credit default swap protection..."
This is something I've been wondering about recently, are the writers of all these CDS going to be able to take the hit?
Goldman Sachs has bragged that they hedged their exposure with CDSs. Are those CDSs definitely going to be redeemable?
There are trillions of $$ of credit derivatives out there and while we've heard about some of the subprime exposure, and then the CDO exposure, what about the CDS exposure?
Someone is on the losing end of a lot of paper...
From Krugman's article:
What were they smoking? asks the cover of the current issue of Fortune magazine. Underneath the headline are photos of recently deposed Wall Street titans, captioned with the staggering sums they managed to lose.
They didn't lose anything. That's the whole point -- the shareholders and low-rung employees take the losses.
For the "Wall Street titans" the cost of failure is millions in accumulated bonuses during the good times and a muli-million dollar severance package during the bad.
Given the short-term nature of high-level compensation these days and the short-term appearance of prosperity created by bubbles, you've set up a situation that's virtually guaranteed to play out in precisely this manner.
It's almost impossible to imagine it not happening IMO.
Another good news CA !
It's a small deal but it shows how loss could be devastating in that market sector.
Since I am admittedly "average" I wont venture to comment on a CPDO.
We beefed up patrol today to handle the expected "rush".
Parking lots are about like an average Saturday.
We have a new mall (1 year old) and we just opened a new TOLL road to it with a brief toll holiday before you have to pay. Despite all the press on the toll road opening, the mall is virtually "dead".
Yes there are people out shopping and some lines at stores that are offering specific deals. However, unless everyone is carpooling, the crowds we expected haven't materialized.
It's not noon yet however. I post an update at the end of the day on overall impression of holiday mall traffic.
4 percent? All that risk for 4 percent returns? What were they thinking??
Best hope they are not in a government worker pension.
How could they not be? As I stated elsewhere, who else is noted for ridiculously bad investment decisions?
While a rather obvious 25 or 35 basis points to 0 analogy could quickly be advanced here, a finer, more precise analysis emanates from the quantitative dissection of a new derivative credit product retailed to institutional buyers under the sticker known as a CPDO or constant proportion debt obligation. Without too much explanation, these multibillion-dollar instruments lever investment grade indices up to 15 times the amount invested and offer or have offered a spread of 200 basis points over LIBOR with a AAA rating. Hard to pass up I suppose, recognizing that AAA securities are by definition blue chip with rare, only infinitesimally small annual default rates. But this AAA rating is subject to numerous (more numerous than usual) subjective assumptions on the part of the rating services and in turn vulnerable to quicker downgrades than your normal AAA GE credit rating (there GE, Ive paid you back.) My purpose in bringing up the CPDO, however is not to denigrate the rating sources or to praise GE, but to state that under PIMCO quantitative modeling, current investment grade CDX spreads, shown in Chart 1, can only narrow by 3 or 4 more basis points before these CPDO instruments can no longer earn a AAA rating or offer such an attractive 200 basis point spread. More importantly, increasing multiples of leverage beyond 15x near current yields spreads cannot maintain either a AAA rating and/or the 200 basis points in yield spread that have made this derivative so attractive and in turn helped to reinforce a declining trend in all credit spreads over the past few months. The increasing use of leverage, in other words, at least as applied to this particular area, appears to have run out of its magical ability to increase returns. Investment grade corporate spreads therefore are not likely to narrow further. The perceived fat content in this supposed AAA cream, is as high as its going to get, and skim milk may eventually be the reality.
Since I am admittedly "average" I wont venture to comment on a CPDO.
What I've found is that if you start routinely commenting on something you know nothing about, you're eventually forced to learn something about it. =)
Someone is on the losing end of a lot of paper
Thank god it was paper and not someting of value like... gold or cotton or orange juice.
Also, now that I bother to read the entire article I see that Krugman is essentially making the same point about the outcome.
It was reading about these "instruments" that first got me interested in the ABS/MBS markets, and consequentially led me to CR. I had some vague ideas about how bonds were created out different kinds of debt, but when I read about the "sure things" that these represented, and then realized that they automatically increased leverage to compensate for shortfalls that the buzzer went off for me. The baddest trick in the gambling book is doubling up to cover losses, until you lose your backing or hit the house limit. "Did the debt markets really go along with this?" was the one question I wanted an answer to. Not only go along with it, they ate it up, apparently. It looks like the gamblers have found the limits.
Severely OT-
I'm sure there are a few others out there wondering: ac, did you feed those cats? Don't forget the water, too.
Severely OT-
I'm sure there are a few others out there wondering: ac, did you feed those cats? Don't forget the water, too.
