I regret the day I didn't follow Tisch into Bank of Boston. In the 1990 bank meltdown, its price fell to $4 at the time. I feared it was going belly up but Tisch piled in. Of course he knew what he was doing and I should have followed. Stupid me. Lesson learned. Follow Tisch.
This leads me to the conclusion that the situation currently in the US is far more severe than the situation in Japan during the early 90s.
The Japanese economy was able to endure a full blown bubble implosion and still avoid a collapse into a severe double-digit style recession.
Apparently, however, the US is too fragile and drug-addicted to handle a bubble bursting across all asset classes (I surmise this because the Fed intervenes every time we start to see real deleveraging across stocks, credit, and commodities).
This tells me that maybe what happened to Japan represents a best-case outcome.
That is a pretty dumb comment for a guy like him to make. Both matter. To say there are not supply issues...it is just demand...it the same as saying supply can not keep up with demand. Two sides of the same coin. Oil is price inelastic, meaning divervenge between demand and price (due either to "too much" demand or "too little" supply) results in big price shifts.
People keep looking for the ONE key to the price spike (speculation, rising demand, insufficient supply) but it's likely a combination. E.g. if we are near peak, I would expect an increase in speculation as well.
Falling demand will take pressure off prices, and probably reduce speculation as well, but the fundamental supply problems will remain. Thus my WAG is oil falls to $80-100 range for a year or so, but resumes it's march to $200 and higher after that.
XLF has been building cause to break its March lows - SKF will reach $200 before 11/04/08.
Attention all CR readers: Major carnage ahead in equities. DOW headed for its March lows, SPX right behind, everything must go!
One last point. These financials are the tech stocks of this bust. They're what's not only leading the market down, they're also the most reliable to short - if you wait for retracements. SRS may be the best risk/reward of any inverse Proshare out there right now, imho.
I agree with Mr. Tisch (=German for table BTW). Banks have not yet bottomed. General market double bottomed January - March, but will see a retest in September with a higher low. Oil is about to swoon indeed.
O-Joe
Here's an interesting article from Minyanville (if you're the kind of person who takes investment advice from cartoon characters):
There are a few other reasons I believe tech would lead another leg down in stocks, namely that the short interest in the largest companies in the NASDAQ 100 are at very low levels, which would suggest a dearth of buyers, should a down move develop. Further, insiders are selling in droves and valuations are hardly inspiring. Mutual fund cash as a percentage of assets remains at very low levels (as it has since 2000) and the best potential outcome for the stock market would be persistent sector rotation as opposed to broad market strength. More likely I expect large net redemptions from mutual fund investors that need to get cash from somewhere as they have exhausted all other avenues for liquidity.
U.S. Senate leaders have agreed to a bipartisan bill to establish a $300 billion rescue fund for troubled mortgages and a new regulator for Fannie Mae and Freddie Mac
I posted last week that listening to Cramer and Kass would get you killed. These buffons tried calling the bottom on the financials back when the BKX was around 76; now it's at 65 so you're down 15% if you didn't heed my advice.
Many bank stocks are now below their lows of the 2000-01 bear market, with no chart support until you go back to the early days of the Clinton administration.
Also interesting to note the divergence between the SPY and the banks. Somethings gonna give one way or another; either the financials snap back soon or the broader market is headed for a big drop.
Would love to know what he thinks of Lampert's move here. Swallowing a burning sword? A brilliant early call? Oh, why is my crystal ball so cloudy today...
I agree with most of his comments, except I expect the coming depression to bring the oil price down for a few years. Btw, Simmons was making similar price comments in '02 when crude was under $20.
Americans Driving At Historic Lows
Eleven Billion Fewer Vehicle Miles Traveled in March 2008 Over Previous March
WASHINGTON -- Americans drove less in March 2008, continuing a trend that began last November, according to estimates released today from the Federal Highway Administration.
i can agree with that...
i've driven 200k miles since july 07...
since then , i've noticed a fantastic decrease in the amount of city traffic.
Today was a very good day with very encouraging news. News that had nothing to do with the foolishness of bankers. If you read my posts from a few months ago, maybe you remember. Averages (Dow, S&P, etc.) are just average. Look for the exceptional.
I think what he means when he says "it is a demand issue, not a supply issue" is that the demand is really there to drive of the price, rather than supply being artificially suppressed.
You know the most heavily shorted sector as of Friday is the oil and gas sector, not the financials. So many bulls think that oil will fall, (which is the leadership for years) and we get back in our SUV's and go back to Nordstrom's with a starbuck 4 dollar latte. They don't see the seed change. even of this were true we need a multi month bear market first and then we need cars that run off donkey piss.
Yup. The difference between being a net saving/producing society and net spending/consuming society. Kinda sucks doesn't it.
Well, I think what it comes down to is that Japan's problems were primarily financial, whereas we have financial problems in combination with much more serious real economic problems.
After the early 90s Japan was probably aided by a combination of their production capacity and strong demand from the West. Maybe they would have had a real depression otherwise.
One of these days, analysts will get off their high horse US centric analayis platforms and start thinking about demand in global terms. So friggin' what if US drivers are consuming less. It's more than being made up by increased consumption every friggin where else.
I hear what you are saying - but it makes a 'deflation event' a whole lot less painful if (1) you have beaucoup savings and (2) your currency ISN'T world reserve currency so you can play with that and (3) you have way more productive capacity than you need & can export. Japan had all of that but we're kinda 0 for 3 on'em... that leaves one out - change it to an inflation event. Being the world reserve currency makes that a tad bit awkward for everyone.
And for something actually useful, here's Matt Simmon's website. He makes all of his public speeches and presentations available online. One helluva guy.
i had no idea that "for all intensive purposes" was wrong and it should be instead "for all intents and purposes". My life is richer because of it. I posted the other off the Wiki for everyone else. Deformation of character I never heard.
deep-seeded instead of deep-seated
deformation of character instead of defamation of character
for all intensive purposes instead of for all intents and purposes
free reign instead of free rei
Ummmm, the Tisch's have batted about zero for 100 in their investment decisions over the past 20 years or so . . . . . Patriach Larry Tisch followed the wrongheaded advice of Marc Perkins and lost hundreds of millions of dollars investing in bank stocks in 1990 in the early innings of the great credit crunch of 1989-91, and later in the decade lost many millions more shorting the S&P 500 with Loews' shareholders money.
Turbulent conditions have made the crude oil market vulnerable to illegal activity, US regulators on Tuesday warned as they imposed limits on the speculative positions on some trades made on overseas exchanges.
Walter Lukken, acting chairman of the Commodity Futures Trading Commission, said the environment was "ripe for those wanting to illegally manipulate the markets" and that the agency was "taking constructive steps . . . to make sure there is not excessive speculation driving the markets".
stuart writes:
One of these days, analysts will get off their high horse US centric analayis platforms and start thinking about demand in global terms. So friggin' what if US drivers are consuming less. It's more than being made up by increased consumption every friggin where else.
stuart | 06.17.08 - 10:00 pm | #
So true. Funny how they still think that the US is the only player in the demand for oil. I'm thinking that any drop in demand will be offset to some extent with a drop in production, as Mexico, Norway and Russia have already peaked and their reserves are depleting quickly. From what I've read, Mexico will become a net importer in a few years.
Hurricanes in the gulf will be a wild card...a season like we had in 2005 and the oil markets will go crazy.
Walter Lukken, acting chairman of the Commodity Futures Trading Commission, said the environment was "ripe for those wanting to illegally manipulate the markets" and that the agency was "taking constructive steps . . . to make sure there is not excessive speculation driving the markets".
Anonymous | 06.17.08 - 10:26 pm | #
I wish Christopher Cox had some concern about manipulation in the stock market. As long as the manipulation makes stocks go up, the SEC and CNBC don't seem to care.
Anybody still worried about MBIA? NYTimes has a story that they are telling regulators they are a counterparty to too many people to fail, and refusing to add a promised 900 million capital.
So friggin' what if US drivers are consuming less. It's more than being made up by increased consumption every friggin where else.
stuart | 06.17.08 - 10:00 pm | #
I think you will find it the exact opposite unless the said 'else' has subsidised fuel..
What was so great about Japan? My recollection was that the Japanese Market topped out at 39K in 1989. It's fluctuated between 12K and 17K over the past few years. The Dow was around 2K at the end of the 80's. That would put the Dow at no better than 1K presently if it had performed equally as well as Japan's market. Our real estate market was overvalued as was theirs back then. Big difference- the US created the RTC, took ownership of the bad properties,and then flushed everything out by the mid-90's while Japan's property market just stagnated and its people were forced to experience the negative effect of 15 years of deflation. We have had numerous audit failures over the past few decades- but their financial transparency was worse. Their stock market was artifically propped up by the standard practice in that country of cross-holding of shares between companies (that apparently never got sold). While they were(and still are) great manufacturers and exporters in certain industries and have a terrific work ethic, a good portion of that wealth creation was wasted on a closed and inefficient domestic retail sector. We ceratinly have a multitude of problems but from where I'm sitting I don't see why we'd want to trade places with them.
