Guess not!
I've been reading the website and posts for a while now. It gives an alarming impression about the present financial situation in the US. I expect quite an impact here in EU.
That right it's Friday and closing time on the East Coast. They hope that all will be forgiven by Monday. That's if they're still in business then as themselves or under a new and improved name but same management
jo6pac
The race to the bottom continues.
Anyone know what happened to WaMu today? WM: Summary for WASTE MGMT INC- Yahoo! Finance
Not so concerned about the stock as an investment, just wondering whether something happened with the bank. None of the others were down by that much today.
to understand why Fridan and why after market close, one needs to pay a close attention to Ben's remarks.
that was interesting how Ben assumes FED is resposible for people's stock account:
"we will not let 10% drop each year"
"everbody with stoock account needs a functioning econemy"
You may get a better idea about what news is circulating that's driving the price down, such as "Washington Mutual sinks on mortgage loss worries" from Reuters.
Time for Ben to open a new window, call it the bond insurer bailout window. henceforth we shall call him B-52 Ben brcause helicopters arent big enough now.
I find it annoying that the ticker headlines on this all had "MBIA" and "AAA" and avoided the use of "downgrade", in some cases using odd English grammar to convey the truth.
It is plausible that certain institutional investors may be forced to liquidate (sell) ANY securities rated below a AAA rating by ANY rating agency, including Fitch....according to covenants designed to protect investors from deteriorating credit quality, IMHO.
If true, we should know more about this potential event materializing in the very near future...
On the Ben movie above, let's keep the record straight. I have no doubt his moves are also aimed at helping the equity market. But the 10% drop remark was clearly in reference to price levels as given by the CPI, i.e., deflation during the depression.
But the 10% drop remark was clearly in reference to price levels as given by the CPI, i.e., deflation during the depression.
Octavio Richetta | 04.04.08 - 6:37 pm | #
Yes, so let me get this straight. NO deflation. Moderate inflation in CPI is okay (of course food an energy inflation seems to be okay), but wage inflation should be fought tooth and nail.
Sounds lose-lose for us wage earners! Guaranteed erosion of purchasing power and quality of life.
Did you see this comment on WM from the Ticker Forum:
"I spoke to a guy who works closely with WAMU (Title Rep). He has had their biz forever! He went in late yesterday and found they had all packed their **** and left! He is trying to find out exactly what is going on, however he had heard rumor that they are the next Bear Stearns. Take it for what it is worth, but that is what I am hearing. Will call around and get more details and post as I hear them."
Yes, so let me get this straight. NO deflation. Moderate inflation in CPI is okay (of course food an energy inflation seems to be okay), but wage inflation should be fought tooth and nail.
Sounds lose-lose for us wage earners! Guaranteed erosion of purchasing power and quality of life.
RP: people/labor don't have property rights attached.
This is why, IMHO, the general price level of assets must fall when the consumptive ability of the purchaser declines. (Econ 101, right?)
And this is why I would generally argue that the FED's actions are counter to natural forces. I.e., any attempts to prop up prices beyond the ability to consume runs the risk of seriously mismatching balance sheets to income statements.
One can generate this slight of hand for a time, but double entry accouting was designed to alleviate this problem in the first place.
At some point, declining/ negative shareholder's equity has to rear it's ugly head.
Disclaimer: Given the FED's mandates, I think they're in a pickle and after much "armchair qb-ing", I haven't come up w/ a better option.
The average "saver" these days has their savings in the markets thru IRAs, 401ks, so, a serious deflation in stock, bond and commodity/real estate market(s) would result in the modern equivalent of a "run" on the bank (markets)... completely destroying M3.
As an example of these problems, what would happen if all credit card companies and banks didn't bk but went into "run-off" mode?
Sounds lose-lose for us wage earners! Guaranteed erosion of purchasing power and quality of life.
If we have true deflation many of us won't be wage earners for long.
The biggest fixed cost for most companies is 'debt' associated with overhead. The largest variable cost is 'salaries'... in a deflation prices companies can charge falls so they have to cut cost to stay profitable (revenue falls but cost doesn't)... since they can't cut fixed cost (that's why its called 'fixed') they cut variable cost instead... with the biggest being head count that means lay offs.
Those newly unemployed workers lose their salary & so buy less and in aggregate which drives prices even lower forcing companies to lay off even more driving prices even lower still...
The quintessential 'vicious cycle'.
That's why they fight true deflation tooth-n-nail. If there were no long term investments anywhere - no debt, no assets, 100% variable cost everywhere in a perfect services economy - then deflation would be no problem. We haven't lived in that world since humankind 'invested' in the first stone tools.
The new bottom is in for financials! Everybody back in the water!