Oh ****.
Is this like throwing up too much turkey?
OT - Dow gone flatline? - see WJS, CNN/Money, Bloomberg graphs
wolf
CPDO's are the 88888 account of 2008
if ya know what i mea
wolf i think they have a holiday because of thanksgivig or somehting
wolf, u realize the market is now closed... and the it guys could'nt fix the chart logic.
A little black friday lifestyle advice for my drinking buddies. Think twice before drinking and shopping (I bought a $400 bright yellow Dyson vacuum from QVC that I hate and already had two vacuums.)
404 Error, No such article | Chron.com - Houston Chronicle
What is a CPDO? Just another complicated way to make[strikethrough] lose money.
Actually I believe the point of all this is to redistribute wealth.
That's the point of bubbles and their ilk in general -- to create something with the illusion of value and exchange it for something with real value.
So with their 401k(s) workers may be exchanging $1 of labor for 50 cents of ownership in a company via an inflated stock.
Alas, this kind of artificial redistribution of wealth can create economic imbalances that can lead to things like underconsumption crises, etc.
In the past bubbles have been used by savvy speculators as a means to literally move huge amounts of gold out of a country before anyone realized what was going on, making markets ultimately unable to function when the looting was revealed (I mean looting in the best possible sense, as a laudable victory of intellect).
This was part of the motivation for going off the gold standard I believe.
i was in train from Vienna Tueasday and i had the honor/horror to hear such 25 something math absolvents (exactly i am 27 xD) who work in some austrian bank picturing rosy pictures about how they models risk and buy options and how thee could never do that in our country in such a young age
of of them was so selfconfident i so much wanted to ripe him into the nose that thanks to those kind of deals most banks are technicaly bankrot. i even had on my notebook open the comment section from this blog where there was this listing of lev3 assets/equity of investment banks 
luckily the gentleman i am i patiently suffered his wisecracks till the end station 
My gut feel is that there will be the beginning of a buying opportunity in the fourth quarter,'' Barrack said in an interview. The decision depends on whether banks and securities firms take additional writedowns for assets affected by the collapse of the subprime mortgage market, he said.
thank goodness for that reasoned analysis provided by the Gut
Is this a good illustration of the "de-coupling" argument?
SPY: Basic Chart for S&P DEP RECEIPTS - Yahoo! Finance
As the CEO of Wells Fargo recently said
"It's interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine"
TinyURL.com - shorten that long URL into a tiny URL
Much ado about nothing. Same criminals, different day. Nothing ever changes. ::yawn::
Is this a good illustration of the "de-coupling" argument?
If you want to see some decoupling click on that NASDAQ button under COMPARE TO.
You can see the leverage flowing into the NASDAQ during the Sept-Oct period.
"...If a CPDO makes losses because of unexpected defaults or a worsening credit outlook, leverage can rise, up to a cap, in an effort to win back any shortfall..."
Yeah that doublin' down sh#t always works fo' me.
this is what we get when the fat cats hire a bunch of genius lunatic quants to build derivatives that complex into infinity. The quants should have stuck with their major which was physics not economics.
If you want to see some decoupling click on that NASDAQ button under COMPARE TO.
You can see the leverage flowing into the NASDAQ during the Sept-Oct period.
Nevermind, it brought up a chart of the S&P 500 when I clicked that link, I take it your link was supposed to show EEM.
"I take it your link was supposed to show EEM"
Yes. I wanted to confirm to myself that the genuis perma-[sh]longs on Kumblow never check to see in there's any substance to their bull[shit]ish claims.
Smurfy, Stumpf said it better than me! That is a great line.
Best Wishes.
I read in ft.com today that Goldman wants to set up a new billion dollar hedge fund (FT.com / Financials - Goldman aims to raise $6bn for hedge fund where an actual person will pick stocks.
Is something is wrong with this picture?
ac,be careful with that MBA grad.Just because they LOOK cleancut doesn't mean they aren't SIV positive.as far as consequences,financial collapses frequently have ugly long term social consequences.Thankfully we don't have to worry about that here as long as we have fiscally responsible republicans in charge who avoid wild foreign adventures and protect our constitutional rights as a matter of faith!oh.
Anyone post ABX at 15 of 20 new lows today?
"It's interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine"
Just what you'd expect some reactionary banker to say.
I mean, duh, has the man never heard of productivity? I'll tell you people the truth, 'cause I was around in the bad old days: it took a lot longer, and a lot more people working on the project, to lose this kind of money.