I think you will find it the exact opposite unless the said 'else' has subsidised fuel..
The countries that have decreased subsidies will only make up for an additional 200k supply.
It's a demand issue, destruction of demand has not reached yet at these prices, think oil will go higher still before declining.
Will it tank? if it does it will come back up just as fast.
Japan was not great the US is just worse right now. True many domestic retaliers failed hurting commercial real estate. The difference in the US today is that banks lend out money to build useless empty homes and that speculative wealth was used by consumers to spend on imported goods. Japan on the other had more speculation in companies expanding export capacity for markets that were not there. China India are rising and those factories are now being used. There is still some major overcapacity in electronics but what will the US have to show after the housing bubble but thousands of empty McMansions and bad loans
Japan was not great the US is just worse right now. True many domestic retaliers failed hurting commercial real estate. The difference in the US today is that banks lend out money to build useless empty homes and that speculative wealth was used by consumers to spend on imported goods. Japan on the other had more speculation in companies expanding export capacity for markets that were not there.
I assume that Japan didn't have the massive oversupply of housing due to intrinsically tight supply.
It seems like the US is poised to shed huge numbers of (relatively) high paying construction jobs now that CRE is heading into the drink.
The strategist mentioned in the article is basing the performance of the entire market based on the performance of the banking sector. That would blow out all the shorts and puts to the downside. No one is expecting that kind of fall. He may be right and it could start tomorrow.
One of the major differences in Japan and the Used up of A is they went down while everyone else was going up. We are going down with Europe and parts of Asia simultaneously. While also being in debt up to our eyeballs.
FASB is in the process of getting rid of QSPEs entirely, and there are trillions of dollars of off-balance-sheet deals ready to come back to banks, IBs, GSEs, etc. I think that's what ultimately kills us.
The strategist mentioned in the article is basing the performance of the entire market based on the performance of the banking sector. That would blow out all the shorts and puts to the downside. No one is expecting that kind of fall. He may be right and it could start tomorrow.
When the number of visitors online here gets below 50 by 10 pm EST then it will happen the next morning.
I assume that Japan didn't have the massive oversupply of housing due to intrinsically tight supply.
There (is)was a oversupply of housing units in Tokyo and the other large cities and that is why prices continued to fall for more than 10 years despite net inflows of people moving into those cities. Declines reached as high as 60-70%. Like the US there was overconsumption due to an increase of "household wealth". The difference is that Japan maintained a savings rate of 20% while US has less than 1% savings rate.
I'm sitting I don't see why we'd want to trade places with them.
Been there | 06.17.08 - 10:43 pm | #
Japan had one if not the biggest bubble pop in history (relative to the size of their economy & population)... How many starved? How many lost homes and wandered the street?
Surely some lost homes & some committed suicide from depression & disgrace but for the most part it was 'failure with a human face'. This was because they went into it with so much personal savings & real productive capacity on a national level. We got much of that - again relative to the population & size of the economy?
What happens if this bubble thing we got going really collapses? I don't man sort of a down trend in Japanese proportion but with our economy & population? I really wonder will we put as human a face on it as they did? Hopefully we won't find out.
There are worse things than just a down stock market.
"From what I've read, Mexico will become a net importer in a few years"
That's a pipe dream conjured up by a shill for the hedgies long oil. MX heavily subsidizes fuel now. That's the only way a tiny fraction of their population can afford to drive. Once the prospect that they'll be adding to their debt levels and balance of trade might tip against them they'll pull back on subsidies. Fix that consuption problem overnight.
The housing bubble was not a shortage
of supply, but hyped demand.
edd browne | 06.17.08 - 11:40 pm | #
Exactly - but the supply of houses exploded with price. Has the supply of oil exploded likewise? If so where is the inventory - we know where the inventory in housing went.
If one is short one has to be a little worried about the action in Asia. The US sell off was on low volume and Asia is not responding to it. Is oil going to have a little fall to give a short boost the market? I was expecting to see a market breakdown on the Morgan release.
"Exactly - but the supply of houses exploded with price. Has the supply of oil exploded likewise? If so where is the inventory - we know where the inventory in housing went."
Still in the ground just like when I was shutting down generators during the CA energy crisis. We were making more trading it the producing it. Get the picture or do I need to draw you a map?
What they did carefully calculate is the potential downside of each business. For instance, James talked about the Tisch's famed investment in oil tankers back in the 70's. He noted that the investment decision was primarily based on the fact that the ships were selling at or near their scrap value. As such, there was little, to no downside risk in investing in these ships at the time. It clearly did not matter what the day rates of these ships would be in a year, two years, or even ten years. The investment entailed little to no risk, so the Tisch's could have patience to let the upside take care of itself in due time or never (if it did not happen they still would not have lost any money). In fact, James mentioned that their philosophy was simply: Our Day Will Come.
In other words, the trick is to invest in situations where the downside is very minimal, and where there is a chance of upside (even though the probability and magnitude of that upside is not quite [certain] or quantifiable). Simply, spend most of your time calculating and quantifying downside risk
I think what he is saying is that the delayed effects of the oil spike will cause consumers to pull back more, creating more unemployment, and, that same spike will cause inflation to rise too. There will be no lift from the $1200 checks since they are already spent. Banks, then, will get smaller from the risk they are exposed too. I agree with him, but look how long this market has held up so far. At least this opinion is offshore, so maybe their view is more timely.
Still in the ground just like when I was shutting down generators during the CA energy crisis. We were making more trading it the producing it. Get the picture or do I need to draw you a map?
Anonymous | 06.18.08 - 12:03 am | #
Ya draw a map - show us where it is. I'm sure lotsa folks would like to go drill there.
You shutdown the generators & cut supply to trade on the higher price... they are still pumping balls to the wall [been no decline, no shutdown, no drop in output] but prices still go ballistic. That's demand not artificial supply manipulation.
Maybe you think they can pump more & aren't - maybe I say no F'ing way, its balls to the wall - go and disprove my negative. Prove the capacity is there. You'll be an internet star if you can.
I'll believe they have more capacity when they pump it. When I see it.
US Federal Reserve chairman Ben Bernanke says rising healthcare spending may strain public finances and harm the US economy.
He told delegates at a Senate Finance Committee meeting on healthcare the government may have to help households meet rising medical costs.
Mr Bernanke said that lower income households would be hardest hit as doctors bills and insurance fees rise.
Healthcare spending makes up more than 15% of US gross domestic product.
Mr Bernanke said: "Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits."
The only thing that creates even more discord then economic policy. There's no effing way that we ever come to a consensus that lowers health care costs. You've got doctors, insurance companies, government, progressive, free market capitalists, moralists, economists, etc...
Anytime you start talking efficiency or (gasp!) rationing, about 15 different groups, who would never align with anything else, start chanting "nazi eugenics." Meanwhile, everyone but the ultra wealthy, the poor, and the old gets rationed out.
The Interior Department estimates that the Outer Continental Shelf has more than 115 billion barrels of oil and 633 trillion cubic feet of natural gas available for extraction. At current levels of consumption, that would satisfy the nation's oil needs for about 16 years and its natural gas needs for about 25 years.
Opponents of drilling in United States waters are equally passionate in their arguments, saying that drilling for oil off the coast poses environmental risks and that drilling for finite supplies undermines long-term conservation solutions. They also say modest supplies of additional oil would not necessarily lower gasoline prices in the United States because oil is traded on a world market
Oshawa MPP Jerry Ouellette observed that the Liberals seem unsure exactly what financial commitments were made to GM in past agreements. He pointed out that first we heard it was a grant, then it was a loan, then it was a 50-year loan then a 30-year loan, then $100 million, then $175 million.
U.S. stocks fell on Tuesday after a major brokerage warned that U.S. banks would have to raise as much as $65 billion in capital to shore up balance sheets weakened by the mortgage crisis.
Raising capital could dilute the equity stakes of current shareholders, and shares of U.S. banks sold off across the board. The KBW bank index, which encompasses U.S. banks, fell 3.7 percent.
Adding to the bearish tone of the market were concerns about the impact of Midwestern floods, with railroad operators including Union Pacific Corp among the worst-hit shares.
