Good discussion..

Euro Pacific Capital | Peter Schiff October 1 2007 CNBC - On The Money: Windows Media Player : Broadband

CR,

Thanks very much for posting that - I believe the risk for 'groupthink' is large for the blogosphere in general due to self-selection - you do the community here a real service bringing in viewpoints that challenge the the group to re-evaluate their basic premises.

Seb,

The professor's statement is a bit more qualified than yours - though we all take these statements in a way that tends to support our worldview.

And would you consider addressing the question I posed to you previously, why the Fed thought 150 bps of cuts in a month's time were required if Goldilocks was still in the house?

Here's the link to the ADP employment data. It suggests the BLS numbers Friday may be a bit weaker than the market is now expecting though ADP does note that their report and the BLS report is not an exact correlation.

ADP Employment Report 

I found the post an interesting read...

But I have a problem with this disconnect that I see when people try to evaluate/explain the markets. And the disconnect ISN'T just coming from bears.

It seems like an eternity ago, but it was actually only about 2-3 weeks ago that the biggest BULLS on Wall St (Cramer as example) were railing as to how financial armageddon was nigh, and thus we needed a 50-200 basis point cut in the FFR
(even though most "main street" people disagreed that much if anything was amiss)

Not many weeks before that, most financial pundits talked about a minimal unimportant contained Subprime situation

THUS: I'm left to ponder:
-was there EVER a concern to the general economy? IF not, then the FFR move was a bailout, plain and simple
OR
-did the Fed effectively steer us clear of recession by this bold move?
OR
-is there a disconnect between main street and financials due to the credit markets.

I personally favor the latter issue. This would mean that the MOST IMPORTANT thing is credit, as only credit can keep a credit bubble aloft.

This would explain why all "bad" news leads to higher equity valuations: as it would spur another rate cut. And credit is MORE important than PROFITS in this current "cycle".

back to the point: I thus have a hard time analyzing any of this data, because somewhere/somehow the data used is disconnected from what I would call "fundamentals"

Barley - Thats a classic. Peter seems to have confused the info babe and equity trader with his "highly complex" logic. All they can fall back on is "but the Dow is at a new high!?!"

O/T but interesting to note that the Feds are now mopping up some of the mortgage messes. Go on to YouTube and search "Mortgage Fraud" 59 vids.

Especially like this one:

YouTube - Four Indicted In Mortgage Fraud Investigation

People who don't want to see spillover won't -- even when it's on the front page.

The biggest sign of spillover we've seen in the past week was the State of Michigan struggling to fill a revenue shortfall of over a billion.

California also has a significant 2007 shortfall.

Sales tax receipts are under-budget in many jurisdictions.

As a follow up to the credit situation:

I think we'll all know more after the next Fed meeting on Oct 30/31.

I will change my mind about credit being more important than profit IF the Fed holds the FFR in October, and the market continues to go up in November

If the Fed holds rates steady in October and the market crashes in November (which is what I personally suspect will happen), then it confirms my hypothesis

A fed raise is out of the question.

If the fed drops rates in October, despite "no spillover" then we know that the fix is in and the game is up, and one second afterwards I will logon here to find out how to diversify everything I own out of the US dollar.

BofE is now paying interest on deposits from banks if reserves are within 8%, down from 1%

The spillover from subprime was never gonna be he consumer initially, it was gonna be credit contraction, which is going on full bore currently despite the actions of the Fed, BofE & ECB.

Credit contraction leads to CRE collapse, leads to recession.

Don't have the ability to do this right now, but would someone have the ability to do a graph comparing of median income along with a graph of the median income excluding the top & bottom deciles?

It might be elightening.

Yearning to Learn said: "...that said, I'm not sure that people will respond to Mr. Hamilton any better than they respond to you!"

I'm sure that they won't. I've gotten considerably more cynical about people since I started reading/posting here.

I'm totally about empowering the regular guy with knowledge. But empowerment isn't really what he's interested in, if it requires effort, careful thought, patience, and the courage to go against popular sentiment. He'd rather just find a leader who'll tell him what to do, even if it's wrong.

Tanta once made the comment that consumers didn't always understand the mortgages they were getting and what might happen with them, but the professionals in the mortgage industry certainly did and should have known better.

Well, IMO, CR should know better, too. His viewpoint is California-centric, when the California housing market isn't representative. He has an exaggerated view of the importance of single-family housing to the total economy. He doesn't take the other parts of the economy into account when making his forecasts.

Sebastia

Sebastian:

no need to get cynical. we've ALL been slammed on boards where we were the contrarians.

I was recently slammed (and perhaps banned?) from Mish's blog a few weeks ago for suggesting that Ron Paul might not be a god.