Of course we didn't invent new ways to lose money. We invented ways to lose money much more efficiently, while being able to write IMs and listen to the iPod at the same time. How can that not improve the quality of life?
Average Joe
Looking forward to your end of day report on the shopping search and destroy extravaganza.
Only shopping I did was at craft store for more yarn and some needles. handmade christmas this year.
I wonder how many will be like me this year, making instead of buying? Only the shadow knows, I guess.
CPDO? Huh, learn something every time I read here. I thought that was a smoker's disease or sumthin'. go figure emphysema of the finance system.
wait wasn't that the annoying protocol droid in Star Wars?!
CPDO
Combined Power of Delusion and Organisedwallstreetmarketing
They did the job on TG weekend. Such a Surprise. Most are enjoying the holidays so release it now. Problem is places like this exist.
Cheers,
can i get a utube video with that thought, misean?
the Rub,
Quoting in entirety:
"While a rather obvious 25 or 35 basis points to 0 analogy could quickly be advanced here, a finer, more precise analysis emanates from the quantitative dissection of a new derivative credit product retailed to institutional buyers under the sticker known as a CPDO or constant proportion debt obligation. Without too much explanation, these multibillion-dollar instruments lever investment grade indices up to 15 times the amount invested and offer or have offered a spread of 200 basis points over LIBOR with a AAA rating. Hard to pass up I suppose, recognizing that AAA securities are by definition blue chip with rare, only infinitesimally small annual default rates. But this AAA rating is subject to numerous (more numerous than usual) subjective assumptions on the part of the rating services and in turn vulnerable to quicker downgrades than your normal AAA GE credit rating (there GE, Ive paid you back.) My purpose in bringing up the CPDO, however is not to denigrate the rating sources or to praise GE, but to state that under PIMCO quantitative modeling, current investment grade CDX spreads, shown in Chart 1, can only narrow by 3 or 4 more basis points before these CPDO instruments can no longer earn a AAA rating or offer such an attractive 200 basis point spread. More importantly, increasing multiples of leverage beyond 15x near current yields spreads cannot maintain either a AAA rating and/or the 200 basis points in yield spread that have made this derivative so attractive and in turn helped to reinforce a declining trend in all credit spreads over the past few months. The increasing use of leverage, in other words, at least as applied to this particular area, appears to have run out of its magical ability to increase returns. Investment grade corporate spreads therefore are not likely to narrow further. The perceived fat content in this supposed AAA cream, is as high as its going to get, and skim milk may eventually be the reality."
Made my head hurt. Read it 3 times. But I suspect that the point is that the leverage phenomenon is over.
Damn, this has just got silly. Where's Seb and O-Joe to tell us all to get stuffed?
Cheers,
The dow is flat ?? for 3 hours? Radio silence! that's it the market is broken! the bears have won! 1987!! woohoo! circuit brakers gone wild!
Anectodal Shopping Update
2 hours later.
Just spent the last two hours rechecking every major shopping center in the city (major suburb of San Diego). The traffic, both foot and vehicle are decidedly average.
I am unable to tell by just looking that it's a special shopping day.
The malls on the eastern side of the city (3-4 years newly developed with a major forclosure problem) are very empty as usual.
There is plenty of parking at all malls. In fact, we have had several new malls and shopping centers in the last year come on line, so I think are many more stores to choose from and thus shooper traffic may be more effeciently dispersed.
There is much activity at the mouths of the stores with vendors out in front with attractive banners and sale merchandise. Like mentioned before, it looks like there are shoppers but they all carpooled.
All fellow cops shrug their shoulders and ask "where is everyone?" Roll call promised large crowds, fights, shoplifters etc. Our staffing is double the usual with more cops the patrol cars. So far the city is virtually crickets, much more quiet than even a normal friday. Not sure what that's all aobut.
Needless to say we aren't earning our keep today which is just how I like it. Knocking on wood.
Ah man... that CPDO paper is worthless... no it can't be... I'm calling my lawyer, maybe he can argue that it's worth more.
ac,
"This was part of the motivation for going off the gold standard I believe."
Hasn't worked, has it? At least under a gold standard I'd, if i were conservative, which i am, would have he stuff...so to speak. Whereas now all you get is a bunch of paper. n
Just asking.
Cheers,
On the issue of decoupling, Nouriel Roubini has just posted "Recoupling rather than Decoupling..." and it is pretty shocking.
RGE - Recoupling rather than Decoupling: the Forthcoming Contagion to China, East Asia and Emerging Markets
House of cards; house of cards; one on top of the other, infinitum.... And when the wind blows.....