Shares of Bank of America, whose target price was among those cut by Goldman as it warned on continued losses from the global credit crisis, tumbled 3.6 percent, and were the biggest drag on the S&P 500.
"Any time a major investment bank cuts its prognosis for banks that certainly will weigh on the market," said Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus Capital Markets in Baltimore.
This bit of news didn't seem to get much attention and I find it odd that it is being suspended for the same reason it was enacted. It's also interesting that the problem of artificially inflated prices was being discussed as early as 2001. Yet it continued for years.
RBS warning re market scary. It has caused me to take some profits in stocks I have and cancel some buy orders. Even if things are only half as bad as predicted, they will be devastating.
Mr Bernanke said: "Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits."
Hey but we'll never cut the Pentagon budget or the expenditure on our imperial army around the world, since it is what keeps us "safe." I mean if Bush hadn't invaded Iraq Saddam would have nuked us by now for sure. So if it is guns vs. butter, we'll have to go for guns. McCain understands this, wise man. (LOL?)
The Minerals Management Service says that the area has a mean potential of 86 Billion barrels of oil. This is not proven reserves and is purely a estimate; at best a semi-educated guess.
Meanwhile Petrobas will be spending in excess of $240 billion to exploit three newly discovered deep sea basins (Carioca, Jupiter & Tupi) with about 30-40 billion in recoverable light crude. After many years these fields will add 1M barrels/day to supply. Do you think that will make a difference when demand is currently 86M barrels/day?
Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits
Government in US already spends more per capita on health care than government in Canada. By per capita I mean per total population, not per person on Medicare, etc.
The solution to the high cost of health care in the US is to quit wasting money on overhead and corporate profit, not to spend more.
There is a big problem in getting new oil wells drilled...there aren't enough drill rigs around to satisfy the demand.
There is still oil out there that costs 4$//bb to take out of the ground that isn't being drilled due to the high initial investment. Capital markets would be completely inneficient if the current markets aren't providing enough incentive to increase production.
The lack of rigs has a laggard, effectively its creating pent up supply.
Compounding the problem are countries like Venezuela, have been nationalizing fields and delaying production. You will probably see Venezuela production more than double over the next 5 years.
South Oregon coast here, and our area is a tourism hotspot. Well, it was. Normally, this time of the year our campgrounds (local & state parks) and motels usually have 'No Vacancy' signs out almost all of the time, and our roads are jammed with RV's and packed SUV's.
Not this year. I ride my motorcycle just about every other evening, and have for many years now, and I have never seen the roads, campgrounds and motels as empty as I have this year. It makes for great riding without being stuck behind a string of vehicles, but it is going to hurt our local economy. Tourism is a big deal on the coast, and if we don't get the traffic, the sales and summer jobs are gone too.
In normal theory and practice, hiking interest rates puts the kibosh on inflation. It crushes the economy, retarding growth and cutting back on consumption.
But, there's "price inflation" and there's "inflation expectations." The latter refers basically to wage increases, and is what BB targets.
Okay. If the Fed and ECB raise rates to stop inflation, then industries layoff and fewer loans are made, so there's less consumption, investment, and construction. There is less upward pressure on wages, due to ramping unemployment. The cycle is broken, and inflation dies down.
Both theory and history consider this paradigm carved in stone. But what if it isn't?
What if hiking rates this time slows the economy without stopping the price increases? What if food and fuel prices keep going up? What if the monetary base (the definitive measure of inflation) keeps growing?
I am not convinced that the Central Banks can stop price inflation, even if they hike rates to the moon, Alice.
The solution to the high cost of health care in the US is to quit wasting money on overhead and corporate profit, not to spend more.
In broad terms, why should we worry about how much private money is spent on health care? If our economy spends money on cars or banking, its viewed as a positive thing, but there's this irrational hatred of health care spending. It is a good/service like any other (it has major export and tourism potential), and a wealthy aging society is going to spend more. And corporate profits are an incentive to innovate and are a price signal; profits are value, not a "waste".
Anytime you start talking efficiency or (gasp!) rationing
Huh? Start talking rationing? Why do I keep reading about possible rationing in things like health care and gasoline? We already have rationing in those items - it's just rationing via wealth. Anyone can buy gasoline or get their health care needs as long as they're rich enough. Where's the outrage on this rationing?
"unirealist writes:
In normal theory and practice, hiking interest rates puts the kibosh on inflation. It crushes the economy, retarding growth and cutting back on consumption.
But, there's "price inflation" and there's "inflation expectations." The latter refers basically to wage increases, and is what BB targets.
Okay. If the Fed and ECB raise rates to stop inflation, then industries layoff and fewer loans are made, so there's less consumption, investment, and construction. There is less upward pressure on wages, due to ramping unemployment. The cycle is broken, and inflation dies down.
Both theory and history consider this paradigm carved in stone. But what if it isn't?
What if hiking rates this time slows the economy without stopping the price increases? What if food and fuel prices keep going up? What if the monetary base (the definitive measure of inflation) keeps growing?
I am not convinced that the Central Banks can stop price inflation, even if they hike rates to the moon."
Central banks generally cannot do anything about relative prices - i.e., they can't do anything about oil prices. (Since they own a lot of gold, that may be a different story...)
Therefore, if no alternatives appear and the geologists don't find any more, oil prices are in for a long-term moon shot (no comment what happens over the coming year).
Thus if you define inflation as being the cost of gasoline or whatever, yeah, they may be unable to do anything about it.
However, the energy bugs will point out how energy costs show up in every point of the supply chain for manufactured goods. But so do labor costs and profits, and those show up in everything you buy, not just manufactured goods. The tech-focussed energy experts usually forget that other costs in economy, as well as demand patterns, are not constant.
If wages are crushed, it's pretty much impossible to have broad-based CPI inflation. The volume of goods bought has to continuously decrease, opening up spare capacity. This means that investment is not needed, reducing the demand on resources.
In 1999, there were a lot of people arguing that monetary policy was impotent as the big tech firms were debt free. Guess what happened to them anyway?
"We're seeing fast adjustment, and we're going to see that world-wide."
Oh yes, no question - it seems as if more oil really isn't in the pipeline, meaning that the efficient survive as the inefficient go broke. And though America can be considered pretty inefficient, it is also very fat - lots of potential for efficiency to actually replace consumption.
Not so for a country like India. Which just happens to have roughly 4 times the population of the U.S.
But considering the consumption figures of total oil use on a per capita basis, it is the U.S. that will be doing more adjustment - as witness the ever shrinking exports from Mexico and Venezuela.
Whether such necessary changes are really a problem is a matter of perspective. In exurbia, driving less is not that simple when your job is 40 miles away, and the nearest decent grocery store 5 miles. Driving less in NYC isn't really a challenge, on the other hand.
Manhattan does have a history of being the last market to cave in a real estate down cycle. According to this article, and my own observations, that has finally begun. What the article doesn't mention is that, by my calculations at least, Manhattan prices need to fall about 20% just to have a comparable carrying cost to Manhattan's mind-numbing rents - and rents actually fell here during the 2001 recession.
The California housing market may be showing the first signs of a recovery after three years of declining sales and two years of rising foreclosures, the UCLA Anderson Forecast said today.
While home prices in the most populous U.S. state are still weak, the number of houses and condominiums changing hands in California is rising, according to the Anderson Forecast at the University of California, Los Angeles, which released its 127-page forecast for both the state and the U.S. today.
MBA Purchase Applications
Released on 6/18/2008 7:00:00 AM For wk6/13 , 2008
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Purchase Index - Level\tPrevious 376.2 \tActual 360.2
MBA's purchase index fell 4.3 percent in the June 13 week to 360.2, a level near the four-week average of 355.7. The refinance index fell 15 percent to 1,378.6. Mortgage rates jumped in the week with 30-year fixed loans up about 30 basis points to 6.57 percent.
Mr Bernanke said: "Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits."
Pretty amazing how just as tax revenues are falling we're looking at going on the monster spend spree of a lifetime.
Looks like a country that's headed for bankruptcy to me.
The large caps/multinationals will be bertter placed to weather any storm. Making use of low cost resources the world throughout and strategically shifting production or services from one place to another.
While the small-caps are more US centric. If there is one thing that should be clear to any here, US consumption and services are headed wayyyyyy down. (Unemployment, housing activity, consumption, interest rates, CRE activity??, loan availability will all contribute to a nasty contraction. IMO)
I would be curious to hear arguments as to why SDS would be better. I am long SRS and probably will add on a bounce from here.