I'll bet that a lot of those who mercilessly attack you on CR were once attacked mercilessly themselves from 2003-2006 during "the boom." They get cynical, and some become attackers.

I personally like reading your analysis even though I often/usually disagree with your eventual conclusion... because otherwise one CAN get too carried away with the crowd.

to me though, it's not the conculsion that's important, it's the logical sequence that led to that conclusion.

this helps me to figure out what sentiment might be.

this is also why I listen 2-3 times a week to Larry Kudlow, I watch CNBC Squawk Box every morning... they are directed at people that AREN'T like me... but who have sway in the markets.

(not to compare you to Larry K... just saying I like reading lots of perspectives).

regardless, I'd guess that most around here just skip over the thoughtless slams anyway... but I do look at who is using the slams so I know to discount their opinions later...

One possibility is this seemingly endless summer that we've had in a lot of places. I would think that would boost car sales artificially.

Then there's the pile of free money sitting on every street corner.

Yes, we have a serious credit crunch in mortgages, and that will probably generate a spreading credit rot. But isn't it at least possible that in the short-term the molten hot liquidity and skyrocketing asset values in other markets can compensate?

Again, my observation is that the biggest mistake people make with bubbles is habitually misunderestimating them. The Fed is the biggest offender in this sense.

US housing is busted, but we have the equivalent of the late 90s NASDAQ in every other country in the world as well as real estate bubbles that are stimulating tremendous economic growth and floods of liquidity.

Where I work nobody is worried about housing anymore - they're all doing cartwheels through the halls and planning early retirment because their 401k plans which are entirely invested in emerging market stocks are going through the roof.

I'm talking people with business degrees and PhDs here believe thess things are rock solid 30% YoY guaranteed, and think this time, finally, they have it made.

All goldilocks scenarios begin with a condition: "IF we can keep housing contained..."

History says the IF is very doubtful, even for an ordinary housing downturn.

This is the Mother of U.S. Housing Downturns.

It isn't just about foreclosures and falling prices.

It's about comparisons consumers will be making in their minds between the appreciation-driven wealth they were counting on from their homes and the reality and persistency of price declines. Awarness sinks in person-by-person, slowly but steadily over time.

So, no, a long, drawn-out housing recession isn't going to help the economy because it will gnaw at consumers more each day. Better to get it over with fast.

Where I work nobody is worried about housing anymore - they're all doing cartwheels through the halls and planning early retirment because their 401k plans which are entirely invested in emerging market stocks are going through the roof.

Folks, jumping into foreign markets without diversifying ain't too bright.
Emerging markets can rapidly become submerging markets. See Argentina, circa 2001, or Thailand circa 1998.

Folks, jumping into foreign markets without diversifying ain't too bright.
Emerging markets can rapidly become submerging markets. See Argentina, circa 2001, or Thailand circa 1998.

That's what I tell people.

And they say, "Yeah I know they're dangerous, but where else can I make 30% YoY guaranteed?"

It's genuinely like a drug addiction that prevents people from looking at the situation rationally despite how bright or educated they are.

Again, it's just human nature to jump on any get rich quick scheme that comes along until everybody's bankrupt.

You want enlightening, try any 5 year US equities chart priced in almost any currency besides the USD.

Since there is only four weeks to go until the next rate cut, maybe we could have a new game on how the Fed will justify it. A bad jobs report this Friday? Inflation subsiding because soft commodities taking a break from their record run? Oil price growth rate slowing?

Here is an article on Bernanke's thinking in September, to give everyone some ideas.
Fed feared credit risks would accelerate
| Reuters

Unsuffer Me - Lucinda Williams

YouTube
- Broadcast Yourself.

If the Fed can somehow engineer a very slow unwind of housing, with very little nominal house price declines

How could the Fed engineer very little nominal house price declines?

They are going to buy up several million houses and destroy them?

The bull argument doesn't hold water. That is, the bears have been wrong for so long about recession that they should not be believed now. But now it is clear that the economy has been kept afloat by bad loans.

Simple dimple...

Also:

don't neglect the VERY REAL possibility that the dollar strengthens in the mid term as the Eurozone, Japan, and England race us to the bottom.

Nobody wants a strong currency these days. They all fall over themselves trying to see who can debase faster.

Lately, the Americans are "winning" this currency devaluation battle... but what if the Eurozone does a "surprise" 25 basis point cut in the next 1-2 meetings? Or if the BOE drops 25-50? Or Japan goes back to ZIRP?

Good summary, Banker.

The point is, though, that the fundamentals have not changed. The U.S. is not competitive in the world economy. The weak dollar is helping, but there is oh so far to go...

Have you heard any of the bulls here say that growth will pick up in the U.S. economy? It's always "damage is contained" at best...