Never worry about buying into the current market - the bottom has already been priced in.
The best antidote to irrational exuberance might not be sneering sarcasm, but it's all I have in my kit.
Serious question: do you think the new ratings are more accurate than the old ratings, or is the downgrade the minimum that can be done by the ratings agencies to keep some semblance of credibility?
the 10% remark is related to the fact that the poster seemed to imply BB said he will not let the stock market drop by more than 10% per year or words to that effect.
BB is already inflicting enough pain to the taxpayer. He needs no further help:-)
Dryfly I reread your post a couple of time and not sure I understand. Were you saying they need to fight deflation tooth and nail is that most money must be lent into our system. They cannot create the need to borrow because it would make more sense to just save when everything was depreciating in price.
I think it means that FDIC officials have reserved a bunch of hotel rooms adjacent to their HQ, along with ordering plenty of pizzas to keep them well fed for Monday morning.
Taking over a failed bank burns lots of calories, you know ...
TG: "Dryfly I reread your post a couple of time and not sure I understand. Were you saying they need to fight deflation tooth and nail is that most money must be lent into our system. They cannot create the need to borrow because it would make more sense to just save when everything was depreciating in price."
I don't want to speak for Dryfly but if you want to get a small taste of why deflation is bad, you just need to look at Japan in the last 15 years. Wages will continuously fall during deflation (check out the chart at the top in this article to see how Japanese wages have deflated for a decade (ignore the article text, which is about something else)). The only saving grace (if any) will be that real wages may be flat since prices drop (i.e. deflation). But generally even this isn't enough.
The Austrian Economists, extreme right-leaning libertarians, and hard currency advocates (such as goldbugs) always seem to conveniently ignore the effects of deflation. The talk gloriously of declining prices in the 1800's and during the Great Depression but conveniently ignore the declining wages and hardship faced by wage-earners. Japan is also never mentioned even though it is largely a disaster by all accounts. If the government never ran up debt to 100%+ of GDP, it would be unmistakenly clear that Japan and its deflation was a diaster worse than the Great Depression (although I will note that the Great Depression was global whereas the Japan wasn't.)
It's the cruel truth that central banks and investors target wage increases but too high of an increase in wages is also very bad. I don't think this is necessarily bad--and this is coming from me who is a working class worker who makes more money from my low salary than I ever will in my investments! Yeah, everyone including me would love wages to increase a lot but high increases can be disastrous for the economy.
Hard currency advocates will never agree (they somehow are in love with a non-depreciating currency) but low inflation, neither high nor deflationary, is best for society in my opinion. Modern central banks, when not doing something to politically favour one party, try to target low inflation. Unfortunately this also means that wages won't be allowed to rise too much...
for the last week, etrade has stonewalled me with access to my account. they've said since i failed an online identity questionaire, that was provided by a third party, that i'd need to submit a notarized letter of authorization.
I did so, thru my attorney, thru fax and thrua notary. still nothhing. This has been the longest 5 days of my life, and fear mongering aside, i'm acred sh*tless i may never have access to my money again.
And i have open positions that they won't discuss until my identity has been verified.
Aren't these the guys that Eliot Spitzer gave 5 days to respond. How'd that work out?
Anyway, this is all priced in. Just like all the downward revisions to the job numbers were priced in. We are reaching "pricing in" abilities in the markets that were up until this point reserved for time travelers. We're looking across the recession chasm and can clearly see the other side. Only stupid people would cross the chasm by climbing down one side and up the other. We're taking that nice shiny bridge, thank you very much.
Like the S&L crisis in the 80s...the walls of some the big banks in this country are coming down....one by one...
If you fell for the "Bear Stearns was the bottom" BS from the Wall Street pundits and (Won't)Working Group....or Working (2deflate the $USD) Group....you deserve to lose your shirt, IMHO.
I am and or became a goldbug when I realized back in 2004 the fed would have to depreciate our currency to keep the economy alive after the housing bubble burst. Up until that time I was pretty much an CD IRA kind of guy. I saved up to 25% percent of my salary with my wife working. She is no longer working due to a chronic illness with a long way to go before she qualifies for SS unless we can get her disability. Because the fed and our government is ruled by political expediency they will always chose to let bubbles run and run up the federal deficit. It appears to me people who try to save in the sense that they were taught since they were born are the people financing these bubbles and defcits. IRA's and Deferred compensation plans are more monetary confiscation than real savings for ones future. My worst realization is that some private entity is capturing a little bit of eveyones labor every hour of the day. Our current monetary system is not based on issuing money but issuing debt. It appears only slightly different than a monarchy where they were wealthy by direct servitude of their subjects. The fed being owned by a private consortium is making interest off every dollar loaned into the system. Why is the Fed necessary? Why the intermediary between the US treasury and the people?