Damn you remember that. Lucky guess there was good support five points below there. I was hoping for some follow through down the next day. IMO if we don't get a hard sell in the financials today taking our last weeks lows in the invetment bank/broker index this week, I'll cover half my shorts. 1330 is my target and 12030 for the Dow we need to get below here. I hate to put time lines and price targets on things but these are good support levels that need to be broken. Fingers crossed...
the popularity gap between the booming oil and gas industry and the beleaguered banking sector is becoming ever wider to reach unprecedented levels. The survey found a net 62 percent of fund managers were overweight oil and gas, up from a net 29 percent in April, while a net 62 percent were underweight banks, up from 21 percent in April.
"The burning question is when to sell oil companies and move back to banks," Olney said. She noted that this is an extremely difficult call to make, given that fundamentals "absolutely support oils over banks" because the oil and gas sector has the strongest earnings momentum and is among the cheapest.
Elsewhere, the survey also showed that worries about inflation are fast beginning to catch up with concerns over the credit crunch. A net 81 percent of investors cited credit risk as the number one threat, down from 95 percent three months ago, while the number citing "monetary risk" jumped to 65 percent from 23 percent in May.
"For the first time in our memory, inflation, not growth is the primary macro driver at the global level, in our view," said Alex Patelis, head of international economics at Merrill Lynch.
"What matters now is how persistent it is and how markets and policymakers react; at a global level this begs for an accident that will awaken policymakers to the risks," he said.
The survey found a net 62 percent of fund managers were overweight oil and gas, up from a net 29 percent in April, while a net 62 percent were underweight banks, up from 21 percent in April.
The largest short positions through short ETFs are oil and gas companies, financials are second.
Fighting inflation is still China's primary concern, even in the face of a potential global economic slowdown, Chinese central bank governor Zhou Xiaochuan said on Wednesday.
Manhattan prices need to fall about 20% just to have a comparable carrying cost to Manhattan's mind-numbing rents
If they only have to fall 20%, that's probably a smaller overvaluation than anywhere else on the coasts at the time of their market top, and perhaps even now.
I was talking with a home builder yesterday and they stated that Home Depot is getting tighter on their credit for builders. One reason Home Depot sales are lower. I am not sure if Lowes is doing the same. I imagine they are.
Anonymouse writes:
It has been a long, long wait (16 mos.) on my double short the S&P 500 bet.
I thought I was the only one to hold some SDS shares for over a year! Good for you!
jg doesn't hold the Ultrashorts. He's concerned about the counterparty risk with UBS, BAC, etc. when the hammer falls hard. Instead, he's shorting SSO, the inverse of SDS. I understand his thinking, but I have no desire to trade on margin. It all depends on what type of risk you're willing to live with.
Today, as we see, Bush is full of shit, talking headline oil and ignoring and manipulating reality:
President Bush is calling on Congress to lift the ban on offshore oil and gas drilling that has been in place for 1981, saying it could eventually yield 18 billion barrels of oil.
The info Posted below (here) from last night is at least 10 years old:
The Interior Department estimates that the Outer Continental Shelf has more than 115 billion barrels of oil and 633 trillion cubic feet of natural gas available for extraction. At current levels of consumption, that would satisfy the nation's oil needs for about 16 years and its natural gas needs for about 25 years.
Opponents of drilling in United States waters are equally passionate in their arguments, saying that drilling for oil off the coast poses environmental risks and that drilling for finite supplies undermines long-term conservation solutions. They also say modest supplies of additional oil would not necessarily lower gasoline prices in the United States because oil is traded on a world market
The Outer Continental Shelf estimate is from 2006 but means out at 86 billion barrels (estimate). The actual and recoverable oil is probably much less and it will take 10 years or more to effect oil prices. This doesn't even take into account that Petrobras has leased about 75% of all deep sea oil drilling equipment. They are spending in excess of $240 billion to retrieve $4 trillion worth of oil and gas in today's prices.
If Tisch is so bearish on financials ("like catching a falling knife"), why did his firm's biggest subsidiary, CNA Financial, brag about all the subprime and Alt-A debt it bought at "significant discounts" during its earnings call in May? I sold my bonds the next day... whatever junk they bought, the seller knew more about it that CNA/Loews did...
I regret the day I didn't follow Tisch into Bank of Boston. In the 1990 bank meltdown, its price fell to $4 at the time. I feared it was going belly up but Tisch piled in. Of course he knew what he was doing and I should have followed. Stupid me. Lesson learned. Follow Tisch.
Has anybody noticed that the US financial system has 3 basic modes of operation:
1) Stock Market Melt-Up
2) Commodity Melt-Up
3) Financial Crisis
This leads me to the conclusion that the situation currently in the US is far more severe than the situation in Japan during the early 90s.
The Japanese economy was able to endure a full blown bubble implosion and still avoid a collapse into a severe double-digit style recession.
Apparently, however, the US is too fragile and drug-addicted to handle a bubble bursting across all asset classes (I surmise this because the Fed intervenes every time we start to see real deleveraging across stocks, credit, and commodities).
This tells me that maybe what happened to Japan represents a best-case outcome.
"It's a demand issue, not a supply issue"
That is a pretty dumb comment for a guy like him to make. Both matter. To say there are not supply issues...it is just demand...it the same as saying supply can not keep up with demand. Two sides of the same coin. Oil is price inelastic, meaning divervenge between demand and price (due either to "too much" demand or "too little" supply) results in big price shifts.
People keep looking for the ONE key to the price spike (speculation, rising demand, insufficient supply) but it's likely a combination. E.g. if we are near peak, I would expect an increase in speculation as well.
Falling demand will take pressure off prices, and probably reduce speculation as well, but the fundamental supply problems will remain. Thus my WAG is oil falls to $80-100 range for a year or so, but resumes it's march to $200 and higher after that.
XLF has been building cause to break its March lows - SKF will reach $200 before 11/04/08.
Attention all CR readers: Major carnage ahead in equities. DOW headed for its March lows, SPX right behind, everything must go!
One last point. These financials are the tech stocks of this bust. They're what's not only leading the market down, they're also the most reliable to short - if you wait for retracements. SRS may be the best risk/reward of any inverse Proshare out there right now, imho.
I agree with Mr. Tisch (=German for table BTW). Banks have not yet bottomed. General market double bottomed January - March, but will see a retest in September with a higher low. Oil is about to swoon indeed.
O-Joe
Optimistic Joe,
I'll sell you some September SPY calls anytime, fool!
Here's an interesting article from Minyanville (if you're the kind of person who takes investment advice from cartoon characters):
There are a few other reasons I believe tech would lead another leg down in stocks, namely that the short interest in the largest companies in the NASDAQ 100 are at very low levels, which would suggest a dearth of buyers, should a down move develop. Further, insiders are selling in droves and valuations are hardly inspiring. Mutual fund cash as a percentage of assets remains at very low levels (as it has since 2000) and the best potential outcome for the stock market would be persistent sector rotation as opposed to broad market strength. More likely I expect large net redemptions from mutual fund investors that need to get cash from somewhere as they have exhausted all other avenues for liquidity.
What's Next For the Credit Crisis? Part 1
"Loews CEO Tisch: Buying Financials like "catching a falling knife""
A knife soaked in poison with a burning handle, double sided and VERY sharp.
Cheers,
"Loews CEO Tisch: Buying Financials like "catching a falling knife""
A knife soaked in poison with a burning handle, double sided and VERY sharp.
With a grand piano attached to the handle.
Senate leaders have housing rescue bill deal
U.S. Senate leaders have agreed to a bipartisan bill to establish a $300 billion rescue fund for troubled mortgages and a new regulator for Fannie Mae and Freddie Mac
Senate leaders have housing rescue bill deal
| Reuters
Short Bucky!
More like a falling anvil
ac,
LOL
Cheers,
I posted last week that listening to Cramer and Kass would get you killed. These buffons tried calling the bottom on the financials back when the BKX was around 76; now it's at 65 so you're down 15% if you didn't heed my advice.
Many bank stocks are now below their lows of the 2000-01 bear market, with no chart support until you go back to the early days of the Clinton administration.
Also interesting to note the divergence between the SPY and the banks. Somethings gonna give one way or another; either the financials snap back soon or the broader market is headed for a big drop.
The real question now becomes...can the Fed save LEH et. al. I don't think so. The Fed's about out of ammo. I sense a palpable fear in the PTB lately.
Cheers,
I didn't realize until just a moment ago that the FOMC has a scheduled meeting on 10/29/08. That's probably a good time to cash out the SKF.
"either the financials snap back soon or the broader market is headed for a big drop."
Too much headwind against the financials for as far as I can see.
That leaves "broader market is headed for a big drop."
Would love to know what he thinks of Lampert's move here. Swallowing a burning sword? A brilliant early call? Oh, why is my crystal ball so cloudy today...
On oil, here's Matthew Simmons interviewed by some Bloomberg m.h.