Hasn't worked, has it? At least under a gold standard I'd, if i were conservative, which i am, would have he stuff...so to speak. Whereas now all you get is a bunch of paper. n
Well, it the past you could literally steal a currency outright when it was essentially gold. So markets could shut down for lack of currency.
At least that can't happen now, but they still might shut down for lack of faith in the currency, or an unwillingness to trade for it.
TurkeyTalker,
OOO....That's an easy one.
REM anyone:
YouTube - Hey There Delilah It's the End of the world as we know it..And I DO still Love YOU, Yes I DO
Cheers, and thanks for asking;
On the issue of decoupling, Nouriel Roubini has just posted "Recoupling rather than Decoupling..." and it is pretty shocking.
Yeah, I think the basic argument is that China's consumer is located in the US, and that their economic growth is in part due to a runaway capital spending boom unjustified by domestic increases in consumption (which hasn't maintaned the same pace of growth). So all the factories they're building may not have anybody to sell stuff to once they're done selling stuff to other businessmen who are building factories. At some point the chain has to end in consumption, which just isn't keeping up right now.
I know Gary Shilling has been making a similar argument for well over a year now.
ac,
I don't understand. If under gold I got mine by not dealing in paper, how is it bad???
Cheers,
The report is Beijing's first public comment on what repercussions it expects from the global credit crisis and a sign that the government does not support the view that Asian growth has "decoupled" from the US.
"If demand in the US drops further, Chinese exporters will be devastated by a rapid and continuous fall in orders," the report said.
China fears devastation to exports
I don't understand. If under gold I got mine by not dealing in paper, how is it bad???
I'm not saying it is.
Honestly, longer term I don't have the slightest clue as to what will happen to the dollar, for example.
It could up or down dramatically in value depending on whether Bernanke gets a good night's sleep on some particular occasion.
Or then there's the giant wavefront of x-rays coming in from that neutron star collision that's going to wipe out all life on Earth next month.
You can go too far trying to predict stuff I've found.
So sometimes you just watch and wait.
Nouriel Roubini has just posted... and it is pretty shocking
Shocked to who?
OT, but while I'm waiting for Average Joe's evening report, and particularly for rsj @ 3:54, here is part of an essay called "New-Fashioned Christmas" by Aldous Huxley. I don't know when this was written, but Huxley died in 1963.
The first sentence is:
"The name is still the same; but the thing is almost unrecognizably different from what Charles Dickens meant by 'Christmas'"
After discussing the previously unknown "need" to have boughten presents not hand-made or home=grown ones, and describing present day Christmas as "an important economic event" Huxley concludes with this paragraph:
"The last thirty years have witnessed the promotion of innkeeping and shownmanship to the rank of major commercial enterprises. Major commercial enterprises spend money on advertising. Therefore, newspapers are always suggesting that a good time can be enjoyed only by those who take what is offered them by entertainment manufacturers. The Dickensian Christmas-at-Home recieves only perfunctory lip-service from a press which draws a steady income from the catering and amusement trades. Home-made fun is gratuitous, and gratuitousness is something which an industrialized world cannot afford to tolerate."
As CR says "Best to All"
You can go too far trying to predict stuff I've found
Some things are relatively easy to predict... like "a return to commodity-backed paper". That's an easy one if you're read enough history.
Thirty-six years off the gold standard is an impressive record but it's now clear that "central bankers" can't maintain the necessary apolitical discipline to mimic a commodity-based currency.
I, for one, welcome our new Metallic Masters!
fed will expand the creation of credits/paper money....relax .. system will survive...they can create a trillion bucks if they want,,,they can bail out (indirectly) anything that moves if they want
...they can create a trillion bucks if they want to
And they have!
However, we will be returning back to commodity-based paper. It's already happening, tacitly.
The Constant Proportion aspect of CPDO really reminds me of portfolio insurance and the 1987 debacle. How widespread was this one wonders ?
On the Black Friday front, just after noon I was at the local(CO Front Range) Walmart Supercentre ( to pick up my cat's blood pressure med, I hasten to add) and the parking lot looked like any usual Sat. noon. Parked in the lanes right opposite the entrance, 10 cars up. And while I didn't linger in the store it looked like an usual Saturday to me.
-K
fed will expand the creation of credits/paper money....relax .. system will survive...they can create a trillion bucks if they want,,,they can bail out (indirectly) anything that moves if they want
Anonymous,
hehehe.. that's the good part, the Fed will have to increase the money supply many times over (if these hundreds of trillions of dollars worth of swaps contracts are "tested").. the only part I would worry about is:
Will there be wage inflation across the board, or will most of the money shoot straight to the most wealthy 1% in the U.S. (or the world)?