TG, your serfdom comparison is spot on, we're all serf's to the Federal Reserve now. Remember, the uber rich cannot be allowed to lose any money, since they own everything now!
Countrywide Bank? Why, of course - the same Countrywide bank that was offering CDs at 5% last year, FDIC-backed. It looked then like a scheme to pull in money on the government's tail and stick them with the loss.
It still does. And it still looks deliberate, too.
TG: "I am and or became a goldbug when I realized back in 2004 the fed would have to depreciate our currency to keep the economy alive after the housing bubble burst. Up until that time I was pretty much an CD IRA kind of guy. I saved up to 25% percent of my salary with my wife working. "
If you strongly believe that the currency is going to depreciate a lot then holding gold can be good. Certainly some successful investors like Marc Faber, Jim Rogers, and others, have been big fans of gold and been proven right.
But if you look at the very long term (I'm talking 20+ years) then gold is a horrible investment relative to others. In fact, in the last 30 years (before the recent run-up in gold post 2003), even money market (i.e. cash with interest) outperformed gold. If you compare gold to stocks, it isn't even a competition.
So it depends if you are only considering gold for a shorter period of time (say less than 10 years) or if you are not considering other assets like stocks, bonds, real estate, etc. It could very well be that your investment time horizon is not 20+ years, in which case gold may be ok. It could also be that you aren't comparing stocks/bonds/etc to gold due to some limitation or risk, which may make gold attractive.
However, I stand by my view that unless you trade gold it has, is, and will be, a terrible investment relative to practically all other asset classes. It can make sense if you are only comparing it to cash or if you can't tolerate the volatility of stocks, but it has never been a good long-term "investment". At best, it's insurance. That is one of the main reasons value investors like Warren Buffett never touch gold.
TG: "She is no longer working due to a chronic illness with a long way to go before she qualifies for SS unless we can get her disability. "
Sorry to hear that. I wish you all the best to your family. Chronic illnesses may not have a cure but I hope the condition stabilizes and she gets the compensation for retirement...
TG: "Because the fed and our government is ruled by political expediency they will always chose to let bubbles run and run up the federal deficit. "
There are two issues there. On the issue of bubbles, it has been suggested by some researchers that we don't have the tools or the knowledge to target bubbles. We really don't know what is a bubble except in hindsight.
A good example is the current commodities boom. I personally think it is a bubble but the general consensus of investors, management, and some politicians is that it is not a bubble. Investors are contributing billions, and the companies are spending billions on projects that I personally think will end up being unprofitable (except for the management and insiders involved). But how is someone supposed to figure out if commodities are in a bubble? The bulls can easily cite information showing demand is strong; while bears like me can show reams of historical information showing that big commodity consumers like China cannot grow fast for long periods of time and developed consumers like USA have always caused big declines when the economy slowed (that's why commodities have always been considered cyclicals for hundreads of years). Who is right? Are we in a commodities bubble?
TG: "It appears to me people who try to save in the sense that they were taught since they were born are the people financing these bubbles and defcits. IRA's and Deferred compensation plans are more monetary confiscation than real savings for ones future."
No one is forcing you to use structures like IRAs. Of course, you lose the tax benefit but the point is that it is really up to you to save how you want to save. Things like deferred compensation, sorry to say, are a joke in the sense that you just never know what is going to happen in the future. I am very skeptical of "future" payments of any sort. Whether it is future government retirement payments, or company pensions, or stuff like that. This doesn't mean that they are worth zero but it does mean that it is unpredictable. The only true savings in my eyes is if you do it on your own outside these structures--this is what you can withdraw at any time.
The people financing the bubbles are indeed the savers (that's where the money comes from). But the savers do that on the hope of making money off the bubbles. If you do not want to be any part of a bubble (I definitely wouldn't) then you need keep you money in something that is not associated with the bubble. If you have a 10+ year investment horizon then I think a basket of mega-cap stocks is relatively safe. Unless you don't believe in the capitalist system of private property, I think big companies like G.E, Microsoft, Coca-Cola, and so forth will likely retain their value over a long period of time. I am not recommending these companies, and stock prices can drop 30% in one year (even for blue-chips with solid business fundamentals) but in 10 years you will likely retain the purchasing power of you money.
(NOTE: I'm just a newbie and don't blindly follow anything I say).
TG: "My worst realization is that some private entity is capturing a little bit of eveyones labor every hour of the day. Our current monetary system is not based on issuing money but issuing debt. "
I don't think that's accurate since there is always two sides to a transaction. If everything is skewed to one side, people will go there. If you don't like the notion of issuing debt, why not become a creditor? If you think the debt side profits more (given an amount of risk) then why not go and buy bonds?