YouTube - Simmons Says Raised Saudi Oil Output Is `Drop in Bucket'
I agree with most of his comments, except I expect the coming depression to bring the oil price down for a few years. Btw, Simmons was making similar price comments in '02 when crude was under $20.
Americans Driving At Historic Lows
Eleven Billion Fewer Vehicle Miles Traveled in March 2008 Over Previous March
WASHINGTON -- Americans drove less in March 2008, continuing a trend that began last November, according to estimates released today from the Federal Highway Administration.
i can agree with that...
i've driven 200k miles since july 07...
since then , i've noticed a fantastic decrease in the amount of city traffic.
Today was a very good day with very encouraging news. News that had nothing to do with the foolishness of bankers. If you read my posts from a few months ago, maybe you remember. Averages (Dow, S&P, etc.) are just average. Look for the exceptional.
Tisch is a bottom feeder though he prefers to call it 'investment opportunities.' big question: did he call trouble ahead in 2006?
"Tisch is a bottom feeder"
Is that the same thing as a scum sucker?
More like a light saber, the double sided one.
Financials ready to breakdown or breakout tomorrow?
This tells me that maybe what happened to Japan represents a best-case outcome.
Yup. The difference between being a net saving/producing society and net spending/consuming society. Kinda sucks doesn't it.
AOTC,
anything to support your claims, even the slightest bit of information beyond the slot machine gave you three bells?
Ya know, thesis, support, conclusion?
You missed the middle part.
Anonymouse
I hesitantly and cautiously agree with you though my exit would be 170 for sure.
I think what he means when he says "it is a demand issue, not a supply issue" is that the demand is really there to drive of the price, rather than supply being artificially suppressed.
You know the most heavily shorted sector as of Friday is the oil and gas sector, not the financials. So many bulls think that oil will fall, (which is the leadership for years) and we get back in our SUV's and go back to Nordstrom's with a starbuck 4 dollar latte. They don't see the seed change. even of this were true we need a multi month bear market first and then we need cars that run off donkey piss.
That Simmons Youtube piece was outstanding - thanks anonymouse. Really a heads up conversation.
Yup. The difference between being a net saving/producing society and net spending/consuming society. Kinda sucks doesn't it.
Well, I think what it comes down to is that Japan's problems were primarily financial, whereas we have financial problems in combination with much more serious real economic problems.
After the early 90s Japan was probably aided by a combination of their production capacity and strong demand from the West. Maybe they would have had a real depression otherwise.
Dunno if the US is going to get so lucky.
One of these days, analysts will get off their high horse US centric analayis platforms and start thinking about demand in global terms. So friggin' what if US drivers are consuming less. It's more than being made up by increased consumption every friggin where else.
Dunno if the US is going to get so lucky.
I hear what you are saying - but it makes a 'deflation event' a whole lot less painful if (1) you have beaucoup savings and (2) your currency ISN'T world reserve currency so you can play with that and (3) you have way more productive capacity than you need & can export. Japan had all of that but we're kinda 0 for 3 on'em... that leaves one out - change it to an inflation event. Being the world reserve currency makes that a tad bit awkward for everyone.
Warp 9:
If I understand you correctly, it's 'sea change', not 'seed change.'
Here's the low down on Shakespeare's use of it :
sea change
Here's your eggcorn, or malapropism.
eggcorn - Wiktionary
And for something actually useful, here's Matt Simmon's website. He makes all of his public speeches and presentations available online. One helluva guy.
Welcome to Simmons & Company International
Yossarian
i had no idea that "for all intensive purposes" was wrong and it should be instead "for all intents and purposes". My life is richer because of it. I posted the other off the Wiki for everyone else. Deformation of character I never heard.
deep-seeded instead of deep-seated
deformation of character instead of defamation of character
for all intensive purposes instead of for all intents and purposes
free reign instead of free rei
Ummmm, the Tisch's have batted about zero for 100 in their investment decisions over the past 20 years or so . . . . . Patriach Larry Tisch followed the wrongheaded advice of Marc Perkins and lost hundreds of millions of dollars investing in bank stocks in 1990 in the early innings of the great credit crunch of 1989-91, and later in the decade lost many millions more shorting the S&P 500 with Loews' shareholders money.
Follow the Tisch's if you will; I won't . . . . .
OT Question: What the hell is going on with the 30-year fixed? What is the primary determinant?
Turbulent conditions have made the crude oil market vulnerable to illegal activity, US regulators on Tuesday warned as they imposed limits on the speculative positions on some trades made on overseas exchanges.
Walter Lukken, acting chairman of the Commodity Futures Trading Commission, said the environment was "ripe for those wanting to illegally manipulate the markets" and that the agency was "taking constructive steps . . . to make sure there is not excessive speculation driving the markets".
InfoViewer: US limits oil trading in London
In a couple of years the headlines will be filled with stories about the rampant fraud going on in the Oil market. Bank on it.
stuart writes:
One of these days, analysts will get off their high horse US centric analayis platforms and start thinking about demand in global terms. So friggin' what if US drivers are consuming less. It's more than being made up by increased consumption every friggin where else.
stuart | 06.17.08 - 10:00 pm | #
So true. Funny how they still think that the US is the only player in the demand for oil. I'm thinking that any drop in demand will be offset to some extent with a drop in production, as Mexico, Norway and Russia have already peaked and their reserves are depleting quickly. From what I've read, Mexico will become a net importer in a few years.
Hurricanes in the gulf will be a wild card...a season like we had in 2005 and the oil markets will go crazy.
Walter Lukken, acting chairman of the Commodity Futures Trading Commission, said the environment was "ripe for those wanting to illegally manipulate the markets" and that the agency was "taking constructive steps . . . to make sure there is not excessive speculation driving the markets".
Anonymous | 06.17.08 - 10:26 pm | #
I wish Christopher Cox had some concern about manipulation in the stock market. As long as the manipulation makes stocks go up, the SEC and CNBC don't seem to care.
change it to an inflation event. Being the world reserve currency makes that a tad bit awkward for everyone.
dryfly | 06.17.08 - 10:05 pm | #
well with inflation and a dropping dollar we are elbow deep in awkward, moving right along to troubling.
See food and gas riots, strikes etc.
In the US you guys have massive economies of scale and the reserve currency, trust me rest of the world is feeling it now.
Anybody still worried about MBIA? NYTimes has a story that they are telling regulators they are a counterparty to too many people to fail, and refusing to add a promised 900 million capital.
So friggin' what if US drivers are consuming less. It's more than being made up by increased consumption every friggin where else.
stuart | 06.17.08 - 10:00 pm | #
I think you will find it the exact opposite unless the said 'else' has subsidised fuel..
What was so great about Japan? My recollection was that the Japanese Market topped out at 39K in 1989. It's fluctuated between 12K and 17K over the past few years. The Dow was around 2K at the end of the 80's. That would put the Dow at no better than 1K presently if it had performed equally as well as Japan's market. Our real estate market was overvalued as was theirs back then. Big difference- the US created the RTC, took ownership of the bad properties,and then flushed everything out by the mid-90's while Japan's property market just stagnated and its people were forced to experience the negative effect of 15 years of deflation. We have had numerous audit failures over the past few decades- but their financial transparency was worse. Their stock market was artifically propped up by the standard practice in that country of cross-holding of shares between companies (that apparently never got sold). While they were(and still are) great manufacturers and exporters in certain industries and have a terrific work ethic, a good portion of that wealth creation was wasted on a closed and inefficient domestic retail sector. We ceratinly have a multitude of problems but from where I'm sitting I don't see why we'd want to trade places with them.
andy in NZ writes:
I think you will find it the exact opposite unless the said 'else' has subsidised fuel..
The countries that have decreased subsidies will only make up for an additional 200k supply.
It's a demand issue, destruction of demand has not reached yet at these prices, think oil will go higher still before declining.
Will it tank? if it does it will come back up just as fast.
After the early 90s Japan was probably aided by a combination of their production capacity and strong demand from the West
Don't forget falling oil prices through the 90's, which was probably as important as any other factor.
Been there.
Japan was not great the US is just worse right now. True many domestic retaliers failed hurting commercial real estate. The difference in the US today is that banks lend out money to build useless empty homes and that speculative wealth was used by consumers to spend on imported goods. Japan on the other had more speculation in companies expanding export capacity for markets that were not there. China India are rising and those factories are now being used. There is still some major overcapacity in electronics but what will the US have to show after the housing bubble but thousands of empty McMansions and bad loans
"RBS issues global stock and credit crash alert", by Ambrose Evans-Pritchard, Telegraph, June 17, 2008.