Tanta,
Of course we didn't invent new ways to lose money. We invented ways to lose money much more efficiently, while being able to write IMs and listen to the iPod at the same time. How can that not improve the quality of life?
You are in top form today. I don't know whether to laugh or cry, so I've decided to do both!
yep
fed will expand the creation of credits/paper money....relax .. system will survive...they can create a trillion bucks if they want,,,they can bail out (indirectly) anything that moves if they want
The Fed does not run the US government, however. And all the people who do run things might not want their money rendered worthless just maybe?
People who run things tend to be the people with the most money, after all.
rsj "Only shopping I did was at craft store for more yarn and some needles. handmade christmas this year"
Fascinating - make vs. buy?
The company I work for (fortune 10) has an entire department devoted to that very subject. They invariably opt for buy. Executives are usually the Neros and it eventually boils down to a "core competency" decision point. See, we build very little, opting to produce specifications & do integration. That has become what US enterprises will be reduced to. Pretty soon every US enterprise will be a PO box in the Cayman Islands with some eBusiness software & server farm. I think of it as drifting quickly into obscurity.
You're bucking the trend.
Some things are relatively easy to predict... like "a return to commodity-backed paper". That's an easy one if you're read enough history.
Yeah, but I don't care too much right now if it doesn't happen in the next few years. And history doesn't tell me much about that.
Evening Report.
It's 3:30 and their sending extra police staffing home including me.
They don't expect a night rush.
I did find a Walmart that was absolutely packed. It's popular with traffic coming from Mexico. However, the two other Walmarts were as usual. I have no answers as to why. I looked for signs of something different but found none. We have two Costco's and they looked slow actually. Plenty of parking. We had some Gamestop stores with huge lines early this morning (video game specials), but they look like business as usual now.
I think the news of the slow new mall, if my observations are correct, will be big news in our city. The mayor and city manager are fighting huge deficits. They acknowledge the slow housing market, but also blamed the slow new mall and surrounding businesses mostly on the failure to open the Tollway in time. Well, as said before, the Toll road is open and FREE. No more excuses. Today was do or die. Alot of the big stores like Neiman Marcus, Sacks, and Nordstroms said they were gonna give it a year to see how business was before signing on to this mall....It's been a year and a half.
There is a ton of empty commercial buildings on the east side near the mall just waiting for deli's and bars etc to fill once the shopping centers take off. Alot in my city is riding on the success of this new mall.
I am biased of course so I asked my fellow cops...it seems "recession" is common knowledge these days.
The unwind of the deal known as a Constant Proportion Debt Obligation (CPDO) caused an approximate 90 percent loss for investors, Moodys said in a statement.
Moody's, ha! Everyone respects Buffet so much and he is a maggot, just like all the rest. I just love those cute little names they come up with. How much will this one cost the taxpayers I wonder?
Where's Avg Joe? I want the ShopnCop report.
Does anyone else think that if we got rid of all the Street economists and just asked the cops our economic forecasts would improve?
Thanks, Avg Joe. I asked my fellow cops...it seems "recession" is common knowledge these days.
You just made my point!
ac - "The Fed does not run the US government, however. And all the people who do run things might not want their money rendered worthless just maybe?
People who run things tend to be the people with the most money, after all."
I have thought about this issue quite a bit over the past few months, regarding Ben's printing operations and what happens to those with "paper money". Is it possible that over the past year or so that those with paper money have aleady been informed about this likely outcome and got a head start converting their wealth to hard commodities, so their wealth doesn't get destroyed at all?
Quite possible.
Will there be wage inflation across the board, or will most of the money shoot straight to the most wealthy 1% in the U.S. (or the world)?
I am assuming you already know the answer to that question.
"Exports to the US have slowed significantly since the start of the year, dropping from a 20.4 per cent year-on-year rise in the first quarter to a 15.6 per cent increase in the second. Growth fell to 12.4 per cent in the third quarter following the eruption of subprime loan problems."
Still quite impressive, but growing bubbles have to be fed.
The decoupling thesis is almost as silly as the containment thesis.
Where are the billions for this week?
Just catching the political talking heads on the NewsHour w/Jim Lehrer, and one of them was cutting up about being able to park at the mall today as a sign of a downturn...file under funny 'cause its true.
Barely,
I don't understand why you think "hard commodities" will preserve value in a deep recession. I would think the price of almost everything, including hard commodities, will fall. (Gold may be a special case, because of its long history of being a kind of money.)