No doubt that some financial intermediaries may money off the transactions but it's up to you to minimize them if you are concerned.
TG: "It appears only slightly different than a monarchy where they were wealthy by direct servitude of their subjects. The fed being owned by a private consortium is making interest off every dollar loaned into the system. "
I don't think it's that bad and wouldn't characterize the situation quite like that. The fact that someone is making interest off money is kind of irrelevant in the largely free-market system we live. For instance, you don't even have to hold US$. As you were alluding to, you already hold gold. You can go and hold some foreign currency if you don't like the US$. Or you can buy a share in a company. Or convert to some tangible asset like real estate (although that's just going through a bust so I'm not recommending it right now.)
TG: "Why is the Fed necessary? Why the intermediary between the US treasury and the people?"
Having the Federal Reserve, which is a quasi-private organization, is far better than the government doing it directly. At least the FedRes is composed of mostly indepdent experts who try to do things based on some scientific thinking whereas government is generally driven by political desires. If you want to see a country where the government itself is the central bank, look no further than the so-called Communist countries. You would find that their system is even worse because most of what they do is purely political and doesn't even make any sense.
I'm actually a free-market extremist most of the time, and I would prefer if currencies were issued by private entities. Everyone should be allowed to issue their currency. This idea sounds silly but it was the case in some parts of Europe and Asia a few hundread years ago (Italy is a good example).
"I don't think that's accurate since there is always two sides to a transaction. If everything is skewed to one side, people will go ther
SV many good points. If you go back to 1971 gold was at 35 dollars. Dollars are a claim check on the goods and services that we produce sort of a plastic bag that we go pick up the ral goods and services. When you issue irredemable currency by debt everyone has to use it to go pick up the services. It really has no value. There is no downside along as the monetary system functions. The more bags issued the less goods and services fit in the bag. To get the bags into the system people have to borrow them from the Fed. The only way you can pay them back with interest is to pay them back with more bags they issue at inerest.
has anyone noticed the extent to which media coverage has shifted its focus away from the monoline debacle? for the past 4 weeks, monolines have grabbed few if any headlines. perhaps this recent fitch downgrade may bring mbia and others to the public mircoscope again. lastly, a friend of mine holds a high research position in fixed income for a very large inv bank. he told me that the recent fed moves to collateralize the 30-1 levered investment banks shall alone take cpi-ppi up to 7,7.5% in the next year. and on the deflation front, if it does happen, will the us dollar really all of a sudden be worth a lot more? all these deflationists simply assume that cash in us dollar form will be the supreme store of value in a depressionary environment. i disagree with this whole-heartedly. there are too many around, all over the world. maybe for a few weeks will the cash dollar be in demand. i suspect this is when the fed begins t print more physical dollars, to meet the sudden scarcity...
Serious question: do you think the new ratings are more accurate than the old ratings, or is the downgrade the minimum that can be done by the ratings agencies to keep some semblance of credibility?
Marcus Aurelius | 04.04.08 - 7:26 pm | #<
There are no surprises in this.
"MBIA last month asked Fitch to stop rating the company because it disagreed with the ratings company's requirement that MBIA hold more capital."
The second that MBIA went to the mattresses re Fitch, a downgrade was certain. Fitch had to wait a so it didn't appear to be retaliation.
Fitch has no interest in keeping MBIA's rating higher then they believe since MBIA essentially said Fitch didn't know what they were doing.
They could have written the press release a month ago.
I love Fridays!
First
How likely is it that S&P or Moody's will actually follow suit?
hit tip to tj and the bear...he beat bloomberg by 5-10 minutes! on this one - two threads back
Guess not!
I've been reading the website and posts for a while now. It gives an alarming impression about the present financial situation in the US. I expect quite an impact here in EU.
That right it's Friday and closing time on the East Coast. They hope that all will be forgiven by Monday. That's if they're still in business then as themselves or under a new and improved name but same management
jo6pac
The race to the bottom continues.
Anyone know what happened to WaMu today?
WM: Summary for WASTE MGMT INC- Yahoo! Finance
Not so concerned about the stock as an investment, just wondering whether something happened with the bank. None of the others were down by that much today.
How emasculating...
to understand why Fridan and why after market close, one needs to pay a close attention to Ben's remarks.
that was interesting how Ben assumes FED is resposible for people's stock account:
"we will not let 10% drop each year"
"everbody with stoock account needs a functioning econemy"
ajw: check out Google's finance page, they overlay news articles with ticker:
Waste Management, Inc. - Google Finance
You may get a better idea about what news is circulating that's driving the price down, such as "Washington Mutual sinks on mortgage loss worries" from Reuters.