Japan was not great the US is just worse right now. True many domestic retaliers failed hurting commercial real estate. The difference in the US today is that banks lend out money to build useless empty homes and that speculative wealth was used by consumers to spend on imported goods. Japan on the other had more speculation in companies expanding export capacity for markets that were not there.
I assume that Japan didn't have the massive oversupply of housing due to intrinsically tight supply.
It seems like the US is poised to shed huge numbers of (relatively) high paying construction jobs now that CRE is heading into the drink.
John M
The strategist mentioned in the article is basing the performance of the entire market based on the performance of the banking sector. That would blow out all the shorts and puts to the downside. No one is expecting that kind of fall. He may be right and it could start tomorrow.
One of the major differences in Japan and the Used up of A is they went down while everyone else was going up. We are going down with Europe and parts of Asia simultaneously. While also being in debt up to our eyeballs.
warp 9
FASB is in the process of getting rid of QSPEs entirely, and there are trillions of dollars of off-balance-sheet deals ready to come back to banks, IBs, GSEs, etc. I think that's what ultimately kills us.
The strategist mentioned in the article is basing the performance of the entire market based on the performance of the banking sector. That would blow out all the shorts and puts to the downside. No one is expecting that kind of fall. He may be right and it could start tomorrow.
When the number of visitors online here gets below 50 by 10 pm EST then it will happen the next morning.
I assume that Japan didn't have the massive oversupply of housing due to intrinsically tight supply.
There (is)was a oversupply of housing units in Tokyo and the other large cities and that is why prices continued to fall for more than 10 years despite net inflows of people moving into those cities. Declines reached as high as 60-70%. Like the US there was overconsumption due to an increase of "household wealth". The difference is that Japan maintained a savings rate of 20% while US has less than 1% savings rate.
how does Apa have a intrinslically tight supply when demographics and their 30 year tear down policy work againat that?
They ain't making any more land in the UK, yet theor RE market has been much more dynanmic and elastic.
So in theory Japan's RE faults lie elsewhere.
I'm sitting I don't see why we'd want to trade places with them.
Been there | 06.17.08 - 10:43 pm | #
Japan had one if not the biggest bubble pop in history (relative to the size of their economy & population)... How many starved? How many lost homes and wandered the street?
Surely some lost homes & some committed suicide from depression & disgrace but for the most part it was 'failure with a human face'. This was because they went into it with so much personal savings & real productive capacity on a national level. We got much of that - again relative to the population & size of the economy?
What happens if this bubble thing we got going really collapses? I don't man sort of a down trend in Japanese proportion but with our economy & population? I really wonder will we put as human a face on it as they did? Hopefully we won't find out.
There are worse things than just a down stock market.
"From what I've read, Mexico will become a net importer in a few years"
That's a pipe dream conjured up by a shill for the hedgies long oil. MX heavily subsidizes fuel now. That's the only way a tiny fraction of their population can afford to drive. Once the prospect that they'll be adding to their debt levels and balance of trade might tip against them they'll pull back on subsidies. Fix that consuption problem overnight.
after the early 90s Japan was probably aided by a combination of their production capacity and strong demand from the West
for playstations, manga and cars, they had a crap local economy and a great export economy.
for playstations, manga and cars, they had a crap local economy and a great export economy.
andy in NZ | 06.17.08 - 11:22 pm | #
By design. They save so no wonder the local economy was crap in a down turn - no consumptive binge.
They produce like crazy for export so again - no wonder they did well at that.
They got exactly the 'recovery' they wanted & no one starved.
I guess he means demand for oil futures.
Not to deny peak oil, but to say that
a bubble in demand for oil holdings
is a "demand" problem beyond oil
consumption at this time.
The housing bubble was not a shortage
of supply, but hyped demand.
Chairman Meow
Remember Chairman Monkey from many years ago.
The only sayings I remember are
All the Glitters is not gold, said Chairman Monkey pissing from a cliff on a moonlight night.
No pleasure without pain said Chairman Monkey f**#ng a porcupine in the dark.
Seems strangely appropriate in this day and age.
The housing bubble was not a shortage
of supply, but hyped demand.
edd browne | 06.17.08 - 11:40 pm | #
Exactly - but the supply of houses exploded with price. Has the supply of oil exploded likewise? If so where is the inventory - we know where the inventory in housing went.
By design. They save so no wonder the local economy was crap in a down turn - no consumptive binge
we are doomed, developed nations are not saving, will not be able to save either as the cost of servicing debt skyrockets in the face of job losses.
More tinfoil for my hat and tinned goods for the bunker I think.
I now plant the seed for a bubble in demand for ... mo-ped trikes.
I don't know where to get one, but I'll sell you a 2010 future right now.
Each purchase limited to 5,000 at
just $9,000 HKD each.
Ask for Mr. Ponzi.
edd browne
The Thais and Indians do a nice Motorised 2 stroke trike.
Auto rickshaw - Wikipedia, the free encyclopedia
If one is short one has to be a little worried about the action in Asia. The US sell off was on low volume and Asia is not responding to it. Is oil going to have a little fall to give a short boost the market? I was expecting to see a market breakdown on the Morgan release.
"Exactly - but the supply of houses exploded with price. Has the supply of oil exploded likewise? If so where is the inventory - we know where the inventory in housing went."
Still in the ground just like when I was shutting down generators during the CA energy crisis. We were making more trading it the producing it. Get the picture or do I need to draw you a map?
Still in the ground just like when I was shutting down generators during the CA energy crisis.
Where is this oil hiding I want to know before the other 6 billion people find out.
"The Thais and Indians do a
nice motorised 2 stroke trike."
In 1972 VN we called those "Lambros"
for some reason unknown to me.
Just needs some pedals to help the
2-stroke, or charge a battery.
I did not mean to opine that there is
a good supply of oil, just that demand
is often goosed when things get tight.
And if we had more oil, we should not
be burning the precious stuff.
(greenhouse; plastics; future generations)
J-M-, thanks for the link to the FT article.
It has been a long, long wait (16 mos.) on my double short the S&P 500 bet.
Tomorrow as the beginning of the end would be a welcome development.
James Tisch's Wise Value Investment Advice (LTR)
James Tisch's Wise Value Investment Advice (LTR) -- Seeking Alpha
What they did carefully calculate is the potential downside of each business. For instance, James talked about the Tisch's famed investment in oil tankers back in the 70's. He noted that the investment decision was primarily based on the fact that the ships were selling at or near their scrap value. As such, there was little, to no downside risk in investing in these ships at the time. It clearly did not matter what the day rates of these ships would be in a year, two years, or even ten years. The investment entailed little to no risk, so the Tisch's could have patience to let the upside take care of itself in due time or never (if it did not happen they still would not have lost any money). In fact, James mentioned that their philosophy was simply: Our Day Will Come.
In other words, the trick is to invest in situations where the downside is very minimal, and where there is a chance of upside (even though the probability and magnitude of that upside is not quite [certain] or quantifiable). Simply, spend most of your time calculating and quantifying downside risk
I think what he is saying is that the delayed effects of the oil spike will cause consumers to pull back more, creating more unemployment, and, that same spike will cause inflation to rise too. There will be no lift from the $1200 checks since they are already spent. Banks, then, will get smaller from the risk they are exposed too. I agree with him, but look how long this market has held up so far. At least this opinion is offshore, so maybe their view is more timely.
JG. why didn't you take profits in March?
Still in the ground just like when I was shutting down generators during the CA energy crisis. We were making more trading it the producing it. Get the picture or do I need to draw you a map?
Anonymous | 06.18.08 - 12:03 am | #
Ya draw a map - show us where it is. I'm sure lotsa folks would like to go drill there.
You shutdown the generators & cut supply to trade on the higher price... they are still pumping balls to the wall [been no decline, no shutdown, no drop in output] but prices still go ballistic. That's demand not artificial supply manipulation.
Maybe you think they can pump more & aren't - maybe I say no F'ing way, its balls to the wall - go and disprove my negative. Prove the capacity is there. You'll be an internet star if you can.
I'll believe they have more capacity when they pump it. When I see it.
US Federal Reserve chairman Ben Bernanke says rising healthcare spending may strain public finances and harm the US economy.
He told delegates at a Senate Finance Committee meeting on healthcare the government may have to help households meet rising medical costs.
Mr Bernanke said that lower income households would be hardest hit as doctors bills and insurance fees rise.
Healthcare spending makes up more than 15% of US gross domestic product.
Mr Bernanke said: "Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits."
BBC NEWS | Business | Bernanke warns of healthcare bill
Short Bucky!
Re: health care....