I once read an interview with a famous investor (the elder Fischer?) who lived through the Great Depression, and he said that although everyone was hurt, people who owned stock in companies that were able to continue paying dividends did best. I don't know, I'm just asking.
Avg Joe,
I think what could be missed with your valuable analytics, is the mystery shopper in car #9 , the one with the platinum visa, with an equity linked inverse lot proportion OA NINA limit.
This mystery shopper generally makes the rounds at various outlets, main line, and upscale malls that are suffering from the malaise you speak of.
This is when they go into action , charging the one item that will skew all box retailers Black Friday numbers to a +1% gain YOY.
phil, I am not certain about what sure-fire plan exists to accomplish wealth preservation during a sharp recession. That's a game-time decision, each day, as I see it.
The problem I am referring to is serious inflation, and in that case, commodities should help preserve real wealth.
I have thought about this issue quite a bit over the past few months, regarding Ben's printing operations and what happens to those with "paper money". Is it possible that over the past year or so that those with paper money have aleady been informed about this likely outcome and got a head start converting their wealth to hard commodities, so their wealth doesn't get destroyed at all?
Quite possible.
barely | 11.23.07 - 7:02 pm | #
for a smart guy, i'm shocked that you've only now come to this realization. what do u think Wall St has been engaged in ever since rates went to 1% back in 2001 ala Greenspan? the whole leverage to the hilt of IB's has encouraged them to convert worthless dollars into a variety of asset; stocks, bonds, RE, oil, commodities. they know precisely that the USD has been plunging in value so the logical thing is to borrow and accumulate. then end game is nigh however and certain of these assets are going to plunge in value.
i'm not sure i expressed that properly. who does inflation benefit? debtors. so Wall St. borrows 25x capital assets and goes out and buys assets. private equity and hedge funds are another example of borrow and accumulate. been happenin since 2001.
I dunno about recession but in a deflation cash is KING. Its purely mathematical equivalence, that's all - Check Mish's blog for deeper discussion or Ludwig von Mises Institute - Homepage
for discusion, demonstration and historical evidence. Ahhh, but when deflation comes in play is a tough question. Its not happening "generally" yet - Its simple to say it will be when "general" prices start dropping. You have to think of it rolling from sector to sector if you look at it as prices IMO - in the current case its houses, then stocks then commodity assets, then household goods then ....
Of course the duplicitous bastards at the Fed will fight this like hell so you will get an ebb and flow to this - so you can't be wedded to some smooth downward slope. It WILL be spikey. For inflation I watch the Fed AMB, the temporary and permanent operations and their weekly total money report to see what's happening at the discount window.
Of course they could be lying in their published stuff - I did say they are duplicitous after all so anecdotal evidence is important too.
We are certainly in a (MZM -M1 ) deflation / "non-Fed directly created money" destruction deflation at the moment.
-K
Thanks, Barely. You are probably right. But it's a shame if ordinary people are going to be forced to make "game-time decisions" day by day to protect their life savings.
Somewhere up-thread, someone made the point that bubbles are about redistribution of wealth, which they most certainly are. They are also about mal-investment. In the abstract, something is bid up to a crazy price, and the market responds by increasing the supply of this something. When the music stops, the economy as a whole is left with a great pile of this something and not as much of other things because resources had been diverted to create the somethings. Now if the bubble is in tulips, then at the end of the cycle the economy is left with a lot of pretty flowers. If the bubble is in internet stocks, then there is a lot of dark fiber lying around and a lot of useless code. In this instance we can identify two bubbles, one in real estate, and one in the price of credit. The real estate bubble, in the end, has left the US economy with a few million extra houses that will not really be 'needed' for some number of years. To get a rough idea of the mal-investment, suppose we assume that 3 million extra homes were built over the last 6 years, or about 500,000 per year. Ballpark, this is about 2 years extra supply. Holding all else fixed, this implies that the mal-investment is the cost of capital on 3 million homes for an average of 1 year. At a 10% rate, and an average price of 250,000k, we get about 75 billion dollars. Now, certainly there are a lot of knock on effects, but the gross dollar value of mal-investment is not really that big a deal.