Ticker Forum said something about the loan officers all walked out yesterday in Orange County.
I just heard... [General] - MarketTicker Forums
Time for Ben to open a new window, call it the bond insurer bailout window. henceforth we shall call him B-52 Ben brcause helicopters arent big enough now.
Oops. Those are WaMu loan officers that walked out.
I find it annoying that the ticker headlines on this all had "MBIA" and "AAA" and avoided the use of "downgrade", in some cases using odd English grammar to convey the truth.
Ah, Friday afternoon downgrades, just like the good old days (three weeks ago or so).
Hey.. IrvineResident,
I thought I heard that on wednesday but I have not been able to duplicate.
when did he say that? or do you have a link?
"we will not let 10% drop each year"
ANN,
check CR video of the day or
YouTube - Recession not depression
that's pharse "we will not let 10% drop each year" is the true meaning of free market from Ben's view.
It is plausible that certain institutional investors may be forced to liquidate (sell) ANY securities rated below a AAA rating by ANY rating agency, including Fitch....according to covenants designed to protect investors from deteriorating credit quality, IMHO.
If true, we should know more about this potential event materializing in the very near future...
IMO.
barley,
Can't take credit; w posted on this first.
Thank you y and Simian!
On the Ben movie above, let's keep the record straight. I have no doubt his moves are also aimed at helping the equity market. But the 10% drop remark was clearly in reference to price levels as given by the CPI, i.e., deflation during the depression.
Friday afternoon downgrades...not as exciting as the friday afternoon bank failures, but still a nice bone to chew on until Sunday evening.
But the 10% drop remark was clearly in reference to price levels as given by the CPI, i.e., deflation during the depression.
Octavio Richetta | 04.04.08 - 6:37 pm | #
Yes, so let me get this straight. NO deflation. Moderate inflation in CPI is okay (of course food an energy inflation seems to be okay), but wage inflation should be fought tooth and nail.
Sounds lose-lose for us wage earners! Guaranteed erosion of purchasing power and quality of life.
Awesome! Thanks Ben!
I also asked the ratings company last month to stop assessing my credit worthiness.
I'll let you know how it goes. Thanks in advance, FICO!
Did you see this comment on WM from the Ticker Forum:
"I spoke to a guy who works closely with WAMU (Title Rep). He has had their biz forever! He went in late yesterday and found they had all packed their **** and left! He is trying to find out exactly what is going on, however he had heard rumor that they are the next Bear Stearns. Take it for what it is worth, but that is what I am hearing. Will call around and get more details and post as I hear them."
Aren't rumors great in the Internet age?
OT: I'm printing bumper stickers and taking bulk orders. Here are the 3 choices so far...
The only redeeming aspect of McCain is the transparency of his greed and ambition!
Flaunt it if you want it; greed is good!
SIFMA & McCain 4 ever in 2008!
CNBC now says MS reconsidering Yahoo purchase. Shares plunge. It's just a rumor, but it's headlining at CNBC.
Red Pill writes:
Yes, so let me get this straight. NO deflation. Moderate inflation in CPI is okay (of course food an energy inflation seems to be okay), but wage inflation should be fought tooth and nail.
Sounds lose-lose for us wage earners! Guaranteed erosion of purchasing power and quality of life.
RP: people/labor don't have property rights attached.
This is why, IMHO, the general price level of assets must fall when the consumptive ability of the purchaser declines. (Econ 101, right?)
And this is why I would generally argue that the FED's actions are counter to natural forces. I.e., any attempts to prop up prices beyond the ability to consume runs the risk of seriously mismatching balance sheets to income statements.
One can generate this slight of hand for a time, but double entry accouting was designed to alleviate this problem in the first place.
At some point, declining/ negative shareholder's equity has to rear it's ugly head.
Disclaimer: Given the FED's mandates, I think they're in a pickle and after much "armchair qb-ing", I haven't come up w/ a better option.
The average "saver" these days has their savings in the markets thru IRAs, 401ks, so, a serious deflation in stock, bond and commodity/real estate market(s) would result in the modern equivalent of a "run" on the bank (markets)... completely destroying M3.
As an example of these problems, what would happen if all credit card companies and banks didn't bk but went into "run-off" mode?
Sounds lose-lose for us wage earners! Guaranteed erosion of purchasing power and quality of life.
If we have true deflation many of us won't be wage earners for long.
The biggest fixed cost for most companies is 'debt' associated with overhead. The largest variable cost is 'salaries'... in a deflation prices companies can charge falls so they have to cut cost to stay profitable (revenue falls but cost doesn't)... since they can't cut fixed cost (that's why its called 'fixed') they cut variable cost instead... with the biggest being head count that means lay offs.