The only thing that creates even more discord then economic policy. There's no effing way that we ever come to a consensus that lowers health care costs. You've got doctors, insurance companies, government, progressive, free market capitalists, moralists, economists, etc...
Anytime you start talking efficiency or (gasp!) rationing, about 15 different groups, who would never align with anything else, start chanting "nazi eugenics." Meanwhile, everyone but the ultra wealthy, the poor, and the old gets rationed out.
The Interior Department estimates that the Outer Continental Shelf has more than 115 billion barrels of oil and 633 trillion cubic feet of natural gas available for extraction. At current levels of consumption, that would satisfy the nation's oil needs for about 16 years and its natural gas needs for about 25 years.
Opponents of drilling in United States waters are equally passionate in their arguments, saying that drilling for oil off the coast poses environmental risks and that drilling for finite supplies undermines long-term conservation solutions. They also say modest supplies of additional oil would not necessarily lower gasoline prices in the United States because oil is traded on a world market
Ugly article tonight at Jesse's Café Américain:
Royal Bank of Scotland Warns Its Customers of a Financial Markets Crash
...its rare to read such a specific prediction of a 300 point decline in the SP within three months from a 'name' banking institution which ought to be in a position to render an informed opinion.
i've noticed a fantastic decrease in the amount of city traffic.
where?
We need more 50 year loans ASAP!!!
CR, what say?
Oshawa MPP Jerry Ouellette observed that the Liberals seem unsure exactly what financial commitments were made to GM in past agreements. He pointed out that first we heard it was a grant, then it was a loan, then it was a 50-year loan then a 30-year loan, then $100 million, then $175 million.
U.S. stocks fell on Tuesday after a major brokerage warned that U.S. banks would have to raise as much as $65 billion in capital to shore up balance sheets weakened by the mortgage crisis.
Raising capital could dilute the equity stakes of current shareholders, and shares of U.S. banks sold off across the board. The KBW bank index, which encompasses U.S. banks, fell 3.7 percent.
Adding to the bearish tone of the market were concerns about the impact of Midwestern floods, with railroad operators including Union Pacific Corp among the worst-hit shares.
Shares of Bank of America, whose target price was among those cut by Goldman as it warned on continued losses from the global credit crisis, tumbled 3.6 percent, and were the biggest drag on the S&P 500.
"Any time a major investment bank cuts its prognosis for banks that certainly will weigh on the market," said Tom Schrader, managing director of U.S. equity trading at Stifel Nicolaus Capital Markets in Baltimore.
This is off topic but I'm wondering if I'm missing something here that you guys might help figure out.
Did the US just suspend HUD Rules that were put in effect in 2003 and were meant to stop the artificial inflation of home prices caused by lenders were colluding with appraisers, so that lenders can now have an easier time unloading foreclosures?
This bit of news didn't seem to get much attention and I find it odd that it is being suspended for the same reason it was enacted. It's also interesting that the problem of artificially inflated prices was being discussed as early as 2001. Yet it continued for years.
We have all to fear; including fear itself.
I was stunned at the low turnout
at one of those traveling carnivals
in Ohio Sunday.
Not that it was worth the trip.
Duh; why didn't I think of this sooner ?
Refi underwater 2/28 resets into 50-year fixed. (should be floating by then)
Wrap into bonds, and sell to the world.
RBS warning re market scary. It has caused me to take some profits in stocks I have and cancel some buy orders. Even if things are only half as bad as predicted, they will be devastating.
Mr Bernanke said: "Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits."
Hey but we'll never cut the Pentagon budget or the expenditure on our imperial army around the world, since it is what keeps us "safe." I mean if Bush hadn't invaded Iraq Saddam would have nuked us by now for sure. So if it is guns vs. butter, we'll have to go for guns. McCain understands this, wise man. (LOL?)
The Minerals Management Service says that the area has a mean potential of 86 Billion barrels of oil. This is not proven reserves and is purely a estimate; at best a semi-educated guess.
Meanwhile Petrobas will be spending in excess of $240 billion to exploit three newly discovered deep sea basins (Carioca, Jupiter & Tupi) with about 30-40 billion in recoverable light crude. After many years these fields will add 1M barrels/day to supply. Do you think that will make a difference when demand is currently 86M barrels/day?
developed nations are not saving
"developed nations" != "English-speaking nations"
Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits
Government in US already spends more per capita on health care than government in Canada. By per capita I mean per total population, not per person on Medicare, etc.
The solution to the high cost of health care in the US is to quit wasting money on overhead and corporate profit, not to spend more.
There is a big problem in getting new oil wells drilled...there aren't enough drill rigs around to satisfy the demand.
There is still oil out there that costs 4$//bb to take out of the ground that isn't being drilled due to the high initial investment. Capital markets would be completely inneficient if the current markets aren't providing enough incentive to increase production.
The lack of rigs has a laggard, effectively its creating pent up supply.
Compounding the problem are countries like Venezuela, have been nationalizing fields and delaying production. You will probably see Venezuela production more than double over the next 5 years.
South Oregon coast here, and our area is a tourism hotspot. Well, it was. Normally, this time of the year our campgrounds (local & state parks) and motels usually have 'No Vacancy' signs out almost all of the time, and our roads are jammed with RV's and packed SUV's.
Not this year. I ride my motorcycle just about every other evening, and have for many years now, and I have never seen the roads, campgrounds and motels as empty as I have this year. It makes for great riding without being stuck behind a string of vehicles, but it is going to hurt our local economy. Tourism is a big deal on the coast, and if we don't get the traffic, the sales and summer jobs are gone too.
Ripples in the pond.
Our gas prices are starting at $4.31 now.
In normal theory and practice, hiking interest rates puts the kibosh on inflation. It crushes the economy, retarding growth and cutting back on consumption.
But, there's "price inflation" and there's "inflation expectations." The latter refers basically to wage increases, and is what BB targets.
Okay. If the Fed and ECB raise rates to stop inflation, then industries layoff and fewer loans are made, so there's less consumption, investment, and construction. There is less upward pressure on wages, due to ramping unemployment. The cycle is broken, and inflation dies down.
Both theory and history consider this paradigm carved in stone. But what if it isn't?
What if hiking rates this time slows the economy without stopping the price increases? What if food and fuel prices keep going up? What if the monetary base (the definitive measure of inflation) keeps growing?
I am not convinced that the Central Banks can stop price inflation, even if they hike rates to the moon, Alice.
And "here there be monsters."
The solution to the high cost of health care in the US is to quit wasting money on overhead and corporate profit, not to spend more.
In broad terms, why should we worry about how much private money is spent on health care? If our economy spends money on cars or banking, its viewed as a positive thing, but there's this irrational hatred of health care spending. It is a good/service like any other (it has major export and tourism potential), and a wealthy aging society is going to spend more. And corporate profits are an incentive to innovate and are a price signal; profits are value, not a "waste".
@ JG:
what do you use to double short the S&P?
Thanks for you help.
It has been a long, long wait (16 mos.) on my double short the S&P 500 bet.
I thought I was the only one to hold some SDS shares for over a year! Good for you!
randy,
SDS is an ETF by Proshares that seeks to correspond to 200% inverse the return of the S&P500. For more, visit ProShares ETFs - ETFs with Short or Leveraged Exposure to Market and Sector Indexes
Schadenfreude alert: Chuck Prince, ex-Shitibank CEO can't sell his house:
Oh, the suffering!
Anytime you start talking efficiency or (gasp!) rationing
Huh? Start talking rationing? Why do I keep reading about possible rationing in things like health care and gasoline? We already have rationing in those items - it's just rationing via wealth. Anyone can buy gasoline or get their health care needs as long as they're rich enough. Where's the outrage on this rationing?
"unirealist writes:
In normal theory and practice, hiking interest rates puts the kibosh on inflation. It crushes the economy, retarding growth and cutting back on consumption.
But, there's "price inflation" and there's "inflation expectations." The latter refers basically to wage increases, and is what BB targets.
Okay. If the Fed and ECB raise rates to stop inflation, then industries layoff and fewer loans are made, so there's less consumption, investment, and construction. There is less upward pressure on wages, due to ramping unemployment. The cycle is broken, and inflation dies down.
Both theory and history consider this paradigm carved in stone. But what if it isn't?
What if hiking rates this time slows the economy without stopping the price increases? What if food and fuel prices keep going up? What if the monetary base (the definitive measure of inflation) keeps growing?
I am not convinced that the Central Banks can stop price inflation, even if they hike rates to the moon."
Central banks generally cannot do anything about relative prices - i.e., they can't do anything about oil prices. (Since they own a lot of gold, that may be a different story...)
Therefore, if no alternatives appear and the geologists don't find any more, oil prices are in for a long-term moon shot (no comment what happens over the coming year).