The credit bubble is a different story and is more about redistribution of wealth than mal-investment. Now I am sure that there are a few quants building credit models who might otherwise have been working on reactor designs, but in the aggregate it is a pretty small number. The remarkable thing about a credit bubble is that the redistribution of wealth is from rich to less rich, or from lender to borrower. Lenders, lend at absurdly low rates and the borrowers reap the benefits. It would appear that in absolute dollars, the biggest losers in the whole game will be foreign central banks. In the aggregate, they own about 2 trillion dollars worth of our treasury and GSE paper, measured in gold or oil or soybeans they've probably taken a 50% hit, never mind the credit losses on the GSE stuff. Anyway, the point of this tangent, is that the redistribution of wealth is probably not going to be a really bad one, in the sense that it has already occurred and it has gone from rich to poor. All the remaining intrigue rates to be about credit availability and the impairment of the banking system. Since in the end, we have socialized credit risk, and default is rendered in an increase in the general price level, I am not terribly concerned with a cascading credit crunch. There should continue to be an extreme bifurcation in the economy and markets, depending upon whether or not your enterprise is 'in the line of fire'. I do not think that the broad equity indexes have enough exposure to the imp
-K
sk
the problem with cash is KING is that downward sloping USD index. i certainly don't want cash right now which is why i've accumulated alot of gold and gold stocks. Mish does advocate deflation but he also advocates gold. i think we're headed for stagflation based on Austrian economics. some point to the Slosh report and say the Fed isn't adding to money supply and this was always confusing to me. but Aaron Krowne's explanation makes sense to me. they've drastically decreased bank reserve requirements which has allowed significantly more credit creation which also needs to be considered when thinking about the money supply. not to mention all the FHLB lending going on in the background to prop up banks like CFC.
...impaired parts of the economy so that one might get rich buying s&p index puts.
===============================
he problem with cash is KING is that downward sloping USD index
Agreed and to take care of that I use Swiss Francs, Euros, past accounts in UK Pounds and speculatively, Aussie, Norwegian and Icelandic currencies.
I agree with barely that this is a game time decision with the game being played again and again month to month and you need to bend and weave and flex. I also agree with Phil that its a shame that ordinary people have to make game-time decisions especially as you have to watch the rules change - they do kinda, sorta post them of course - except on Alpha Centauri !
I'm watching MAXED OUT at the moment - and it really saddens me to see the shit that's happening.
-K
-K
sk
we're pretty much on the same wavelength and i have invested in MERKX which is a proxy for your diverse currency strategy. however i think ALL currencies are devaluing vs. gold and its a race to the bottom. yes we need to be flexible but thats somewhat akin to day trading. maximum profits will be made by making your decisions now and sticking to them in the long run.
=======================
maximum profits will be made by making your decisions now and sticking to them in the long run.
idoc
Good luck to you ! the long run is not just a song by the Eagles - its can be awful long time, as even Jim Rogers or Bill Bonner ( especially Bill Bonner ) would readily admit.
I'm more comfortable with - I really don't really really know; what's working ? Ignoring the wins which are easy to work with, when, what price level, do I admit defeat ( not stick to it ) to my thesis and move on to a prevalent one - above all contrary speculating does not mean against the crowd, its actually WITH the crowd for a lot of the time.
Day trading is a pejorative and its not an accurate descriptor of the analytical and thought processes I've described IMO. To clarify, some aspects will unfold, fold, refold ( in other incarnations ) in months, some in days, some out of the blue, some over years, some over decades and some over centuries.
Over periods of time one makes judgment calls for periods of time - that's all.
Lastly, maximization is for mathematical functions ( I say that with a lot of expertise in that field ) - I practice SAFE-SPECULATING.
But definitely good luck to you.
-K
I agree with Avg Joe everywhere I went there was plenty of parking. I was right in front of the door at Dick's Sporting goods. I did sin and bought some new golf clubs. The manager dropped an additional 50 dollars off to get me to buy. I was the only one in the golf section. I got a 479 orig cost set of irons for 129.00 and two fairway woods org 179.00 for 29.00 each. Came out right at 200.00 dollars for almost 800 in clubs. Less than I paid for my last set 18 years ago. What I did see was a lot of people walking in circles but 75% were empty handed.
After more than a week of heated debate about the Gulf currencies peg to the weak US dollar, speculation is intensifying about whether Saudi Arabia will revalue the riyal for the first time in 21 years
Middle East and North Africa News Headlines - FT.com
More anecdotal shopping info:
I went to Costco around 7:00 PM. Only one register was open and when I was ready to check out I walked right up to the register. No one was even in line.
Any of you fellas betting on deflation while Bernanke's running the fed are in for a ass-whoopin'. Best to err on the side of massive inflation and latch on to the next bubble that attracts the hot investment money. Agriculture based equities (perhaps) and commodities in general are likely to fare reasonably well in the short term. This is a tricky period as the hot money tries to find a home. Emerging markets are a trap waiting to be triggered, imo.
barely
i agree with u. which way do u think EM's will go?