Those newly unemployed workers lose their salary & so buy less and in aggregate which drives prices even lower forcing companies to lay off even more driving prices even lower still...
The quintessential 'vicious cycle'.
That's why they fight true deflation tooth-n-nail. If there were no long term investments anywhere - no debt, no assets, 100% variable cost everywhere in a perfect services economy - then deflation would be no problem. We haven't lived in that world since humankind 'invested' in the first stone tools.
The new bottom is in for financials! Everybody back in the water!
Never worry about buying into the current market - the bottom has already been priced in.
The best antidote to irrational exuberance might not be sneering sarcasm, but it's all I have in my kit.
Serious question: do you think the new ratings are more accurate than the old ratings, or is the downgrade the minimum that can be done by the ratings agencies to keep some semblance of credibility?
the 10% remark is related to the fact that the poster seemed to imply BB said he will not let the stock market drop by more than 10% per year or words to that effect.
BB is already inflicting enough pain to the taxpayer. He needs no further help:-)
The good news keeps coming, Countrywide bank was just downgraded by Moody's to "D", as in DEFAULT.
Moody's downgrades Countrywide Bank - Los Angeles Business from bizjournals:
Dryfly I reread your post a couple of time and not sure I understand. Were you saying they need to fight deflation tooth and nail is that most money must be lent into our system. They cannot create the need to borrow because it would make more sense to just save when everything was depreciating in price.
Bernanke looks frightened in that Reuter's video IrvineResident posted
I thought a Moody's "D" meant default. Has Countrywide actually defaulted or are they using "D" when you'd normally see "Ca" (highly speculative?)
I think it means that FDIC officials have reserved a bunch of hotel rooms adjacent to their HQ, along with ordering plenty of pizzas to keep them well fed for Monday morning.
Taking over a failed bank burns lots of calories, you know ...
TG: "Dryfly I reread your post a couple of time and not sure I understand. Were you saying they need to fight deflation tooth and nail is that most money must be lent into our system. They cannot create the need to borrow because it would make more sense to just save when everything was depreciating in price."
I don't want to speak for Dryfly but if you want to get a small taste of why deflation is bad, you just need to look at Japan in the last 15 years. Wages will continuously fall during deflation (check out the chart at the top in this article to see how Japanese wages have deflated for a decade (ignore the article text, which is about something else)). The only saving grace (if any) will be that real wages may be flat since prices drop (i.e. deflation). But generally even this isn't enough.
The Austrian Economists, extreme right-leaning libertarians, and hard currency advocates (such as goldbugs) always seem to conveniently ignore the effects of deflation. The talk gloriously of declining prices in the 1800's and during the Great Depression but conveniently ignore the declining wages and hardship faced by wage-earners. Japan is also never mentioned even though it is largely a disaster by all accounts. If the government never ran up debt to 100%+ of GDP, it would be unmistakenly clear that Japan and its deflation was a diaster worse than the Great Depression (although I will note that the Great Depression was global whereas the Japan wasn't.)
It's the cruel truth that central banks and investors target wage increases but too high of an increase in wages is also very bad. I don't think this is necessarily bad--and this is coming from me who is a working class worker who makes more money from my low salary than I ever will in my investments! Yeah, everyone including me would love wages to increase a lot but high increases can be disastrous for the economy.
Hard currency advocates will never agree (they somehow are in love with a non-depreciating currency) but low inflation, neither high nor deflationary, is best for society in my opinion. Modern central banks, when not doing something to politically favour one party, try to target low inflation. Unfortunately this also means that wages won't be allowed to rise too much...
Inside a panic at E*Trade - Apr. 4, 2008
for the last week, etrade has stonewalled me with access to my account. they've said since i failed an online identity questionaire, that was provided by a third party, that i'd need to submit a notarized letter of authorization.
I did so, thru my attorney, thru fax and thrua notary. still nothhing. This has been the longest 5 days of my life, and fear mongering aside, i'm acred sh*tless i may never have access to my money again.
And i have open positions that they won't discuss until my identity has been verified.
RUN
ps:this online questionaire was "part of ther public record" but had questions that my father would know,(me:Jr)but that i certainly would not.
Aren't these the guys that Eliot Spitzer gave 5 days to respond. How'd that work out?
Anyway, this is all priced in. Just like all the downward revisions to the job numbers were priced in. We are reaching "pricing in" abilities in the markets that were up until this point reserved for time travelers. We're looking across the recession chasm and can clearly see the other side. Only stupid people would cross the chasm by climbing down one side and up the other. We're taking that nice shiny bridge, thank you very much.
About time. How long till they downgrade the IB's?
CR, you should put some polls up on things like that.
Like the S&L crisis in the 80s...the walls of some the big banks in this country are coming down....one by one...