Thus if you define inflation as being the cost of gasoline or whatever, yeah, they may be unable to do anything about it.
However, the energy bugs will point out how energy costs show up in every point of the supply chain for manufactured goods. But so do labor costs and profits, and those show up in everything you buy, not just manufactured goods. The tech-focussed energy experts usually forget that other costs in economy, as well as demand patterns, are not constant.
If wages are crushed, it's pretty much impossible to have broad-based CPI inflation. The volume of goods bought has to continuously decrease, opening up spare capacity. This means that investment is not needed, reducing the demand on resources.
In 1999, there were a lot of people arguing that monetary policy was impotent as the big tech firms were debt free. Guess what happened to them anyway?
"We're seeing fast adjustment, and we're going to see that world-wide."
Oh yes, no question - it seems as if more oil really isn't in the pipeline, meaning that the efficient survive as the inefficient go broke. And though America can be considered pretty inefficient, it is also very fat - lots of potential for efficiency to actually replace consumption.
Not so for a country like India. Which just happens to have roughly 4 times the population of the U.S.
But considering the consumption figures of total oil use on a per capita basis, it is the U.S. that will be doing more adjustment - as witness the ever shrinking exports from Mexico and Venezuela.
Whether such necessary changes are really a problem is a matter of perspective. In exurbia, driving less is not that simple when your job is 40 miles away, and the nearest decent grocery store 5 miles. Driving less in NYC isn't really a challenge, on the other hand.
is Prince no longer welcome in his community of thieves?
Meanwhile Petrobas will be spending in excess of $240 billion to exploit three newly discovered deep sea basins (Carioca, Jupiter & Tupi)
where will they be spending this 240bil!
is Prince no longer welcome in his community of thieves?
Either that, or he needs the money to finance his dancing shoe collection.
Manhattan does have a history of being the last market to cave in a real estate down cycle. According to this article, and my own observations, that has finally begun. What the article doesn't mention is that, by my calculations at least, Manhattan prices need to fall about 20% just to have a comparable carrying cost to Manhattan's mind-numbing rents - and rents actually fell here during the 2001 recession.
bottom call
http://www.theoildrum.com/files/08_06_17_king_letter.pdf
letter about inflation UK
highlite! Unanticipated increases in the prices of food , fuel, gas and electricity.
hmmm...
i'm sorry R-t-O, what is it the chinese have to pay with beyond dollar promises?
California Home Market Shows First Signs of Recovery
call # 2376
California Home Market Shows First Signs of Recovery (Update3) - Bloomberg.com
The California housing market may be showing the first signs of a recovery after three years of declining sales and two years of rising foreclosures, the UCLA Anderson Forecast said today.
While home prices in the most populous U.S. state are still weak, the number of houses and condominiums changing hands in California is rising, according to the Anderson Forecast at the University of California, Los Angeles, which released its 127-page forecast for both the state and the U.S. today.
MBA Purchase Applications
Released on 6/18/2008 7:00:00 AM For wk6/13 , 2008
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Purchase Index - Level\tPrevious 376.2 \tActual 360.2
MBA's purchase index fell 4.3 percent in the June 13 week to 360.2, a level near the four-week average of 355.7. The refinance index fell 15 percent to 1,378.6. Mortgage rates jumped in the week with 30-year fixed loans up about 30 basis points to 6.57 percent.
Mr Bernanke said: "Higher government spending on healthcare, will of necessity, require reductions in other government programmes, higher taxes or larger budget deficits."
Pretty amazing how just as tax revenues are falling we're looking at going on the monster spend spree of a lifetime.
Looks like a country that's headed for bankruptcy to me.
anyone explain the reversal in the market yesterdAY. the futures were pointing much higher then we get a sell off?
Why would one choose SDS over SRS.
The large caps/multinationals will be bertter placed to weather any storm. Making use of low cost resources the world throughout and strategically shifting production or services from one place to another.
While the small-caps are more US centric. If there is one thing that should be clear to any here, US consumption and services are headed wayyyyyy down. (Unemployment, housing activity, consumption, interest rates, CRE activity??, loan availability will all contribute to a nasty contraction. IMO)
I would be curious to hear arguments as to why SDS would be better. I am long SRS and probably will add on a bounce from here.
Cheers,
warp, you had the 1335 call... people are looking to you for the answers!
stop asking and start telling!
Damn you remember that. Lucky guess there was good support five points below there. I was hoping for some follow through down the next day. IMO if we don't get a hard sell in the financials today taking our last weeks lows in the invetment bank/broker index this week, I'll cover half my shorts. 1330 is my target and 12030 for the Dow we need to get below here. I hate to put time lines and price targets on things but these are good support levels that need to be broken. Fingers crossed...
the popularity gap between the booming oil and gas industry and the beleaguered banking sector is becoming ever wider to reach unprecedented levels. The survey found a net 62 percent of fund managers were overweight oil and gas, up from a net 29 percent in April, while a net 62 percent were underweight banks, up from 21 percent in April.
"The burning question is when to sell oil companies and move back to banks," Olney said. She noted that this is an extremely difficult call to make, given that fundamentals "absolutely support oils over banks" because the oil and gas sector has the strongest earnings momentum and is among the cheapest.
Elsewhere, the survey also showed that worries about inflation are fast beginning to catch up with concerns over the credit crunch. A net 81 percent of investors cited credit risk as the number one threat, down from 95 percent three months ago, while the number citing "monetary risk" jumped to 65 percent from 23 percent in May.
"For the first time in our memory, inflation, not growth is the primary macro driver at the global level, in our view," said Alex Patelis, head of international economics at Merrill Lynch.
"What matters now is how persistent it is and how markets and policymakers react; at a global level this begs for an accident that will awaken policymakers to the risks," he said.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
When this herd runs for the exits don't be in the way.
The survey found a net 62 percent of fund managers were overweight oil and gas, up from a net 29 percent in April, while a net 62 percent were underweight banks, up from 21 percent in April.
The largest short positions through short ETFs are oil and gas companies, financials are second.
Fighting inflation is still China's primary concern, even in the face of a potential global economic slowdown, Chinese central bank governor Zhou Xiaochuan said on Wednesday.
China's Zhou says fighting inflation main concern
| Reuters
I'll take a pocket full of Yuan over dollars any day.
Manhattan prices need to fall about 20% just to have a comparable carrying cost to Manhattan's mind-numbing rents
If they only have to fall 20%, that's probably a smaller overvaluation than anywhere else on the coasts at the time of their market top, and perhaps even now.
I was talking with a home builder yesterday and they stated that Home Depot is getting tighter on their credit for builders. One reason Home Depot sales are lower. I am not sure if Lowes is doing the same. I imagine they are.
Anonymouse writes:
It has been a long, long wait (16 mos.) on my double short the S&P 500 bet.
I thought I was the only one to hold some SDS shares for over a year! Good for you!
jg doesn't hold the Ultrashorts. He's concerned about the counterparty risk with UBS, BAC, etc. when the hammer falls hard. Instead, he's shorting SSO, the inverse of SDS. I understand his thinking, but I have no desire to trade on margin. It all depends on what type of risk you're willing to live with.
Today, as we see, Bush is full of shit, talking headline oil and ignoring and manipulating reality:
President Bush is calling on Congress to lift the ban on offshore oil and gas drilling that has been in place for 1981, saying it could eventually yield 18 billion barrels of oil.
The info Posted below (here) from last night is at least 10 years old:
The Interior Department estimates that the Outer Continental Shelf has more than 115 billion barrels of oil and 633 trillion cubic feet of natural gas available for extraction. At current levels of consumption, that would satisfy the nation's oil needs for about 16 years and its natural gas needs for about 25 years.
Opponents of drilling in United States waters are equally passionate in their arguments, saying that drilling for oil off the coast poses environmental risks and that drilling for finite supplies undermines long-term conservation solutions. They also say modest supplies of additional oil would not necessarily lower gasoline prices in the United States because oil is traded on a world market
@ Bush lies every time he speaks
The Outer Continental Shelf estimate is from 2006 but means out at 86 billion barrels (estimate). The actual and recoverable oil is probably much less and it will take 10 years or more to effect oil prices. This doesn't even take into account that Petrobras has leased about 75% of all deep sea oil drilling equipment. They are spending in excess of $240 billion to retrieve $4 trillion worth of oil and gas in today's prices.
If Tisch is so bearish on financials ("like catching a falling knife"), why did his firm's biggest subsidiary, CNA Financial, brag about all the subprime and Alt-A debt it bought at "significant discounts" during its earnings call in May? I sold my bonds the next day... whatever junk they bought, the seller knew more about it that CNA/Loews did...