Average Joe--
Thank you very much for your shopping scoops. Much appreciated.(and everyone elses.)
Ethan--so I guess the sentiments havent changed regarding the commercialisatoin of christmas. Just more intense now with the rise of Tyrannasauras consumerex.
Barely-
Interesting point. An idea for me to spin around and round in my head.
I work in a factory. We make stuff. When I started there I was a refugee from retail and the receptionist gulag. The first month floored we with "oh wow " moments as I held actual, real, made by me product in my hands as well as a paycheck in my poor grubby paws. The other jobs were work, but the difference in directing phone calls and sorting mail vs producing something concrete is both large and subtle at the same time.
I wonder with more and more of jobs being in service, retail and various incarnations of desk-bound paperhockey maybe many people dont understand what producivity is, what producing is what making is. neat thing to think about.
Throw in greed and lazy with lack of connection to making something.
I tis late so if this thread is done, I may post this in the new thread just to make sure people see the thankyous.
OT
I'm trying to better understand credit default swaps (CDS), so that I can compare them to traditional bond insurance. I don't see much difference, except 1) the greater speculative element in CDS; and 2) the ability to write multiple insurance on the same bonds in CDS.
I do see one big similarity, which is the way both types of insurance have worked to increase risky debt and make it look more wholesome and appealing to institutional investors.
Muni revenue bond annual issurance has more than doubled in the last five years. Why? We need so many more schools, hospitals, roads, waste treatment plants, etc. than before? Of course not. Muni revenue bonds have soared because insurance became cheap and plentiful, enabling these bonds to find investment markets that they never could before. Therefore, many marginal projects got funds.
The parallels between housing/mortgages and lower-quality insured corporate and municipal debt are scary. The coming insurance meltdown will be something.
Average Joe-
Nice reports, however, San Diego, upper-NorCal, Florida, Las Vegas and Arizona have all led the housing crash by at least a full year. Decreased consumer spending in these areas are a given.
Don't fret. I believe come Sunday at 9:00 pm, members of the PPT will come in and purchase enough merchandise with their Platinum PPT cards to achieve a 2% increase over last year.
So can someone clarify this for me?
I'd imagine that as the US$ drops dramatically, the appeal for foreigners to buy US stocks will be inversely increasing (i.e. suddenly your Euros can buy a lot more Citigroup than they used to). Wouldn't this cause an increased demand for US stocks in the short-medium runs that would forgo a lot of this fundamental-is-flawed analysis that so many here espouse?
Not claiming this is my stance, just wanted to know how people react to this view.
Blue,
I've had the same thought. If all we had to fear was the continuing gradual devaluation of our currency, then one ought to be able to do pretty well by investing in a basket of good, stable US companies, using conservative (e.g., Graham & Dodd type) principles. Those companies ought to hold their real value despite the declining currency, for the reasons you state and others. The problem is that there are other dangers out there - e.g., financial turmoil, US or world-wide recession - that could cause the best laid plans to "gang astray."
Praetorians Local Market Observation: Stanford shopping mall in Palo Alto was a ghost town this morning despite a Stanford/ND home game. The parking lot was half full at 11 am. Most saturdays at this point you'd have to park in Menlo Park and walk over.
My wife remarked on it unprompted as we passed through on our daily walk with Prat Jr.
shrug
Cheers,
prat
Some of the commentators have recommended the purchase of closed end muni bond funds, on the theory that they are now very cheap. Others argue for the purchase of treasuries as a hedge against the worst case scenario. Others argue for the purchase of gold.
globeandmail.com
"The head of Fairfax Financial had a front-row seat when the Japanese market began its 15-year retreat. And he thinks the U.S. indexes might be about to do the same"
DEREK DECLOET
00:00 EST Friday, November 23, 2007
"The global credit squeeze is in its "early days," says investor Prem Watsa, who is so bearish that his insurance company has stashed the bulk of its $18-billion investment portfolio into ultrasafe government bonds."
"Just another complicated way to make lose money."
CR can snark!
From the article "Demystifying the Structured Credit Jargon and Identifying the Opportunities.":
CPDO Constant Proportion Debt Obligation As referenced in the December 2006 Investment Outlook by Bill Gross, the original form CPDO was offered as a high coupon (LIBOR + 200 basis points), highly rated (AAA) and highly levered (approximately 15x) 10-year security, comprising formulaic rolling of positions in 5-year iTraxx and CDX indices.
Excuse me, has anybody seen my ears? My head just exploded......
For 200 pasis points, you go thru this?