If you fell for the "Bear Stearns was the bottom" BS from the Wall Street pundits and (Won't)Working Group....or Working (2deflate the $USD) Group....you deserve to lose your shirt, IMHO.
Just my opinions of course. Do your own due diligence and homework.
RS
SV
I am and or became a goldbug when I realized back in 2004 the fed would have to depreciate our currency to keep the economy alive after the housing bubble burst. Up until that time I was pretty much an CD IRA kind of guy. I saved up to 25% percent of my salary with my wife working. She is no longer working due to a chronic illness with a long way to go before she qualifies for SS unless we can get her disability. Because the fed and our government is ruled by political expediency they will always chose to let bubbles run and run up the federal deficit. It appears to me people who try to save in the sense that they were taught since they were born are the people financing these bubbles and defcits. IRA's and Deferred compensation plans are more monetary confiscation than real savings for ones future. My worst realization is that some private entity is capturing a little bit of eveyones labor every hour of the day. Our current monetary system is not based on issuing money but issuing debt. It appears only slightly different than a monarchy where they were wealthy by direct servitude of their subjects. The fed being owned by a private consortium is making interest off every dollar loaned into the system. Why is the Fed necessary? Why the intermediary between the US treasury and the people?
TG, your serfdom comparison is spot on, we're all serf's to the Federal Reserve now. Remember, the uber rich cannot be allowed to lose any money, since they own everything now!
Countrywide Bank? Why, of course - the same Countrywide bank that was offering CDs at 5% last year, FDIC-backed. It looked then like a scheme to pull in money on the government's tail and stick them with the loss.
It still does. And it still looks deliberate, too.
Ben Stein's monkey,
That video is CR's video of the day.
I just posted youtube link too.
http://thumbsnap.com/v/0z0zuLuP.gif
http://thumbsnap.com/v/ALcRS2se.jpg
TG: "I am and or became a goldbug when I realized back in 2004 the fed would have to depreciate our currency to keep the economy alive after the housing bubble burst. Up until that time I was pretty much an CD IRA kind of guy. I saved up to 25% percent of my salary with my wife working. "
If you strongly believe that the currency is going to depreciate a lot then holding gold can be good. Certainly some successful investors like Marc Faber, Jim Rogers, and others, have been big fans of gold and been proven right.
But if you look at the very long term (I'm talking 20+ years) then gold is a horrible investment relative to others. In fact, in the last 30 years (before the recent run-up in gold post 2003), even money market (i.e. cash with interest) outperformed gold. If you compare gold to stocks, it isn't even a competition.
So it depends if you are only considering gold for a shorter period of time (say less than 10 years) or if you are not considering other assets like stocks, bonds, real estate, etc. It could very well be that your investment time horizon is not 20+ years, in which case gold may be ok. It could also be that you aren't comparing stocks/bonds/etc to gold due to some limitation or risk, which may make gold attractive.
However, I stand by my view that unless you trade gold it has, is, and will be, a terrible investment relative to practically all other asset classes. It can make sense if you are only comparing it to cash or if you can't tolerate the volatility of stocks, but it has never been a good long-term "investment". At best, it's insurance. That is one of the main reasons value investors like Warren Buffett never touch gold.
TG: "She is no longer working due to a chronic illness with a long way to go before she qualifies for SS unless we can get her disability. "
Sorry to hear that. I wish you all the best to your family. Chronic illnesses may not have a cure but I hope the condition stabilizes and she gets the compensation for retirement...
TG: "Because the fed and our government is ruled by political expediency they will always chose to let bubbles run and run up the federal deficit. "
There are two issues there. On the issue of bubbles, it has been suggested by some researchers that we don't have the tools or the knowledge to target bubbles. We really don't know what is a bubble except in hindsight.
A good example is the current commodities boom. I personally think it is a bubble but the general consensus of investors, management, and some politicians is that it is not a bubble. Investors are contributing billions, and the companies are spending billions on projects that I personally think will end up being unprofitable (except for the management and insiders involved). But how is someone supposed to figure out if commodities are in a bubble? The bulls can easily cite information showing demand is strong; while bears like me can show reams of historical information showing that big commodity consumers like China cannot grow fast for long periods of time and developed consumers like USA have always caused big declines when the economy slowed (that's why commodities have always been considered cyclicals for hundreads of years). Who is right? Are we in a commodities bubble?
TG: "It appears to me people who try to save in the sense that they were taught since they were born are the people financing these bubbles and defcits. IRA's and Deferred compensation plans are more monetary confiscation than real savings for ones future."
No one is forcing you to use structures like IRAs. Of course, you lose the tax benefit but the point is that it is really up to you to save how you want to save. Things like deferred compensation, sorry to say, are a joke in the sense that you just never know what is going to happen in the future. I am very skeptical of "future" payments of any sort. Whether it is future government retirement payments, or company pensions, or stuff like that. This doesn't mean that they are worth zero but it does mean that it is unpredictable. The only true savings in my eyes is if you do it on your own outside these structures--this is what you can withdraw at any time.
The people financing the bubbles are indeed the savers (that's where the money comes from). But the savers do that on the hope of making money off the bubbles. If you do not want to be any part of a bubble (I definitely wouldn't) then you need keep you money in something that is not associated with the bubble. If you have a 10+ year investment horizon then I think a basket of mega-cap stocks is relatively safe. Unless you don't believe in the capitalist system of private property, I think big companies like G.E, Microsoft, Coca-Cola, and so forth will likely retain their value over a long period of time. I am not recommending these companies, and stock prices can drop 30% in one year (even for blue-chips with solid business fundamentals) but in 10 years you will likely retain the purchasing power of you money.
(NOTE: I'm just a newbie and don't blindly follow anything I say).
TG: "My worst realization is that some private entity is capturing a little bit of eveyones labor every hour of the day. Our current monetary system is not based on issuing money but issuing debt. "
I don't think that's accurate since there is always two sides to a transaction. If everything is skewed to one side, people will go there. If you don't like the notion of issuing debt, why not become a creditor? If you think the debt side profits more (given an amount of risk) then why not go and buy bonds?
No doubt that some financial intermediaries may money off the transactions but it's up to you to minimize them if you are concerned.
TG: "It appears only slightly different than a monarchy where they were wealthy by direct servitude of their subjects. The fed being owned by a private consortium is making interest off every dollar loaned into the system. "
I don't think it's that bad and wouldn't characterize the situation quite like that. The fact that someone is making interest off money is kind of irrelevant in the largely free-market system we live. For instance, you don't even have to hold US$. As you were alluding to, you already hold gold. You can go and hold some foreign currency if you don't like the US$. Or you can buy a share in a company. Or convert to some tangible asset like real estate (although that's just going through a bust so I'm not recommending it right now.)
TG: "Why is the Fed necessary? Why the intermediary between the US treasury and the people?"
Having the Federal Reserve, which is a quasi-private organization, is far better than the government doing it directly. At least the FedRes is composed of mostly indepdent experts who try to do things based on some scientific thinking whereas government is generally driven by political desires. If you want to see a country where the government itself is the central bank, look no further than the so-called Communist countries. You would find that their system is even worse because most of what they do is purely political and doesn't even make any sense.
I'm actually a free-market extremist most of the time, and I would prefer if currencies were issued by private entities. Everyone should be allowed to issue their currency. This idea sounds silly but it was the case in some parts of Europe and Asia a few hundread years ago (Italy is a good example).
"I don't think that's accurate since there is always two sides to a transaction. If everything is skewed to one side, people will go ther
SV many good points. If you go back to 1971 gold was at 35 dollars. Dollars are a claim check on the goods and services that we produce sort of a plastic bag that we go pick up the ral goods and services. When you issue irredemable currency by debt everyone has to use it to go pick up the services. It really has no value. There is no downside along as the monetary system functions. The more bags issued the less goods and services fit in the bag. To get the bags into the system people have to borrow them from the Fed. The only way you can pay them back with interest is to pay them back with more bags they issue at inerest.
TG, well you could pay them back the interest in euros
has anyone noticed the extent to which media coverage has shifted its focus away from the monoline debacle? for the past 4 weeks, monolines have grabbed few if any headlines. perhaps this recent fitch downgrade may bring mbia and others to the public mircoscope again. lastly, a friend of mine holds a high research position in fixed income for a very large inv bank. he told me that the recent fed moves to collateralize the 30-1 levered investment banks shall alone take cpi-ppi up to 7,7.5% in the next year. and on the deflation front, if it does happen, will the us dollar really all of a sudden be worth a lot more? all these deflationists simply assume that cash in us dollar form will be the supreme store of value in a depressionary environment. i disagree with this whole-heartedly. there are too many around, all over the world. maybe for a few weeks will the cash dollar be in demand. i suspect this is when the fed begins t print more physical dollars, to meet the sudden scarcity...
There are no surprises in this.
"MBIA last month asked Fitch to stop rating the company because it disagreed with the ratings company's requirement that MBIA hold more capital."
The second that MBIA went to the mattresses re Fitch, a downgrade was certain. Fitch had to wait a so it didn't appear to be retaliation.
Fitch has no interest in keeping MBIA's rating higher then they believe since MBIA essentially said Fitch didn't know what they were doing.
They could have written the press release a month ago.